EP88: Profit Is Not a Dirty Word: The Financial Truth Every Family Day Care Educator Needs to Hear with Shannon Knight
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Hello, and welcome to today's podcast episode. I am so thrilled to have gorgeous Shannon Knight from Ledger Management on with us today. Shannon is a whiz with all things numbers in family day care, [00:01:00] tax, and BAS. So I thought it was quite timely to invite Shannon onto the podcast, because we have some hard-hitting questions that I know a lot of family day care educators will benefit massively from having answers to.
So Shannon, welcome to the Big Hearted Podcast. Thanks so much for having me. You are most welcome. So why I thought it would be so fabulous to have you on board is because you have actually been a family day care educator, and you know the ins and outs. So can you tell us a little bit about who you are, where you came from, why you're doing what you're doing now, and just fill us in with all the T.
Sure. So I'm Shannon. I have two boys, six and seven. I am an accountant, and I am an early childhood educator as well. So my first job was in the childcare sector, [00:02:00] um, and then I went on to study accounting. Um, then I had my two boys and came across family day care, and I was super interested in family day care for so long.
Um, I put my boys in, uh, long day care, and then straightaway realized I do not wanna be doing that for my kids. So then I put my kids into family day care, and it was the best. The, the lady was just so amazing. She loved my boys, which was so important to me. Mm-hmm. Um, and then once they went to school, I then thought, "I'm gonna start my own family day care."
Um, 'cause I really wanted to have another baby, and I just love babies. Mm-hmm. But two's probably enough for me, but yeah. So I started a family day care, and while also doing accounting on the side. So [00:03:00] I still had my company, so I was doing both at the same time- And I loved it. I loved the activities, I loved playing with the babies, and yeah, it was just the best.
So I am located in Ocean Grove, Victoria as well, and yeah. That's exciting. It's so good to hear when other people come from different professions, and then especially it seems to be a very common thing when, um, parents, you know, become parents themselves, and then the reality of childcare options open up to them, and they're kind of like, "Yeah, actually no, I don't want that option for my child."
And so quite often what we find is a lot of family daycare educators will have their own children in with them, which I think is the ultimate, and it's such a, a beneficial, uh, process for your family and for the other families as well. But then for educators to also have other, um, side hustles or gigs or [00:04:00] whatever it is, um, to keep things, you know, stimulating, to keep their brains stimulated, because sometimes when you're working long hours and you're just with little children sometimes, and you're on your own, it can be, you know, not so brain stimulating.
So it's so great to know that, um, you know, other educators are, are doing that as well, 'cause I did it for a long time too. I worked multiple jobs at the same time as my family daycare. Um, and so I, I'm really interested because I know you understand family daycare from the inside out, and from the outside in from a tax perspective.
So what's the most common financial mistakes that you see family daycare educators making, uh, when they first sort of start their business? The main one I'd say is not setting up a separate bank account. Um- Mm ... when they're just mixing personal transactions with the business, and come tax time it's just really, really hard to [00:05:00] determine w- what is a business expense, and also the expenses just get lost.
Mm. And that really affects your tax bill. Um- Mm ... super is probably the next one. People just not- You know, having this, the enough cashflow to give themselves, uh, super contributions. Mm. Um, yeah. Yeah, that's the thing that I see, and it just blows my mind every time I see it. When I see a post on social media, "What's everyone else charging?"
And I'm like, "No, stop- ... setting your fees based on what everybody else is charging because it doesn't work." And that tells me, pardon me. Excuse me, my friends, I'm a little bit sick, so if I cough sometimes, I'm sorry. Um, it, it, it's, it's just such a, a, a evidence that this person doesn't understand [00:06:00] the figures in their business.
And I know sometimes you probably find them sexy. I do not find numbers sexy. I find they, like, bunch up in my head, and I just all of a sudden go, "I have no idea. I feel dumb." Uh, and I know a lot of other people kind of feel that way too because if they didn't, they'd be all over their numbers, and they'd be knowing what they're spending.
And I saw a post yesterday that, um, just made me go, "Wow." Uh, people spending six, seven, eight, $9,000 a year on resources in their family daycare businesses. And I just think, "Oh, man, so much of that, like $8,000 of that or $7,000 of that, $9,000 could've gone into your super." So how is it that educators can, um, put money aside for tax and super throughout the year, and what sort of percentage do you recommend?[00:07:00]
So I highly recommend setting up a separate bank account. Mm-hmm. And then just even for each separate... So su- I have my super bank account, and then I have my income tax, uh, savings account. And you just put a direct debit through your bank account into those separate bank accounts, and then, yeah, you'll be able to just see it grow.
And then when it's time to pay the bill, you just pay it out of that bank account. But yeah, so super is 12% of, at the moment, of what you earn on a wage. Is that gross or net? Uh, gross Yeah. Okay Yeah. So, but you could, you could do any amount. Um, you get to put up to $30,000 in your super, and- Additional or in total?
In total. Okay. So 30,000, up to [00:08:00] 30,000 per year. However, if you haven't- Reached those caps in prior years, it then rolls over. So if you didn't do 30 last year, you can actually do 60 this year. Oh. And the, those caps are going to reduce your tax bill. Mm. Uh, 'cause it- Because that's classified as an expense.
Yes, it's an expense. Um, and it also gets... So it gets taxed at 15%, which is very tax effective if you do it that way, especially when if you're a bit older as well, you're kind of a bit closer to reaching it. So with my dad, I, um, I have, with his wage, I set it up that he sacrifices all of his wage to his super fund, and then he only has to pay 15%.
