How to Open a Daycare
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.
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.
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.
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.
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. 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.
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.
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.
Checklist for Starting a Daycare
Starting a daycare can be an incredibly rewarding experience, but it’s important to make sure you’re prepared for the challenges ahead. Use this checklist to help get your business off on the right foot.
Step 1: Write a 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
Step 2: 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 3: 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.
When deciding on which business entity is best for a daycare, it normally comes down to the sole proprietorship and Limited Liability Company.
A partnership opens the owners up to unnecessary personal liability because if a partner does something to get the business sued, or runs off with cash from the business, the other partners are personally liable to repay. The corporation can be a good choice because it separates the business assets from the owner’s assets. If the corporation is sued or certain business debts can’t be paid back, the owners aren’t personally responsible to repay them. The downside to the corporation is that it is more complicated than all the other entities and requires more administration than the LLC. If you plan on raising a lot of investment though, the corporation is usually the better choice.
That leaves the sole proprietorship and LLC.
The sole proprietorship is the least expensive and easiest entity to start which is appealing. The downside is the owner is personally liable should anything happen to the business, which is an important consideration. The LLC offers the ability to operate as a sole proprietorship with the liability protection of a corporation. Depending on the state, the cost to form an LLC runs from $40 – $500, which is pretty inexpensive for protecting the owners from business-related lawsuits and certain debts.
Related: Guide to forming your LLC
Forming an LLC sounds complicated and expensive, but using an entity formation service guides you through the process so you know it was done right.
Some popular LLC formation services include:
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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.
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 home daycare will transform your home’s space into a business so that it will mean a loss of some privacy for your family. Before operating out of your home, 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 professional development 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 the child care licensing process requirements easier to complete.
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.
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 center 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.
Step 7: Open a Business Bank Account
Keeping your small business and personal finances in separate bank accounts is important to track the income and expenses of your business and identify trends.
Many banks offer free business checking accounts, so be sure to find a cost-effective option for your business.
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.
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Step 9: Get Business Insurance
Caring for other people’s children is a higher-risk activity with significant consequences, 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. A few types of insurance daycares should consider include:
– General liability insurance protects the daycare if any children or parents are injured while on the property and can cover medical bills and fees.
– 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.
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 child care center’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.
The thought of accounting can be intimidating for a lot of new entrepreneurs. There are a number of ways of handling bookkeeping, from DIY to hiring a bookkeeper. These include:
- Pen and paper - Low expense, but difficult to track.
- Spreadsheet - Low expense, but easy to make errors.
- Accounting software - Medium expense, but owner typically inputs expenses. Some great accounting software programs include Freshbooks or Wave Accounting.
- Hire a bookkeeper - Higher expense, though very affordable at $100-$200 per month in most cases. A dedicated bookkeeper will probably save money because, in addition to handling all of the bookkeeping (so you can focus on the business), they also provide personalized tax advice and ensure the business is in compliance.
Find bookkeepers in your local area or use a service like 800Accountant.
How much does it cost 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.
Some common startup costs for a daycare includes:
– Home or property renovation costs
– Furniture and equipment, mats, and carpets
– Educational supplies
– Safety equipment like fire extinguishers, smoke alarms, first aid stations, etc.
– Kitchen accessories and equipment
– Office equipment
How much do daycare owners make?
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.
Are there grants to start a daycare?
It’s extremely rare to find a grant to start a daycare. If you search for business grants, you will come across a lot of scams and misinformation. Occasionally an organization will offer grants to start a business, however, be skeptical and don’t provide any sensitive personal information or pay money to get more information.
Legitimate federal grants can be found at Grants.gov and you can check on your state’s economic development office to see if they have any grants available.
What is the NAICS code for a daycare?
The NAICS code for a daycare is 62441.
The NAICS code (North American Industry Classification System) is a federal system to classify different types of businesses for the collection and reporting of statistical data.