Start a daycare by following these 9 steps:
You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your daycare. These steps will ensure that your new business is well planned out, registered properly and legally compliant.
STEP 1: Plan your Business
A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:
- What are the startup and ongoing costs?
- Who is your target market?
- How long it will take you to break even?
- What will you name your business?
Luckily we have done a lot of this research for you.
What are the costs involved in opening a daycare?
The cheapest business model for a start-up daycare is to run your daycare out of your own home. In this scenario, you could accommodate up to four or five children without having to pay rent for a separate facility, and your only monthly expenses would be food, toys, and other educational materials. Expect a one-time cost of up to $300 or $400 per child for general supplies, and an additional $80 to $100 a month for food. You may require different devices, like a child lock gate, and other safety locks for drawers and cabinets. In total this shouldn’t cost much more than $100.
In addition, you will also likely want to invest in some small-scale local advertising, and a custom-built sign for the front of your home.
The final major start-up cost for your business will be the legal fees associated with registering your business and drawing up contracts to protect your business from liability claims.
Total start-up costs for a home daycare could range anywhere from $1000 to $4000.
However, these costs will be much more if you plan to open your own daycare center. Whether you plan to purchase or lease the property, what kind of renovations the space needs, and how many staff members you will need to hire are some of the key considerations when determining your start-up costs.
What are the ongoing expenses for a daycare?
For a home daycare, monthly costs could be as little as $50 per child for basic food items and other supplies. Bigger daycare facilities will need to pay rent and utilities, as well as insurance costs, depending on the number of children they accommodate.
Staffing expenses will likely be the greatest monthly cost, as most states require several adults to be present at any given time when group sizes go beyond a certain amount of kids.
Annual salaries for a daycare worker and daycare teacher are approximately $20,000 and $25,000 respectively, depending on experience
Who is the target market?
Your main clientele will be working parents who have young children and who need someone to help watch their kids during the day. Depending on your location and the specific needs of your local community, you may also wish to cater your services to a certain demographic. The kinds of clients you attract will also largely depend on how much you charge and the quality of care you are able to provide.
How does a daycare make money?
Day care providers are paid either an hourly rate per child or a fixed monthly or annual rate.
How much can you charge customers?
Childcare rates are adjusted according to the following four factors:
- Whether your business is located in an urban, suburban, or rural setting
- What kind of childcare you provide, and what special services you offer
- The age of the child
- The number of hours the child will spend at your center each week
Daycare centers throughout the United States charge anywhere from $350 to over $1,000 per month per child for full-time care. Average expenses vary state-by-state, with states like Massachusetts, New York, and Minnesota tending to be the most costly, and states like Mississippi, Kentucky, and Louisiana tending to be the cheapest.
How much profit can a daycare make?
In a smaller center that can accommodate thirty kids, with six full-time staff, annual profit could reach $40,000 to $60,000. This is based on a monthly rate of $800 per child, and allows for a generous budget of $180,000 to cover employee expenses.
Net profit for your business will change according to your unique business model.
How can you make your business more profitable?
While in some industries cutting costs is a good way to increase profit, the childcare business is not one of them. Quality care is what all parents are seeking, and in general, your business will thrive to the degree that you are able to surpass parents’ expectations and keep their children happy.
One way to increase revenue is to offer optional extras for parents, like kids classes in music, yoga, or dance. You could also hire a full-time cook to prepare nutritious and tasty meals for your kids, and factor the costs of ingredients and labor into the monthly rate your business charges per child, thus saving parents the time it takes to prepare a daily meal for their children.
What will you name your business?
Choosing the right name is very important. Read our detailed guide on how to name your business. We recommend checking if the business name you choose is available as a web domain and securing it early so no one else can take it.