But he's 71, so that's- Mm ... that's [00:09:00] how that works. But yeah, it's very tax effective to use your super. Yeah, okay. Um, so, and it's great retirement plan because- Yeah ... what, what are we all going to do? Yeah, 'cause- When, when we're older ... I mean, this current, um, budget that they've released, they've cut back so much.
They've really impacted on capital gains, and that's not just on investment property. That's on shares and all other sort of stuff. So that's a huge, you're paying, um, uh, capital gains on that. So any kind of, um, improvement on that investment, you're paying th- I think it's 30% tax on that, on the capital gains.
Um, so y- you s- you're, you're better off, and I should caveat all of this to say that this is not financial advice. We are not giving financial advice at all. You are responsible for looking at your own situation and seeking your own [00:10:00] financial legally binding advice. These are just things that are suggestions.
You can find this information on the ATO website as well. We're not covering topics that are, um, not already freely available for you to look at. It's just that who wants to go and look at the ATO website? I know it is the most boring place in the face of the earth, and I never, ever wanna go there, right?
So if someone can tell me, I'm like, "Great, that's fantastic information. Thank you for that." So it's up to you to go and source whether this is gonna be suitable for you to do or not, and do that in conjunction with your tax agent. Um, this is not financial advice. So I just really wanna caveat that. Um, so pardon me.
Uh, with that capital gains information, I think it's taxed at, like, 30%. So anything that you pull out as profit is taxed, whereas if you do it through super it's only 15%, which is over the course of hundreds of thousands of dollars, [00:11:00] huge savings. Um, and I think now we've got to really look at the reality that by the time we come to retirement age, there may not be a pension for us.
Uh, because if things keep going the way they are, there's going to be no money, so we are solely going to be relying on what we have squirreled away now for our retirement. So when we're looking at educators who are spending $8,000 and $9,000 on resources every year, like, you don't need that in your family daycare.
Reuse, recycle, you know, make, get from the nature environment and all the rest of it, and put that money into your super because, A, it's gonna reduce your taxable income, just like buying resources that you will get zero return on. At least if you put that money into your super, you're going to get a return on that when you're 80 Would you agree with that or- Yeah
yeah. Yeah. [00:12:00] Strongly. Strongly agree. Okay, so what are the key business, uh, expenses that family daycare educators can legitimately claim as tax deductions, and which ones are people most commonly missing out on? So I'd say the main ones are the motor vehicle. Mm. Um, there's two methods. There is the cents per kilometer method.
Um, it's up to 5,000 kilometers, and yeah, I think it's 88 cents, I think. I'll, I'll check that. You can clarify it. 88 cents. Um, yeah, so it, it, it can potentially get you back 4,400 as an expense on your, uh, income tax return. The other method is the logbook method. Um, yeah, you just do a percentage of your vehicle, of how much you use it in the family daycare.
Mm-hmm. Um, obviously things like resources, subscriptions, uh, kits- So do you mean like [00:13:00] Spotify subscription? So
if you use Spotify- Yeah ... at rest time for ad free, you can claim that? Yeah, 100%, yeah. Can you claim the whole subscription for that, or will they say, "Well, you use it personally as well"? Uh, I'd say you probably would only ha- or if you only have it for the family daycare, I say. Mm-hmm. Yeah. Okay, and so- It might be a little bit of a tricky one, that one.
Yeah, okay. But it's still claimable at some point- It is ... anyway. Pardon me. Um, so because I know a lot of educators now have, um, multiple devices because they were mandated to have a separate phone for work or a separate device. If you load those things on there, you can totally say, "Well, look, here it is.
I've, I've got it on my work only device. Um, this is where I'm using it." [00:14:00] I know one of the things that I claimed that I was so stoked to claim was my Thermomix because I just used it multiple times a day in my family daycare, and I didn't have one before I started family daycare, and then I, I claimed that because I used it in my family daycare, and I used it more in my family daycare than I did in my home.
So, um- That's what, um, how I marketed that to my accountant. Um, so, uh, it just happened to be that a lot of the things that I did in my family daycare with my Thermomix happened to also be usable in my home as well. So, um, y- you've definitely got to be strategic with how you are using your claimables. Um, so what records, talking about claimables and being strategic around that, so what records and receipts and things should family daycare educators be keeping on a daily or [00:15:00] weekly basis to make tax time less stressful?
Because I know there's a lot of people out there now just going, "Oh, it's only two weeks till the end of the tax. Ah, I've got to do all this." So can you, can you help us with this? Yeah. So my suggestion would to just get your receipt. Uh, you either- Create, or sorry, to use an app that you take a photo and then it sends it to a platform, and then at the end of the financial year you export the report and you get a report for your, for your tax details.
So is that open to anybody or do you have to do that through your accountant? No, you can use, I think it's called ATO My Deductions. Ah. And, yeah, you can take photos of all your receipts, and at the end of the tax time they're all recorded there. Um, yeah. However, my suggestion [00:16:00] is that you just have one business bank account and that's all you use for, you know, your incoming and your outgoing.
Mm. Then at the end of the financial year you just export the data and give it to me, and then I'll just pop it in my AI tools and just, it will just categorize it into- Yeah, wow ... perfectly neat little report for me. Um, I can do your GST based on those details as well. And then all you need to do is just put your receipt in a little storage folder and just keep it for five years and it is- Bob's your uncle.
