How to Open a Daycare

Last Updated on

Quick Reference

If you love kids, are responsible, and are a great multitasker, then opening a daycare might be a great career move. When you own a daycare, you’ll have the chance to care for children while their parents are at work, and your days are sure to be full of excitement and energy. Many caregivers find their calling in owning a daycare, and when you own your own business, you can make the daycare operation as large or as small as you’d like. Whether you want to care for just three or four children at a time, or if you have dreams of hiring staff and caring for dozens of children, the daycare industry is full of opportunity.

Business Overview

Daycares offer supervision, care, and sometimes the education of children. These facilities may be designed for infants, toddlers, preschool-aged children, and even older children. Most daycares offer weekday and before- and after-school care, and children are often cared for in a group setting.

Daycares fill an important need by supervising and caring for children while their parents are at work. Some offer part-time care, while others can accommodate full-time care, depending on the parents’ need. Daycares are designed to be fun and stimulating for children, with games, outdoor time, learning activities, and more being a standard part of their services. Daycares may be located in the provider’s home, in a professional center, or paired with other programs, such as within a school.

Industry Summary

The daycare industry has been steadily growing from 2014 to 2019. According to IBIS World, in 2019, the industry should bring in $57 billion in revenue. The daycare industry has grown by 4.0 percent from 2014 to 2019, and currently, 692,799 daycare businesses operate in the United States. The industry employs 1,627,464 people.

The industry’s growth correlates with the improved economy and lower unemployment rate in the country. Though the costs of daycare services are high, demand has remained steady as more parents have gone to work or found better-paying jobs. The improved economy has also meant that families have increased disposable income, making daycare a more practical option for more families.

Industry Trends

A number of daycare trends are changing the way the industry operates. According to Verywell Family, because daycares can be expensive for families, more parents are reducing their children’s daycare hours or even pulling their children out of the programs. Daycare providers have responded by sometimes reducing rates, working out payment arrangements for families, and offering more flexible hours to appeal to busy parents.

There’s also been an increased focus on providing education in daycare settings, with some daycares even following a formal early education curriculum. Daycare providers are also using technology more, both in terms of marketing their businesses and when communicating with parents. Some providers send parents text messages, post photos to a blog on a weekly basis, or send out frequent e-newsletters to keep parents updated.

Who is the target market for your daycare?

A daycare center can have different target markets, but they often market to families with parents who work and who have young children. Daycare services care for the children during times when the parents aren’t available, usually during the common working hours of the weekdays.

Daycares can specialize and market to specific audiences, too. A daycare with an integrated early education program might market to parents who can afford to pay higher prices and want their children to be prepared for when they go to school. Daycares that offer special before and after-school programs may market to parents who have older children and need partial coverage because of long working hours. Some daycares with special care rates or discounts may market to parents who can’t afford traditional daycare programs and rely on state-subsidized vouchers and the USDA food program.

Skills, experience, and education useful in running a daycare

It’s possible to start a daycare without a business degree, but certain skills and experience will increase the business’ chances of being successful.

Childcare experience. Previous experience caring for children is a must for any daycare provider. Business owners who have childcare experience will be prepared for the challenges of this industry and will also be able to identify and provide quality childcare.

Teaching experience. With education increasingly becoming an important part of daycare, previous teaching experience will also be an advantage for daycare owners.

First Aid and CPR training. First Aid and CPR training and certification are essential when working with children on a daily basis. If it’s been a while since you were certified, consider taking another course to refresh your skills.

Communication skills. Not only are communication skills important for a daycare provider, but providers need to be able to communicate at different levels. Providers will need to engage with parents but also need to be able to communicate effectively at levels appropriate for children of different ages.

Decision making and problem-solving skills. Running a daycare is full of challenges, so good decision making and problem-solving skills are a must.

Physical stamina. Running a daycare is a physically demanding job, and care providers spend long hours on their feet. Physical stamina is important in keeping up with the children and demands of the business on a daily basis.

 

 

Costs to Start a Daycare

The cost of opening a daycare will vary and will depend on the type of facility being opened. A home-based daycare can cost between $10,000 and $50,000 to open, while a larger-scale business based in a rental property can cost $50,000 to $100,000 to open.

Common startup costs include:

  • Home or property renovation costs
  • Furniture and equipment, mats, and carpets
  • Toys
  • Educational supplies
  • Safety equipment like fire extinguishers, smoke alarms, first aid stations, etc.
  • Kitchen accessories and equipment
  • Office equipment

 

Steps to Starting a Daycare

Step 1: Write your Business Plan

After coming up with the idea, the next step in starting your business should be to write a business plan. Not only will a bank require you to have a business plan, but multiple studies have shown that a business plan helps increase the odds of starting a successful business.

Related:
How to write a business plan
Free sample business plans

Step 2: Form a Business Entity

A business entity refers to how a business is legally organized to operate. There are four primary business entities to choose from, which include the sole proprietorship, partnership, corporation, and Limited Liability Company (LLC). Each type of entity has its own pros and cons, such as liability exposure, costs, and administrative requirements.

Related: Comparison of Business Entities

Step 3: Name the Business

Finding the perfect business name can be challenging. Not only does the name have to resonate with your customers, but it also has to be available to use.

Related: Tips and ideas for naming a daycare

Step 4: Select your Location

The location needs for a daycare hinge on proximity to parents and the number of children that you want to care for. Some daycares will run out of the owner’s home, and others will use a variety of commercial buildings, while some will utilize space in churches.

