Thinking of converting our Daycare Center to NonProfit

[Caring Carrie]

Our daycare center has been in business for over 10 years. We are finding ourselves as of late VERY frustrated in able to afford bills, supplies and payroll. In our analysis of trying to see why we are struggling, we seem to suffer mostly from our incline in 'block grant' enrollment. We commonly have 25-30% of our 78 children funded by government block grant. We are finding now that we are at 50% enrollment. We open our doors to any and all that need our services. The block grant payments come to us anywhere between 2-3 weeks out and only pay 'their' rates, not ours. Commonly a 20-30% loss for each child. So, in the end, we are now considering moving our S-Corp business to NPO (Non-Profit). We are wondering for reasons of your own, have others out there found themselves struggling and considered the same thing???

If so... how difficult was it?? ... what where the Pros and Cons?? ... would you recommend or not??

Thanks so much for any and all input!

[daycarediva]

why are you not charging the parents the difference between the grant payment and your rates?

[Michael]

This is the first time I've of of this. So you will be offering free daycare and running your center off of grants and donations?

[Caring Carrie]

Iowa guidelines specify that we are not allowed to charge parents any extra fees other than any approved co-payments that was assigned to them. Comonly $5 per week.

[Caring Carrie]

If I understand it correctly, if we go nonprofit, we will simply have the same rates as today but be able to save in taxes and YES be able to apply for grants! I am just starting research for us here in Iowa. Again, looking for anyone out there that has researched and considered this same thing.

[Cat Herder]

I don't believe accepting subsidy clients will classify you as a non-profit. https://www.acf.hhs.gov/occ/fact-sheet-occ

[Cat Herder]

http://smallbusiness.chron.com/irs-financial-guidelines-nonprofit-day-care-center-13137.html

"To qualify for non-profit status, you first form a qualifying entity. This could be a corporation, a fund or foundation, or a trust. You must have an attorney write trust documents; however, you can create a corporation by filing non-profit articles of incorporation with the office of the secretary of state in your state. The entity cannot be an individual, group of individuals or a partnership."

[DaveA]

It can work but depending on where you're at there may be some local & state requirements that could decide if it is worth it or not. Your best bet is to find a local CPA who does small business work and get a consultation/ explanation of what you would need to do.

[Blackcat31]

Tom Copeland on Non-profits

http://tomcopelandblog.com/should-you-set-up-a-nonprofit-corporation

[Caring Carrie]

Thanks for the info Cat Herder! Did you go 'nonprofit'? Was it worth it?

[Liz Downs]

Hi Carrie, you are not alone in your frustration with Government subsidized child care. States are low on money and the turnaround time for reimbursement is slow at best.
But, changing from for profit cc to nfp cc will take you some time and you will likely need to involve an attorney.
First, and foremost to achieve the IRS status as a 501(c)3 you will need to establish a charitable cause (religious, educational, scientific, and such). This designation allows for the organization to be able to receive unlimited contributions from individuals, corporations and government entities. Most 501(c)3 organizations are corporations (President, VP, Treasurer, Secty of the Corp) and have a Board of Directors that govern the organization. You will be able to apply and receive grant monies toward your charitable cause.
You will be able to continue to receive income directly from parents as well (perhaps on a sliding scale basis).
The best person to ask would be your CPA on how to establish this IRS designation. They will be able to assess if it is worth your efforts, time and in the end if it will help with your cash flow. Also remember that non-profit, charitable organizations are tax exempt (sales and state tax) but the tax return (IRS990) will be a different tax return than you are used to filing and have differing requirements than that of a for profit entity.

Hope this helps! Call your accountant before you do anything. Conversely, contact a local non-profit child care center in your area and ask them how they are doing and what is required of their organization.

[biglou]

Well the first thing to remember is non for profit is a tax designation. Meet with your accountant to discuss the difference between your current S Corp status and a 501c3 NFP .

Now the important part. You still must run a viable business with enough revenue to cover your costs, so you have to continue to seek out customers. If not them, then grants, contributions, fund raising events, etc...

So if your business revenue is down 50% you need to consider ways to increase it regardless of how you choose to designate your business. The energy to seek out new customers is the same as seeking out donors and chasing grants. NFP status is not a solution to solve your immediate issue. More revenue is. Your business plan if you have one will need a complete revision. Do you or other key people have knowledge and or experience operating an NFP? One of many questions you will need to consider.

Best of luck.

Big Lou

[Caring Carrie]

Thanks BigLou, Liz Downs & Blackcat31