Because the way, if you do that receipt capturing method, if you're in a rush, if you're getting fuel and you're in a rush and you forget, then that's just, it's just gone and- Yeah ... you won't really remember. And it, and if it's in your personal bank account it's just, it's just- Yeah ... a mess. [00:17:00] Yeah. I mean, I look at mine now and, and I go, oh my gosh, there's just...
Where was that? When was... And, and especially if I go away, you know? I'm like, "Oh, that was..." You know, I don't wanna look sometimes. But, uh, I know with, with us, um, because I was on the road so much, um, Marta was relying on me, my business partner who's a qualified accountant, was relying Ah ... on me to give her the receipts, and I'd be like, tried so hard to re- Oh, my God, a receipt.
'Cause I'd be, you know, fueling up. I'd be getting food on the run. Uh, y- you know, all those sorts of things when I'm traveling. Everyone knows how I used to travel so hardcore. Uh, and I'd just, they'd just disappear. They'd, these receipts would just disappear into the ether, and I'd be like, "No, I'm 100% putting them in this spot in the car.
When I come back in, it's straight into my little basket." But they would just- Poof, there was little fairies in my car, I'm sure. So we moved over to, um, an [00:18:00] app that's l- linked into our MYOB. So every time we just scan the receipt and it goes straight into the MYOB and it categorizes it. Now, family daycare educators are probably not gonna have their own MYOB.
Yeah Um, but this works. And then the other thing would happen was, um, sometimes I wouldn't have internet, and so it wouldn't upload the receipt, although I took a photo of it, and in my mind I'm like, "Tick, done. That shall never cross my thought barrier ever again." And then Marta would be like, "Oh, I'm missing four receipts from your trip."
And I'm like, "What? No, you're not." I t- and so we worked out that we could turn the camera, it would save to my camera roll. So there's been a number of times where the internet's not worked and I've had to go through my camera roll and I'm like, "Yes, there it is." I feel like I'm winning at life now 'cause I've managed to keep all these receipts and it's, you know, Marta has definitely stopped pulling her hair out when it comes to me.
But this is the thing, right, is that you are busy and if you're [00:19:00] grocery shopping because you've worked five 10-hour days or whatever, the last thing you wanna do is worry about all of this sort of stuff. So it's definitely ... I, I always did my shopping For my home a- as one transaction, and then anything that I could use in my family daycare in that shop, I would then save for my family daycare shop, which I would put through second.
And, and that way I just made sure I got the receipt for the second one, and I just put that all in a plastic sleeve for every quarter, and then at the end of that quarter I went through that plastic sleeve and I, um, made sure that I wrote everything in the proper categories. And that was before AI and before, you know, everything became a lot easier.
So it's so good to know that there's simple solutions that educators can stay on top of, and I love the idea of having those separate bank accounts. Um, it's kinda like the barefoot investor. Um, they had those sorts of accounts as well, where you [00:20:00] have your splurge, y- your savings, and your FIRE, you know, blah, blah, blah, blah, blah.
But this is what educators need to be doing as well. They need to be having these, um, different accounts, where every week your pay comes into one account, and then it just gets dispersed. And if you have a really solid, um, cohort of children and you've got a regular income, it's certainly much easier to set that all up because you know, "Well, every week I'm getting $1,500 or $2,000," whatever it is.
Every week I'm getting that, and so every week then I need to make sure that I'm putting 12% super away. So 12% of that $2,000 is $120 or something. I don't know. I'm not m- mathematically minded. But if you make that direct debit, it, it instantly goes into that account and it just will build up, and you don't have to do anything because it just automatically happens.
You don't have to worry about it. I think [00:21:00] educators need to really start switching on to this, and I hear it all the time. "Oh, I'm running my own business," yet you are treating yourself and your business- As if you're an employee, and the mindset is totally different from being a business owner who's got to be responsible for budgets and, you know, fiscally responsible.
Did you like that word? Oh, I sound professional talking like that. Being pr- being responsible as opposed to just getting your income and spending it all, and going and spending thousands and thousands of dollars at Kmart and on other resources that you're never gonna get a return on. Like, you just, you're not going to get a return on those things.
So for me, I think we really need to have a mindset shift as family daycare educators to not putting everything into justifying how we charge by having the [00:22:00] bestest of resources all the time, to actually having a shift in thinking to, "I need to support my future self and I need to put super away." Um, I think that's a, a definite mind shift we need to move towards.
Yeah. I think a better tip would be to instead of putting it in a bank account, if you could find your BPAY details for your super fund, perhaps s- sending it weekly to your super fund, 'cause that way it will grow much better than, uh, a bank account Yeah, definitely that's actually why I have you on the podcast, Shannon.
Because, you know, I mean, I have great ideas, but I don't have all of the ideas, and that's so simple because, yeah, the more ... It's that compounding interest effect. Mm-hmm. And that's so important. I, I kick myself now. My old man was so onto all of this stuff, and when I was 18 he was trying to get me to read The Richest [00:23:00] Man in Babylon and all these finance books, and I was like, "Nah, I wanna go out and I wanna go clubbing."
Mm-hmm. "I don't wanna read that." And now I'm like, "Whoa, why didn't I read that? I'd be so much better off." Okay. So at what point does a family daycare business genuinely benefit from registering for GST, and what does that mean on a practical level for an educator? So it is straightaway beneficial to, to you to register for GST.
