"Also, their former tax advisor allowed them to pay themselves (husband and wife) two hours each day to clean their house after the children left for the day, and then write that 'compensated' time off as an expense. Curious if that is common?"

Yes, it is Common that people filing Sched C try to include their draw as if that is Payroll and as if that is expense. Is it right? No. Nothing they "pay themselves" for is Expense. Or, one of them is on payroll and this really is a Sole Proprietorship? Because SP is never "on payroll."

Did you google:

Daycare business tax reporting