This is a series where I (Sarah) use our business plan tools to create plans for imagined businesses using our “good business” strategy. Stay in the loop by subscribing here.

Imagine I'm at home with my first baby. I am trying to decide whether or not I should stay home with the kids, or if I should go back to work out of the house.

For this exercise, let's assume a few things:

• I want to be with my kids in these early years.
• I want to grow professionally and continue building a career.
• I plan to continue building roots in my Denver community.
• I am dedicating my career to excellent childcare solutions for ALL children in the long term; not just my own in the short term. 

I don’t have to imagine too hard, because this was me a little over a decade ago. While we ended up leaving Denver, this scenario is based on a business I could have built while I combined paid childcare work with caring for my first child. You can read more about that here.

I'm going through the steps of our Business Plan Challenge to demonstrate how to start a business plan.

Step 1: The Ideal Scene. What do I want my life and business to look like in 10 years?

(You can access all the tools I use to create this business plan here)

The first half of this step asks me to imagine what my ideal life will look like in 10 years. I imagined a life surrounded by colleagues and clients working together daily. I am working toward a shared vision for our community, where I also have plenty of time for life outside of work. I know how much I need to make yearly to support my family’s future.

You can see exactly what I wrote for part one here.

The next step asks me start envisioning my ideal organization that will support the ideal life I outlined in step one. The vision for this business started to flow when I thought about who this business would serve - our families or ‘ideal clients’. 

I came up with this:

This answer, which I didn’t even know I was going to write, starts pointing to the type of legal structure, management priorities, and marketing I will need to achieve this vision. In the next steps I will look at how this vision can be financially viable and fit within the vision I had for my ideal life.

(Ready to do your ideal scene? Get free access to the course now.) 

Step 2: Define the Purpose, Vision, and Mission of the business. 

This step asked me to create the scaffolding needed for the business. Defining the Purpose, Vision and Mission enables you to make strategic decisions and help ensure that you don't build the wrong building (ie. a business you hate).

Step 3: Financials 

After the big vision and long-term thinking we did in steps 1 & 2, we bring it back to today and start playing with numbers to understand if this idea has any chance of being financially sustainable.

Step Three uses a ‘Back of the Napkin’ mindset. We don’t need to go crazy and figure out every little expense. But we do need to do some rough estimates and do a little research. 

Most of us can’t be like Amazon and lose money for 10 years; nor do we have any interest in building a monopoly using unfair labor and pricing practices. So we need to see how we can make our model work.

I tested two “Back of the Napkin” financial models. Model One is an unlicensed home childcare and Model Two is Childcare Home Coop for 20 children.

What I’m trying to learn with the ‘Back of the Napkin’ financial exercise for each model:

1. What’s the most revenue I can make for childcare? What’s my maximum capacity? How many hours of childcare can I provide in a month?
2. What expenses will I incur to reach that maximum capacity?
3. How much gain/loss is there depending on the different financial assumptions I make?
4. Is this worth exploring and getting real market data on expenses & prices to create a more detailed financial plan?

Model 1: Unlicensed home childcare 

For the first model, I wanted to test the financials of a business that would require very little startup expenses, time, or licensing but where I could start earning an income from the business quickly. When my first child was 6 months old I started caring for 2 kids in my home and at their home 2-3 days a week. We're going to build off of that idea.

In the state of Colorado, you can be an unlicensed caregiver for up to 4 children (including your own) and no more than 2 children under 2 years old. 

I’m going to imagine that I am starting this business in Denver in today’s market. I have a 6-month-old and want to start a childcare business from home. I'm going to have 4 kids in my house, 4 days a week at $20 an hour.

I was pleasantly surprised to see that while caring for my child, using average childcare costs in Denver, I could pay myself a salary of $4000 monthly (pre-tax). In my expenses, I included a weekly cleaning service and a babysitter for my kid one day a week. Read that again! That one day I'm not working, I'm going to have childcare. Most primary parents never get a day fully off, I'm going to get a weekday off and a weekly cleaner. After paying myself and predicted expenses, the business still had a monthly profit of $960.  

Since I wouldn’t be paying for full-time childcare for my child, I would also be saving around $2000/month. This seems pretty great, as long as I want to be home and not pursue another type of career. This is a lifestyle choice business in many ways. I’m assuming a partner with a second income or someone to share household expenses. It would be difficult to get by as a single parent on $4000/month in Denver’s current housing market - though I'm sure people do.

If I wanted to increase my revenue, I would find some ways to increase the value for my clients with add-on products. I could offer laundry drop-offs that I do in the evenings or warm meals to go home with them when they pick up their child. This could increase my monthly profit by $800/month with these kinds of up-sells.

Here are the final back of the napkin results, with add-on services:

 

What do we know after doing the back of the napkin on an unlicensed home care model?

This business could work. Even if I can’t get to max capacity in the first few months or my expenses end up being higher than my estimated guess, there is enough profit to make sure I don’t lose money and likely take a salary home pretty quickly.

I could stop here and move forward with this model. I would then move on to filling part 2 of the financial model (P&L) and do more research to validate my assumptions of expenses might be.

I'd then move on to Step 4 of the business plan: The Marketing Strategy where I map out what it would take to get a few clients. 

For this exercise though, before I move onto the next steps, I'm going to start mapping out my other model.

Model 2: Childcare Co-op for up to 20 children

For the second model, I go BIG. What would it look like to start a childcare co-op with other families, where we have licensed professional early childhood educators and a dedicated space. In this model, I'm going to go all-in on my big vision to create long-term care solutions for parents in my city. The results of the Back-of-the-Napkin modeling and Step 4 will be in Part Two...

If you're not already subscribed, click here to follow along to get part 2.