Because of the sales are GST-free, it means that you can claim the GST, which is 10%, on all your expenses. Uh, you can claim the GST back, so you will get a credit in your bank account from the ATO, and it really helps with the income tax bill as well. Um, so just as long as, you know, there's a fee. [00:24:00] Some accountants, well, all accountants will charge you a fee to do the BAS, so as long as it, the credit is going to be more than the bill, then definitely, definitely do it regardless if you don't meet the threshold.
So the threshold is 75,000- Mm-hmm ... of sales, your turnover Um, whe- that's when you have to register for GST. But if you don't, if you're not reaching that yet, it's still very beneficial to register for GST and, and claim those GST credits back. Okay, so I think one thing that I, I wanna clarify in that, when we're talking about sales, quote, unquote, that's actually the care you're providing for the children, yes?
Yes. 'Cause you're selling your time basically, so you're providing that service. So I think a lot of educators can, can m- m- maybe shift their thinking because I know, um, coming up at the conference we've got Marie Kirkpatrick talking, [00:25:00] and she's gonna speak about sales. And I know a lot of educators, because we had her on the summit a couple of years ago and had some fantastic feedback around that, and a lot of educators will be like, "We're not in sales."
And it's like, actually you are. You are selling your service to watch the children and to educate the children and to supervise the children, be present with ... You are selling your time and your expertise, and in, in res- r- r- respect of that or in response to that, you are getting paid. So that will, that GST will offset that is what you're saying, yes?
Offset what, sorry? Uh, the s- the sale of your time is where you can claim the GST back on. Did I completely confuse that whole situation? Sorry. For those of you not watching at home, sh- sh- So family daycare educators, [00:26:00] it's a childcare service. Mm-hmm. So the income that you make is a sale. Yeah. So, but because it's childcare, childcare is GST-free- Yeah
as well as medical, uh, sales. Yeah. So some sales are GST-free. Uh, so you're claiming back the GST on the expenses. So if you- Yes ... bought Play-Doh for, you know, $11, that $1 you can claim back. Yeah. Yeah, yeah, yeah. That's what I was getting at, I just didn't say it so eloquently- Oh, thank you ... like you did. Yeah.
Yeah. Because you, you've got your sales, and then whatever you purchase you can claim that GST back and it, and it, um- Correct ... yeah. Yes. Yeah, beautiful. Now that I've made a complete dog's breakfast of that, let's ask another question. So what's the difference between, um, sorry, how an educator should be thinking about their home expenses, things like electricity, internet, wear and tear, when calculating [00:27:00] what percentage of those they can actually claim?
Yes, so it runs off a, an area percentage. Mm-hmm. So it's actually really hard to explain the calculations. I've actually got a calculator that I can list in the show notes, the URL for the calculator. Um, but basically the area of your home forms part of the calculation. So, but the kitchen, the kitchen you wouldn't include because you obviously need that to live.
So anything that you actually need to live and you're using it for private use, you're not allowed to include that area. So at a minimum, one kitchen, one bathroom, and one living area I would exclude. Mm-hmm. Um, and then once you've got your, a percentage, done the calculation, once you've got the percentage, [00:28:00] then you can apply that percentage on your electricity, your gas bill, your water bill, uh, even the gardening, lawn mowing.
Mm-hmm. Yeah, that, that percentage forms- Part of a lot of, uh, expenses that you will need to apply that to Okay, so my, my understanding when it comes to, like, electricity and things like that is if there is, for easy s- numbers sake, 'cause I need easy numbers, if there's, like, 100 hours in the week, and out of that 100 hours you are providing care at family daycare for 50 of those, you can claim that 50% of that energy of the whole total because that's w- w- the hours that you are using the power for your family daycare.
Is that correct? Yes, I think there is ... I think you'd, yeah, with the calculation, I'd have to look, but yes, you [00:29:00] do need to include the hours that you do- Yeah ... uh, per week. Yeah. Yeah, yeah. Because I mean, you've g- obviously got 24 hours a day. You're not providing care for 24 hours a day unless you're doing, like, maybe weekend work and things like that.
But that's where it's really helpful to have an accountant. So what happens with capital gains when you work from home too? I know there's a lot of educators that will sometimes claim part of their mortgage payments, but you can get caught out with capital gains when you go to sell your premises because you've made an income from that premises.
Is that right? Yes, it is right, unfortunately. Mm. Uh, so with my clients, I do not recommend that you claim any expense that's going to attract capital gains tax. Those expe- expenses would be your home loan interest- Mm ... um, anything capital in nature, so building a deck or- Making [00:30:00] some sort of improvements to your home, uh, yeah, that's, that's gonna form part of an asset.
Mm. So if you put a deck on or a patio- Yeah ... unless it's specific for family daycare, like a cubby house or a sandpit, could you claim those? Yes, of course. Yeah, they don't increase the value of the home- Yeah ... in a, in a capital nature way. Yeah, okay. And see, this is where it's really beneficial to speak to an accountant to have these things, like, specifically, because you may be going and claiming things like that, and it may save you a little bit of money now, but then in five years' time when you go to sell your house and you cop a $50,000 capital gains tax bill, um, that's not gonna be very
You're not gonna be very happy about that. And probably your husband won't be either, if you've got a husband on the side who, uh, might get annoyed at that when he's already probably been annoyed that you've done family [00:31:00] daycare from home. So we wanna make sure that we're setting ourselves up in the right direction, and that we're not inadvertently costing us more money, which is what I see happening a lot in family daycare, is that educators won't wanna put their fees up because they're scared their families can't afford, um, to pay childcare fees.
