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TheIronTriangle:
ASimpleFormulaforFinancialPolicyinECEPrograms
Earlychildhoodprogrambudgets,likeallbudgets,havetwosides:themoneycomingin(income)and
themoneygoingout(expenses).Balancingthesetwosidesisessential,andisparticularlychallenging
inthecurrentrecessioneconomy.Whenseekingtobalancetheirbudgets,earlychildhoodprogram
directorstypicallyfocusontheirrate—thepricechargedtoparentsorreceivedasreimbursement
fromgovernment.Ratesareindeedimportant,howeverearlycareandeducationprogramincomeis
alsoprofoundlyinfluencedbytwootherfactors:enrollmentandfeecollection.Thesethreefactors
formthe“irontriangle”ofECEfinance.Payingcloseattentiontothethreesidesoftheirontriangleis
keytosoundfiscalmanagement.
ECE IRON TRIANGLE
FullEnrollment
FullFee
RevenuesCover
Collection
Per-ChildCost
Fullenrollment
AlmostallECErevenueistuitioncollectedonbehalfofanenrolledchild.Whilegovernmentand
philanthropysometimeshelpfinanceECE,thisfundingisrarelyprovidedasgeneraloperatingsupport;
typicallythedollarsprovidedbythirdpartyfundersarelinkedtoenrollmentofspecificchildren.Ifthe
childrenarenotenrolled,thefundingdoesnotflow.ThismakesfullenrollmentacornerstoneofECE
finance,regardlessofwhethertheprogramreliesmainlyonpublicfundsorreliesprimarilyonparent
fees,oracombination.Unlessaprogramisover-enrolled(apracticethatisgenerallyprohibitedin
licensingregulationsbecauseitcouldresultinattendancethatexceedsratioand/orgroupsizelimits),
itisnotpossibletooperateat100%enrollment.Someexpertssuggestthatawell-runcentercan
operateat95%enrollment;otherssuggestbudgetingatamoreachievablerate,suchas85%
enrollment.Regardlessofthetarget,anytimeenrollmentdropsbelowthebudgetedtarget,anECE
programislosingmoney.
Monitoringenrollmentandactingquicklytoaddressanyshortfall,iskeytofiscalstability.Thismeans
programadministratorsmustcarefullytrackattendance,ineachclassroom,onaregularbasis;and
planinadvancewhenchildrenwillbe‘agingout’oftheprogramand/ormovingtoadifferent
classroom.Withoutcarefulmonitoringandactiveoutreachtofillvacantslots,itiseasyforthese
naturaltransitionstocausefundinggaps.Tuition,especiallywhenreimbursedbygovernment,may
alsobedependentonactualattendance,sostayingontopofthisiscrucial.Itiseasyfornonattendancetoturnintonon-enrollment.Inasmallprogram,everydayaslotremainsopencanmakea
bigdifference.Overtimetheselossesaddupandcanleadtoseriousfinancialshortfalls.
FullFeeCollection
Collectingfees–infullandontime–isessential.Feesonlybecomerevenuewhentheyarecollected.
Alltoooftenanearlychildhoodprogramwillhaveabudgetthatbalancesonpaperbutthecashjust
doesn’tcomeinthedoor.SuccessfulECEadministratorsstayontopoffeecollection;theyhaveclear
policies,arefirmandconsistentwithfamilies,thoroughandpromptwithbilling,andontopofthe
paperworkrequiredbythirdpartyfunders.Feecollectioncanbeverytime-consumingunlesssystems
areputinplacetostreamlineandautomatetheprocess.Makingelectronicfundstransfer(thatis,
enablingautomaticelectronictransferoffundsfromabankaccount,debitorcreditcard)thenormfor
feepaymentisone,effectivewaytostrengthenfeecollection.
RevenuesCoverPer-ChildCost
Settingtuitionfees(prices)accuratelyinvolvesmanyfactorsanddecisionpoints,someofwhichare
beyondthecontrolofanECEprogram.Whatparentscanaffordtopayisbasedonwhattheyearnand
thelocalcostofliving.Whatgovernment,orotherscholarshipprograms,willpayistypicallybasedon
availablefunds.Thatsaid,determiningtheactualcostperchild,comparingthiscosttotheprice
charged,andwhenfeescannotcoverthefullcost,identifyingthirdpartyfundingtofillthegap,is
essentialtosoundfiscalmanagement.Thebottomlineisthatparentfees+thirdpartypaymentsmust
equalper-childcost.Otherwisetheprogramislosingmoney.
Bothenrollmentandfeecollectionimpactactualper-childcosts.Ifaprogramisnotfullyenrolled,the
per-childcostincreases.Ifbaddebtsgoup(feesarenotbeingcollected),theper-childcostincreases.
Insomecases,abudgetgapcanbeaddressedbyboostingenrollmentand/orloweringbaddebtrather
thanraisingfees.Thethreefactorsareinterrelated.Intoughfiscaltimes,whenthirdpartyfundersare
cuttingbudgetsandparentsaresqueezedfinancially,ECEprogramsoftenfaceadifficultchoice:keep
feeshighandriskincreasedvacancyratesandhigherbaddebt,orlowerfeestoboostcashflow.
Unfortunately,therightanswerisnotsimpleorobvious,anditmayvaryfromcentertocenterbased
ontheservicesofferedandthefamiliesserved.
Theirontriangleisasimpleformulaforacomplexissue.Itcanbeahelpfulwaytostayontrack,to
rememberwhat’simportant,butshouldnotreplacethemanystepsinvolvedinsoundfiscal
management.GwenMorganandBessEmmanuelhaveco-authoredanexcellenthandbook,The
BottomLineforChildren’sPrograms:WhatYouNeedtoKnowtoManagetheMoney,whichshouldbe
anessentialtextforanyprogramdirectorinvolvedinthebusinesssideofearlycareandeducation.
References
Morgan,GwenG.andBessR.Emanuel,TheBottomLineforChildren’sPrograms:WhatYou
NeedtoKnowtoManagetheMoney,5thedition,WatertownMA:SteamPress,2010.
DistributedbyExchangePressandGryphonHouse.