After registering a domain name, consider setting up a professional email account (@yourcompany.com). Google's G Suite offers a business email service that comes with other useful tools, including word processing, spreadsheets, and more. Try it for free
STEP 2: Form a legal entity
Establishing a legal business entity such as an LLC prevents you from being personally liable if your daycare is sued. There are many business structures to choose from including: Corporations, LLC's, and DBA's.
Form Your LLC
Read our Guide to Form Your Own LLC
Check out the Top Business Formation Services from our friends at StartupSavant.
You should also consider using a registered agent service to help protect your privacy and stay compliant.
STEP 3: Register for taxes
You will need to register for a variety of state and federal taxes before you can open for business.
In order to register for taxes you will need to apply for an EIN. It's really easy and free!
You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.
STEP 4: Open a business bank account & credit card
Using dedicated business banking and credit accounts is essential for personal asset protection.
When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.
Open a business bank account
- This separates your personal assets from your company's assets, which is necessary for personal asset protection.
- It also makes accounting and tax filing easier.
Recommended: Find the right bank for you, read our review of the Top 5 Banks for Your Small Business
Get a business credit card
- This helps you separate personal and business expenses by putting your business' expenses all in one place.
- It also builds your company's credit history, which can be useful to raise money and investment later on.
STEP 5: Set up business accounting
Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.
STEP 6: Obtain necessary permits and licenses
Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.
State & Local Business Licensing Requirements
Each state has its own regulations regarding child care licensing. Here you can check out your state’s information and make sure your day care center is operating according to state law.
If you are serving food at your daycare center, you will likely need to pass a health inspection with your local health department. Here are some tips for faring well on a health inspection.
Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.
For more information about local licenses and permits:
- Check with your town, city or county clerk’s office
- Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources
Daycare businesses should consider requiring clients to sign a service agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership. Here is an example service agreement.
Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your daycare business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.
Release of Liability and Medical Waiver
Childcare providers will also need to obtain written consent from parents to protect them from lawsuits should children have any injuries or accidents while under their care. Here is an example of such a liability form.
However, it is important to know your responsibilities as a care provider and when you may nevertheless be held legally accountable for a child’s injuries at your home or center. This site offers an informative overview of several court cases that give a broader understanding of the topic.
Certificate of Occupancy
Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.
- If you plan to lease a location:
- It is generally the landlord’s responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a daycare business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.
- If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for you business’ location to ensure your daycare business will be in compliance and able to obtain a CO.
STEP 7: Get Business Insurance
Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company’s financial wellbeing in the event of a covered loss.
There are several types of insurance policies created for different types of businesses with different risks. If you’re unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it’s a great place to start for your business.
Learn more about General Liability Insurance.
Another notable insurance policy that many businesses need is Workers’ Compensation Insurance. If your business will have employees, it’s a good chance that your state will require you to carry Workers' Compensation Coverage.
STEP 8: Define your brand
Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.
How to promote & market a daycare
The scope of your marketing strategy will depend on the size of your daycare business. If you are just starting and plan to operate out of your own home, taking on three or four full-time children, you probably don’t need to hire a web development team or a graphic designer for a billboard ad. However, as your business expands, and if you decide to lease or purchase space for a physical center that can accommodate a dozen or more kids, you will at least need a website. This allows parents, who are your prospective clients, to find your business on the Internet, learn about your personality, your childcare center’s core values, the types of activities you have available for your kids, and also a little about the people you have on staff working with you. Making this information attractive and easily accessible will help new parents feel comfortable bringing you their children. Also, you can include testimonials from past or current clients whose kids loved spending time with you.
How to keep customers coming back
It is important to know your target market and develop a unique brand for your daycare center. For example, some daycare centers succeed by catering to wealthier families who wish to provide their children with specialized educational opportunities early on. This daycare center offers kids an immersion-learning experience in Mandarin Chinese. While this kind of childcare may not appeal to you, try to find something unique that you have to offer which will attract clients to your center. Of course, nothing beats having genuine affection for kids and a sincere desire to provide them with a safe space to play and learn.