But at the end of the day, you're actually costing yourself because you could afford to put your fees up a little bit, and your families may have to pay a little bit more, but the cost of everything is going up now. So, you know, 70, 80-year-old you, who's not gonna be in a very good position because you haven't put any super aside, is gonna probably kick current you for not thinking about that down the track.
Um, okay. So what does a healthy profit and loss picture actually look like for a family daycare educator? So profit and loss, [00:32:00] you would want your profit to be the same as ... At, at least minimum that matches the minimum wage. Yeah. Otherwise, what's, what's, what are you doing? What's the point of doing all this?
Yes. Yes. And this is, comes down to what I was talking about last week, and what I've banged on about for the last few years. You are not a charity, and for anybody that is charging below the cap- You're insane. I just have to say it. You're insane if you charge below the cap. The government expects that you are going to charge a minimum, at a minimum, the cap.
That's why the cap is there. You will not find daycare centers anywhere charging below the cap, and they have a higher cap than we do. So [00:33:00] this whole thing where family daycare educators are like, "I can't charge the cap. You know, I'm in a low socioeconomic area, can't charge the cap." If you're in a low socioeconomic area, your families are going to be getting the highest amount they possibly can get to cover their fees, and if there is a little bit of a, a, an overlap, well, so be it.
Why, why would you be working for less than minimum wage for people who have children? Like, that is not your responsibility to make childcare affordable for families. That's families' responsibilities to make an income and live a lifestyle that they can afford to maintain. You are not a charity. In fact, if you go and look at charities now, they are selling Kmart stuff in their charity stores for more than what you can buy it brand new at Kmart.
Wow. And people are paying it because [00:34:00] it's through the charity store. You're not a charity, my friend. Like, y- you need to get your fees to at least match the cap, at least, and then you've gotta look at what you're spending. And if you're an educator that's going and spending 10,000-plus a year on resources, you've really gotta look at your figures and really look at is that working and at the end of the day, because you've gotta take annual leave, super, tax, sick leave, and then resources and professional development and insurances and your cost of your third-party software, Hubworks, Harmony, whatever.
You've got all of these other additional expenses that you have to take out of that pissy $14 and 8 cents an hour. I mean, really, friends, it d- it doesn't cut the mustard if you're charging under that, and if you're with a service that's not letting you do that, what would you as a tax accountant say to services?
Definitely change [00:35:00] schemes, for sure. There you go, yep, because they've got to get with the program. And who are they, who are they working for? Are they working for the families or are they working for the educator? Because at the end of the day, and when services don't follow up on bad debts- It so frustrates me when a service will automatically just go on the family's side, and their educator is owed hundreds, maybe thousands of dollars, and then they won't let them exit that family.
Uh, it just infuriates me because I feel like lose one family, let them go. Lose that family who's paying them... I mean, our service is $2.25 an hour. That's all that service is generating from that one child is $2.25 an hour. Or lose an educator who's potentially earning, you know, 3 to $400 a week. Like, it just doesn't make sense to me, and why educators would stay with services that don't back them, I don't [00:36:00] understand either.
Okay, so for an educator who feels completely overwhelmed by the business side of things, what are the first three steps that you would recommend that they take this week to get on top of their finances? First one would be to separate your bank accounts. It's so important to just have some clarity as well, and just to see where you're at, and from there you can m- get reports to see, you know, what your profit margin is.
Is it more than the minimum wage? Can I increase my fees on the 1st of July? Well, you should be anyway, but, you know, what, what, what fees increase could I do? Yeah. Um, yeah, so that's the main one. Second one, just reach out. Just reach out to me or another accountant just to get some advice to see what you should be [00:37:00] doing if you've got any tax returns that need to be lodged and, or you've got an ATO debt that you're just putting off and putting off and the fees are just accumulating.
Um, it just is so stressful, and you just gotta nip it in the bud and call the ATO and arrange a payment plan. Mm. Mm. Yeah. Yeah, definitely. Okay, so there's a couple of things, pardon me, there's a couple of things there that I think are really important to, um, touch on. And, and seeing your accountant, uh, at least, excuse me, at least six weeks before the end of the fun- financial year is always a smart move.
A, because they can look at your income. If you've had a really great year this year, they can look at your income and go, "Ho-ho, sister, if you can spend $10,000, um, right now, that's gonna drop you down into the next tax, [00:38:00] tax bracket. You're gonna pay less tax," blah, blah, blah, blah, blah. That would be great. And if you can do that because you've got money sitting in your business accounts, uh, and you can do that, you could put $10,000 straight away into your super, which then reduces your tax again, which is a win for you, a massive win for you.
Uh, or they may say to you, "Ah, uh, you're gonna need to put your fee up next year because, you know, the, the cost of things are escalating," and blah, blah, blah, blah, blah. Or, "You have just not earned enough." Uh, can, y- you know. And so when they look at your figures and they understand your figures, that gives you six weeks to make that decision.
So you can then start looking at, well, forecasting for next year as to what your fee needs to be so you can cover your expenses. Or you've got a few weeks to go and make some purchases and really take- b- um, the benefits out of the end of financial year sales and things that happen. I mean, we're doing that now.
