Just explain it in a way that is reassuring. Mention you prefer not to invite strangers in while you are working with the children and that you need to be focussed on the children not on a perspective family. Note that you recognize that they want to see you in action with their children and offer up another opportunity for their child to come and play with you for 20-30minutes where you can focus on interacting with their child.
Every provider has their own way of doing this...some are quite comfortable having families in to watch for 30-60mintues others are not. Just spin your preference to their benefit. Personally I find that the children do not act the same when extra adults are in the room and having the parents come to watch you isn't really that useful as it doesn't reflect your normal day. If the parent isn't comfortable with that then unfortunately they will have to go elsewhere. In these situations either the parent isn't comfortable or you are not comfortable. It is your business so there is no reason you need to be placed outside your comfort zone for their benefit. It just sets the tone that you will bend your preferences for them in the future.


































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