STEP 9: Establish your Web Presence
A business website allows customers to learn more about your company and the products or services you offer. You can also use social media to attract new clients or customers.
Start A Daycare In Your State
Select your state below for an in-depth guide on completing each of these steps in your home state.
Is this Business Right For You?
Do you like playing with kids? Do you have children of your own? A day care is an excellent business for parents who wish to spend more time with their own children, while at the same time helping other parents by providing high quality child care.
Child care providers are responsible, friendly, patient, and good communicators. Taking care of multiple children is a real challenge; it takes a special person who can give adequate attention to every child in his or her care.
What happens during a typical day at a daycare?
A child care provider typically works during normal working hours, while parents are at work and are unable to watch their children. Depending on the arrangement made with clients, a daycare owner may prepare meals for kids, or offer them snacks to eat throughout the day. Normal activities for children include playtime, reading aloud, watching educational videos, solving children’s puzzles, and other fun and wholesome ways to pass the time. If you are caring for infants and small children, you may also need to change diapers, and clean up after any unexpected accidents. You will also have to make sure your kids are following their scheduled naptime. As a daycare provider, you will need to be present with the children at all times, or have someone on your staff with them. Every state has a different requirement for the ratio of care providers to children at any given time.
In addition to the work of caring for children, you will need to allocate time for communicating with parents, marketing your day care business, and possibly hiring and training staff, depending on the size and scope of your day care.
What are some skills and experiences that will help you build a successful daycare?
Most parents want to give their children the best childcare they can afford. As a prospective care provider, it is your job to assure parents that their children will be safe with you, and that their children will have an educational experience at your home or day care center.
Creativity, strong communication skills, and a talent for the arts are some abilities that will help you create a fun and warm atmosphere for your kids.
This article suggests ten qualities all child care providers should have, as well as how each relates to the day-to-day activities of caring for children.
What is the growth potential for a daycare?
As high quality childcare is a basic need for most American families, the childcare industry will always have a steady stream of clientele. The growth potential for your day care business will depend largely on the demographics of your area. Find out the age breakdown of your local population. How many young people are there? How many are married or in a long-term partnership? The average age women have their first child is 26, although this number varies considerably depending on the unique circumstances of each person.
How much your business expands largely depends on how ambitious you are. To give an example, Anne and Robert Kennedy, owners of Annie’s Children’s Center, started their first center in Ann Arbor, Michigan in 1995. By 2005 they had expanded to three different centers in the greater Detroit area.
Should you consider joining a franchise?
Joining a daycare franchise can be a good option for entrepreneurs who prefer to use a proven model rather than start from scratch. While joining one can mean slightly higher initial costs and less control, a quality franchise offers great benefits such as initial and ongoing support, marketing assistance, and brand recognition.
Opening a daycare franchise typically requires $90,000-$4,000,000. Larger daycare franchises typically cost more, while more niche favorites often have lower startup costs.
Interested in joining a daycare franchise? Check out our favorites.
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Take the Next Step
Find a business mentor
One of the greatest resources an entrepreneur can have is quality mentorship. As you start planning your business, connect with a free business resource near you to get the help you need.
Having a support network in place to turn to during tough times is a major factor of success for new business owners.
Resources to Help Women in Business
There are many resources out there specifically for women entrepreneurs. We’ve gathered necessary and useful information to help you succeed both professionally and personally:
If you’re a woman looking for some guidance in entrepreneurship, check out this great new series Women in Business created by the women of our partner Startup Savant.
How and when to build a team
Each state has its own requirements for how many adults must be present given a certain number of infants, toddlers, and children. Here is one state’s requirements, to give you an idea of what this entails:
Be sure to check your own state’s requirements to make sure your business is compliant with state law.
The size of your team will depend on how many children you have and what kinds of activities you wish to offer. Typical hourly pay for a daycare worker is $9 to $10, and for a daycare teacher it is anywhere between $11 to $14.