We're in the [00:39:00] process of upgrading our computer systems because it's been a couple of years since we've done that. But we've now, we know how much we've got to spend, we know, uh, when we need to spend it by, so we've been able to take time to research the best that we can get for our money. There's nothing worse than going two days beforehand go, "Oh, I've gotta get this sale across."
We've done that in the past, and because we went and purchased through, um, JB Hi-Fi, it took a couple of days for- Oh ... the accounts to land, and therefore it landed in the wrong financial year, and it was of no benefit to us at all. So you really want to avoid ... And, and you only learn that through doing. And if you're someone that's not doing your tax and all that sort of stuff, and not having a handle on your figures, you could be leaving thousands and thousands and thousands of dollars on the table that you could be investing a lot smarter, which is gonna have a greater [00:40:00] return down the track for you.
Okay. So when it comes to setting fees, how often should family daycare educators be reviewing and increasing their rates? And what factors should guide that decision? I think minimum once a year, and I, I would start 1st of July. Um, just end of the financial year. It's just a great, great time to review and, yeah, put prices up.
The cost of living is just continually going up. Interest rates are going up. Um, yeah. So if you do have a report that shows your profit and loss, um, you'll be able to see, look, am I, is my profit good enough? Do I need to increase it? Um, yeah. Yeah. What are, what are my operating costs? [00:41:00] Um- Yeah, you should be reviewing the figures and, yeah, putting your, your rates up.
Yeah, it's really important. Um, and when we say the word profit- It's not a dirty word. Mm-hmm. Like, profit is not a dirty word, and what I think educators fail to see, and from, from the conversations that I've had, is that they just look at their income as, like, one whole thing, and, and that's not what your income is.
Your income, that's your, yeah, that's your revenue, but from your revenue you need to pay a wage to yourself, and that wage should be at the bare minimum, the award- Mm ... based on how many years of experience, like, what your actual qualification is, how many years of experience you've had. Um, and, and that should be the [00:42:00] base level of what your wage should be.
So then out of the rest of that revenue pool that you have goes your super, your tax, your resources, your professional development, um, and then all of your business expenses, which are, you know, power, internet, um, uh, what else have we got? You may have, um, a cleaner that comes into your family daycare space or, you know, all those kinds of expenses.
Power, phone, for a lot of you, you're gonna have phone now. Uh, and then you should be having a little bit of money aside for these, uh, things that need replacing regularly, computers, phones, iPads, things that you 100% need to run your business, you couldn't operate without them. Uh, and they may not be used for personal use either.
Um, so that all has to come out of your revenue, which is what your service pays into [00:43:00] your account every week or every fortnight, and that comes from your CCS payments and your gap fee. So that's not your income, that's your revenue, and from your revenue you pay those additional things. So when we're talking about a profitable business, we're talking about a business that pays all of those business expenses and the owner's wage out of it, and that is profitable if all of those boxes are ticked and you are not in the negative.
So I think that's a really clear distinction that we need to make and that educators need to fundamentally understand because if you are taking that revenue and then you're just not paying any of that stuff and you're just saying, "That's my income," you have no idea if you are earning above minimum wage or not because you have no idea what your expenses are.
[00:44:00] So this is what I really want educators to get super clear on, that it is not a dirty word- To say you're profitable in family daycare, and we have to get comfortable with that. And it's been a misnomer for a very long time that we're just a daycare mom. And so there's these two schools of thought I think that happen in family daycare, is that you can't be profitable, we can't earn profit off the back of children.
My word, my friends, we are not earning profit off the back of children. You are earning profit off the work that you do You are not earning millions of dollars by cutting all of the expenses and paying, you know, crap wages and sending educators home and, like, this is how larger services do it. They cut all these corners.
You don't do that in family daycare, and there is nothing [00:45:00] wrong with earning above award wage too to acknowledge the beautiful programs, resources, and environments that you provide for the children, plus the additional work that you do outside of your actual hands-on work with the children. So we really have to get comfortable with talking about being profitable in family daycare and understanding that it's okay, in fact, it's essential that you understand the difference between revenue and expenses and wage so that you can make sure you know what levers you can pull if the shit hits the fan at some point.
So sorry, Shannon, I got ranty there. Um, I do apologize. Feel free to pull me up and go, "No, you don't know what you're talking about." No, I totally agree. I just, yeah, I just... When my boys were in long daycare, I just c- I just [00:46:00] couldn't stand it. It was just so awful. So I think family daycare is such a premium service.
It should be, it should be expensive. To me, I feel like I would pay anything for my children to have a beautiful educator, a one to four ratio. Like, that's just, that's premium. I absolutely agree. If you look at the ACCC report and the product- Productivity Commission report that was done last year, the year before, they recommended that the family daycare cap be exceeding the long daycare cap, because they acknowledged the difference in structure and the different cost and value in providing family daycare as opposed to long daycare.
The ACCC and the Productivity Commission both said it. They, you can't deny that, and so educators need to proudly stand in the fact that, I mean, on anyone that was at the, um, that's heard Nathan [00:47:00] Wallis talk too, the neuroscientist, he will say too the first five years are the most important in a child's development.
Any time that children are not with parents or grandparents, he will stand up and categorically say as a neuroscientist, the best place for them aside from parents and grandparents is in family daycare. Wow He will say it. He has-- I listened to him say it, those words came pouring out his incredible mouth at the Family Day Care Australia conference last year.