For those operating out of a personal residence, be sure to check with local regulations, so should a neighbor complain, they can’t get your business shut down.

Daycares are typically best situated along major roadways so parents can pick-up and drop-off them on their way to work.

Related: Choosing a business location

Step 5: Register for Business Licenses and Permits

Child care licensing and regulations vary from state to state but expect to meet requirements regarding the number of children your facility is approved to care for, teacher to child ratio, building safety, the safety and nutrition of food served to children, and employee training requirements. Licensing requirements generally require background checks, CPR training, disaster preparedness, and passing regular inspections. Contacting your state’s Department of Children and Family Services early in the process will ultimately make the state regulation and licensing process easier.

In addition to child care licensing requirements, a daycare also needs to hold any required local and state business permits or licenses such as a sales tax permit and Employer Identification Number.

Related: Common business licenses, permits, and registrations by state

Step 6: Find Financing

Coming up with a good business idea and having the skills to run it are one thing, but getting the funding to start a daycare is another. Funding to start a daycare can be difficult due to the costs to open; however, banks like lending to daycares given consistent demand. Many daycares are only able to be financed by using an SBA guarantee. In order to get a small business loan, the borrower(s) will need to have good credit and be able to personally invest 15-25% towards the total start-up costs.

Related: Finding the money to start a business

Step 7: Open a Business Bank Account

Keeping your business and personal finances in separate business bank and credit card accounts makes it easier to track the business’s income and expenses.

Step 8: Get your Marketing Plan in Place

Daycares need an active marketing plan to generate their initial business, but news about a good daycare will also spread naturally once the business is established. Daycares can use many different marketing approaches, and some common techniques include social media marketing, print advertising, and even networking with local complementary businesses. Marketing costs will vary according to the type and volume of marketing activities.

Related: Low-cost ideas to market a new business

Step 9: Get Business Insurance

Caring for other people’s children is a higher-risk activity, so it’s important to make sure that a daycare is fully covered with appropriate insurance. Daycares will need multiple policies for complete coverage, and they are generally grouped under a single “daycare insurance” offering. Most daycare insurance will include the following:

  • General liability insurance protects the daycare if any children or parents are injured while on the property and can cover medical bills and fees.
  • Professional liability insurance provides coverage for a daycare’s employees and can cover bills and expenses if the business is sued for staff negligence or a similar issue.
  • Commercial auto liability insurance covers company-owned vehicles and the expenses or lawsuits that may occur while they’re driven.
  • Abuse and molestation liability insurance helps protect the daycare business against fines, legal fees, or medical expenses if one of the employees is accused of sexually abusing a child in the business’ care.
  • Property insurance covers the business’s property and may extend to indoor equipment, outdoor equipment, and the building itself.

There are also many add-on options, like coverage for field trips and special events. Workers’ compensation is also a wise investment and may be required by the state. It covers expenses like medical bills and lost wages that may occur if employees are injured while on the job.

Insurance policy costs will vary based on a daycare’s location, size, and property value. To get an accurate idea of potential insurance costs, request quotes from multiple providers. Compare those quotes and pay attention to factors like premiums, coverage limits and exclusions, and deductibles.

Step 10: Hire Employees

Daycares often need to have multiple employees, but the number of employees will depend on the daycare’s size and the number of children in care at one time. According to PayScale, daycare providers make an average of $10.00 per hour or a salary of about $30,410 per year.

A daycare’s budget needs to include not only money for the employee’s salary but also the expenses that come with hiring staff, such as workers comp insurance, health insurance contributions, unemployment insurance expenses, and paid time off. Wages are often the largest expense for a daycare. To maintain profits, payroll costs should be less than 45%.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system is critical to the long-term success of your business.

Staying on top of taxes not only keeps the business out of trouble with the government, but the numbers can be used to track and monitor trends and cash flow in the business and maximize profits.

Related: Setting up accounting for your business

 

How much can you potentially make owning a daycare?

A daycare’s income and profits depend on how many children the facility cares for. A daycare’s size and location can affect its capacity, with daycares in highly developed areas usually being able to draw more clientele than daycares in more rural areas. PayScale reports that childcare center directors make an average salary of $42,635 per year, but the profits of a daycare will also depend on its expenses and what it charges for care.

 

Things to consider before starting a daycare

Running a daycare is hard work, especially when starting up the business, and this is one profession where you truly have to love your work. Daycares often have long hours, and parents depend on the daycare to operate daily so they can work, meaning most daycares need at least one employee in addition to the owner.

Starting a daycare center from home may seem like an ideal option, but restrictions and requirements about the space and its safety may mean you’ll find yourself needing to make significant renovations. Remember, too, that having a daycare in your home will transform your home’s space into a business so that it will mean a loss of some privacy for your family.

While you’ll need to meet many regulations to get your daycare up and started, running a daycare can be a rewarding career for someone who truly loves working with children.

Be sure to monitor trends in your local area. According to the National Women’s Law Center, a newer development is a shift of demand towards more evening or weekend availability, and 24-hour daycares are growing in popularity.

 

Resources:

Child Care Services Association
National Association for Family Child Care
National Child Care Association

Subscribe Now to the 60-day Startup Challenge!

Subscribe Now to the 60-day Startup Challenge!