Pardon me. He said it, and I was like, "Yes, yes." Mm. And so we need to stand proudly in that. Like, it's, it's-- people want the best for their children, and those who want the best for their children are happy to make those sacrifices they need to make in order to have the best for their children. And in fact, I don't think ha- having family day care is a sacrifice at all.
For me, paying an extra $30 a [00:48:00] day for my children to have a far better experience is so worth it, and it's just a not negotiable for me anyway. Um, same like I'm looking at having grandchildren soon. I know I don't look old enough, but I'm looking at having grandchildren in the next sort of five years, and there is no way my grandchildren are gonna go into a long day care setting.
Like, Bree, if you're ever listening, and Cooper and Yo and Thomas, if you guys are listening to this, just know that your mother is gonna pull rank and- Yeah ... and say, you know, "No, they're not going into long day care settings under any circumstances." I'll move if I have to. It's such a short time, um, you know, so...
Or I'll, I'll put out my extensive network and go, "Who's a family day care educator in such and such an area that will have space for my grandchildren? I'll love you forever." Uh, so pardon me. Okay. So what does an educator need to understand about their obligations if they take on an assistant or another adult who works in their service?
[00:49:00] Well, we would never have another adult, but an, an assistant definitely. Yeah. This is a, this is a tricky one. So there's lots of little bits and pieces that you need to think about. So the first-- the option would be to pay them as a subcontractor. So it, it really depends on how you're employing them, what they're coming in, what they're doing.
So if they're just relieving you and they are working for other centers and just kind of working f- working with other companies, then you could get away with doing a subcontractor. You do need to pay them super And you will need to have workers' compensation insurance, which is an insurance for workers if they get injured, then they don't sue you.
They then go make a claim to your [00:50:00] insurance- Mm-hmm ... um, which is really important. The other option would be to put them on wages. You would then have to withhold tax and pay their super, and also have the workers' compensation insurance. Mm. Which is really interesting. Pardon me. I'm so sorry, everybody, I hate coughing on a podcast.
Um, because I'm... Uh, I had an educator ask me about this the other day. Um, she's got someone covering her maternity leave, and the way it's set up, uh, at the moment, I'm like, "Oh, I don't know." Like, um, because funds are getting paid to her, and then she's paying the relief educator. And I'm like, "Oh, I think you've gotta be responsible for super tax and work cover insurance if you are paying them," because that moves into a [00:51:00] employee/employer, um, category.
Whereas the way we've always done it in the past is that that relief educator takes on those children... And this is, you know, covering for long-term, like, um, more than four hours, uh, at a time, because if it's four hours they, um, just sign in under, under you, and they're just covering that little four-hour bit.
Um, but this... It's still through their, should be through their own third-party software, but it's only for that four hours, so it d- it negates all of that. But if it's anything longer than that, what we've done in the past to get around all of that is that person comes in, they become the responsible educator for that whole shebang, and they pay you a rent to rent your space So it's not an employee-employer situation, it's a them paying you to utilize the space and the business that you've set up.
And, and that seems to be [00:52:00] the cleanest- Yeah ... way to do it because otherwise, yeah, if they injure themselves and you've been paying them and you don't have workers compensation in, um, work cover insurance, you could be up for hundreds of thousands of dollars depending on what happens, um, and the injury, any kind of injury that they may m- have.
Um, there's also, uh, insurance in terms of if they do, you need to have, um, like management liability insurance and all that sort of stuff too because if they say something to a parent and then that parent then complains, you are technically responsible for them. And all sorts of stuff comes in, into that kind of thing as well.
So, um, yeah, that's really interesting that you, um, can share that because n- now I have an answer for the lady I was talking to the other day. A- and anybody else that's in that position. Now, a lot of people will say, "Oh, I just wanna have a relief educator." R- [00:53:00] assist, educator assistants are no longer in the regulations they've, that for family daycare.
They're not in there anymore. It is a relief educator, and they can only be utilized in two situations. One, for an appointment that is less than four hours, they can come in and just m- manage the children while you're out for that four hours, but it cannot be a regular appointment. It can't be every Tuesday you're going to have hearing tests or whatever.
Like that, it doesn't work. So then, uh, and then the other time that you can use them is if you go away or you're on maternity leave, there's a longer term process there. Then they are their own educator in their own right because the, when the CCS is paid, it has to be paid to the person who's responsible for the children in that timeframe because then any kind of incident that happens is under the person who was responsible [00:54:00] at the time.
So, um, yeah, it's, it's a bit of a minefield, and people, if they haven't kept up to date with the changes, can look at things, uh, and get a little bit confused around that. It's, um, yeah, a bit of a minefield. All right. So if an educator has fallen behind on their tax obligations, maybe they didn't know what they were supposed to be doing, what are the opti- what are their options and how do they get back on track without panicking?
So definitely just book in to see an accountant to see what's outstanding and to quickly lodge, because the, the failure to lodge fees are pretty high, and the interest is pretty bad. So get those lodgements up to date, and then you'll know where you're at with a debt. Perhaps just doing, like, a little bit of an, uh, an upfront fee to pay the ATO, and [00:55:00] then do a weekly payment plan.
Yeah. Yeah. See, and this is all circumventable once you get your accounts set up and you've got that money going into the accounts, because you'll never have a tax bill again. And I always overestimate it as well, so I ended up with a little bit left over. And then as well, of course, once you take your, um, expenses out, you may have been putting aside, I don't know, what, what's the tax percent?
Depends on- Yes, I love it when that happens to me. Yeah. I love it. Yeah. Yeah, it's great, because you estimate ... I always estimated based on what my income was, and then I took my expenses out of it, so it reduced my income, but I'd always paid more tax. So then I ended up with a, a little bit of either I could go on a holiday, I could- Mm-hmm
bump up my super, I could buy those resources that I really, really wanted that I hadn't bought during the year 'cause I was being a, a, you know, tight- tighty. Uh, i- so you have that little bit of freedom. And [00:56:00] also, like, go and get a massage, girlfriend. Go and go, go out. Go class movies. Like, go and treat yourself for the work, hard work that you've done throughout that year.
It's important, otherwise, you know, we never get that recognition, and we are sole traders, so we're responsible for that. So what's the one piece of financial advice you wish every family daycare educator heard on their very first day of running their business? I wish they knew that what a sole trader is.
I wish they knew that they weren't actually an employee of the scheme. I feel like when people first start, they think they're an employee and they don't have to pay super and they don't, they, yeah, they don't have to pay tax because the scheme's withholding it or something like that. So yeah, definitely I feel like they should be meeting with an accountant to set up what their [00:57:00] obligations are as a sole trader and even, yeah, like the worker's compensation insurance is really important to even have for yourself.
Mm. Um, that's actually how my family daycare came to an end because I needed back surgery, so I had to unfortunately close it down. But fortunately I was covered by worker's compensation insurance- Mm ... when I did have my injury. Um, and yeah, everything's covered, um, medical expenses and yeah, it's just really important to know your obligations, know what insurance you need to have and yeah, definitely s- set up a bank account- Mm
for your family daycare and then- You won't have the mess that p- a lot of people have Yeah. Yeah, I mean we experienced it when Brian had his workplace [00:58:00] accident. Like he was covered 'cause he was an employee. He had workers' comp, um, cover us for a couple of years. But after that we accessed his TPD insurance, which is total permanent disability insurance, um, through his super.
So he had two super accounts and both of them had it. They only had a s- very small amount which I'm kicking that I never looked at- Upped it ... and upped it because it's really important to think like what would happen financially if something happened, and it could very well be ... And, and why I like TPD insurance through super is because it doesn't matter if something happened.
You might be playing netball and you, you tear an ACL and you're out and can't work for six months because you've got repair surgery and blah, blah, blah, blah, blah, right? You can't ... If you can't, what would happen if you couldn't work for six months from today? Like how would you pay your mortgage? H- or your [00:59:00] rent?
How would you, like how would you do anything? So when you're setting this up, and I ... And, and it's I always advocate through your super. If you're savvy and you go through a broker and you get somewhere else, great. Go and do that. But for the average Joe, adding it to your super and adding income insurance protection as well through your super is so important, and it may cost you an extra 10 bucks a week but you never know if and when you're going to use it.
Uh, and I would up it. I would have upped it. If, if we had of upped it to cover 200,000, oh, I'd be laughing right now. I wouldn't be stressing about income and, and all that sort of stuff because that TPD insurance would've been enough to cover us because Brian's claim, um, this October will be four years.
And you know, so that drags out and drags out and drags out, and there's no way you can make it go any faster or anything [01:00:00] like that. So imagine not being able to work for four years, what impact that would have on your family. So I think it's really important that educators educate themselves around that because you are a sole trader.
You are solely responsible for all of those sorts of things. So Shannon, you've got a business. It's called The Ledger Management, and you've got a website and you've also got a place where family daycare educators can go, and I'll put this in the show notes, but it is www.ledgerm management.com.au/familydaycareservices.
Can you tell us a little bit about, um, what it is that you actually offer for family daycare educators? Yeah, so I do tax returns, um, for family daycare educators, and that includes just advice and questions throughout the year. I am more than happy to answer any questions that [01:01:00] anyone has, because it's not just a service that you get at the end of the financial year.
Like, you need help throughout the year. Like, "Oh, I need a new car. Like, w- what can I buy? Can I claim the GST?" Mm. Um, so yeah, it definitely includes, you know, support throughout the year. Um, also BAS lodgments, so I do those either quarterly or annually. And yeah, if anyone needs help with WorkCover or even just logging into their super and seeing do they have income protection insurance turned on, and do they have the total permanent disability turned on as well.
Um, yeah, I'm here to just help with anything tax- Mm ... accounting-wise. Amazing. So you also have an e-book coming out too, don't you? Yes. I have almost finished it. It should be [01:02:00] live shortly. Uh, that will be on that URL that you just mentioned. Um, it's just a really good guide to find out anything about what you can claim as a family ta- family daycare educator.
Yeah, amazing. Oh, Shannon, it's been so great to talk with you today. I, when w- when we looked at these questions, I was like, "There's no way we're gonna get through all of those," but we did it. We did 15 questions. It was amazing. Wow. And you've, you've just given us so much insight. I so appreciate you. So if people wanted to book in to have a session with you, they can do that through the www.ledgermanagement.com.au/familydaycareservices, and they can book in, um, for a con- consultation with you through there.
Um, so it's been such a pleasure to have you on the podcast today, and I hope that, um, it's in time for our family daycare educators before they get to the end of the financial [01:03:00] year so that they may be able to, uh, have a, have a crack this year at getting their, their finances in really good order. So thank you so much for your time and your generous expertise.
We really, really appreciate it. Thank you so much for having me. It's my pleasure. We will see you soon.
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