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How to Start a Private Tutoring Business

Overview

How to Start a Private Tutoring Business

This is a call to action for all those math wizards, bilingual experts, and ardent artists or scientists out there. If you have in-depth knowledge and passion for a specific subject area, are a good communicator and relate well to students from various backgrounds, then why not make private tutoring your business? Let’s be honest, only a few of us excel at everything, which means private tutoring will always be in demand. So if you are a subject expert, have a relevant teaching qualification, and are ready to become your own boss, you should read on.

Business Overview

Private tutors teach a specific skill or subject to individuals or small groups of kids or adults. Private tutoring businesses mainly offer academic tutoring, exam preparation, and remedial courses, including music and art classes or public speaking tutoring. Private tutoring lends itself to be provided from home, but with new technologies available, tutoring businesses increasingly offer their services online as an additional avenue. In terms of statistics, the industry is divided into online tutoring services and tutoring and driving schools. Our recommendations will exclude driving schools.

A tutoring business lends itself to starting small. You can quickly start a home based tutoring business as a one-woman/man band, build your reputation, and then grow the company from there. That said, if starting small, you will be limited by how many tutoring clients you can take on and what subject areas or skills you can offer. But you will be able to build up your confidence and your systems and processes as a small business owner.

Some tutoring businesses will cover multiple subjects, but consider narrowing down into a particular subject area, in order to generate a name for the business and possibly generate higher rates. By defining your niche – being an expert in subject matter from test prep and helping people pass exams such as the SAT, ACT, etc., to teaching language skills, to math, and more, you will have a more clear vision and understanding of the audience you are trying to help.

Being your own boss will be hard work and daunting sometimes. But it’ll also be hugely rewarding helping your client to learn something new, to ‘click,’ and seeing them succeed. Job satisfaction in this industry is very high at 4.1 out of 5 points.

Industry Summary

According to Statista, 7.58 % of Americans aged 18 to 29 responding to a survey in 2018 stated that they used a tutoring service in the past 12 months. At present, according to IBISWorld, there are over 3,700 registered online tutoring businesses and a staggering 178,000 businesses falling under the tutoring and driving school category in the US alone, with a market size of $1 billion and $13 billion, respectively. Some of the biggest players in the US market are Tutor.com, Chegg Inc, Educate Inc., Huntington Learning Centre, and Graham Holdings. According to the US Census Bureau, 37% of tutoring businesses are female-owned.

Industry Trends

The tutoring industry is expected to show strong growth in the coming five years. According to VerticalIQ, a compounded annual growth of 4.56% is forecast up to 2025, a faster rate than the overall US economy.  This is especially true for online tutoring services. This upward trend is supported by the forecast increase in student numbers in the US, especially college students,  as well as an expected rise in disposable income. On the other hand, fewer students taking their ACTs means lower demand for test preparation is forecast.

Target Market

Different tutoring companies typically have different audiences. Your target market largely depends on the expertise or skill you are going to be teaching. Some subjects will be better suited to teach face-to-face, while others can be easily offered online and can be even enhanced with online teaching tools.

What you intend to teach will also determine the age group or grade level and potentially the group size. If you are planning to tutor younger children, be aware of the regulations relating to child safety and well-being, and remember that the parents will be the decision-makers. High school students are another great target to help them college prep or students needing help passing their GED. Your marketing and communication will need to be developed with parents and children in mind.

Skills, experience, and education useful in running a private tutoring business

Teaching experience: Regardless of the subject area or skill you will be teaching, it is important that you are familiar with teaching methods as well as learning styles. Skills also include lesson planning, evaluating student work, and understanding the curriculum and corresponding assessments. Whether you will need a teaching qualification may vary depending on the services offered and which state you are in, but it is recommended to complete relevant training. Not only will it help you with your students on a daily basis, but it will also give potential customers confidence in getting professional and expert service.

Communication and interpersonal skills: Of course, it is important that you have expert knowledge of your subject area, but it’s equally important that you enjoy sharing your knowledge with others, communicate well, that you can relate to different characters, and understand learning needs. You will likely get to work with students of all ages and from all walks of life. Not only that, if you are working with younger children, you will also be communicating with their parents, reporting on progress, or discussing any issues.

Knowledge of subject-specific and teaching trends and requirements: We highly recommend you stay up to date with the latest research and expertise in your subject area. It’s also valuable to keep informed about trends in teaching and learning. If you plan on offering online tutoring, be sure you are familiar with the latest technologies and teaching platforms to enhance your business’ offering.

Knowledge of regulations and requirements: You might be required to have specific qualifications to offer private tutoring services. There are also a number of requirements relating to teaching children and youth. This might differ from state to state, but it is important that you understand and implement all requirements.

Management skills: You might hire multiple teachers to offer expert tutoring in a broad range of subject areas or at different levels. In that instance, previous experience hiring, training, and managing others will be helpful.

Marketing skills: Your excellent customer service and subject knowledge will promote customer loyalty. A good reputation can easily attract customers by word of mouth, But marketing and a strong communications strategy will be essential, especially to start your business. Experience with social media is particularly helpful in this industry.

Checklist for Starting a Tutoring Business

Starting a tutoring business 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 your Business Plan

You are passionate about sharing your expertise with others and have come up with a great idea to start your own tutoring business. It is now time to write a business plan.  The business plan will provide a great framework to implement your idea. It will make you focus on some important aspects of the business, such as who your customers are, how you plan to reach them, what the setup costs are going to be, who your competitors are, and much more.

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 name for your tutoring business can be challenging. You’ll want the name to be meaningful but also resonate with your customers. Not only that, but the name you choose also has to be available to use.

Step 3: Form a Business Structure

A business structure (also referred to as a business entity) refers to how a business is legally organized to operate. There are four primary business structures 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 structure is best for a tutoring business, 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.


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Step 4: Select your Location

There’s nothing to stop you from starting your private tutoring business from home unless, of course, you are living in an extremely remote area. Depending on your services, consider offering to tutor online or at your local school, for example. If you decide to rent a dedicated space,  costs depend on square footage, location, and amenities. Business space in a high-traffic area will cost more to rent, but it is also more visible can increase public awareness.

Related: Choosing a business location

Step 5: Apply for Business Licenses and Permits

A teaching license is not required to be a licensed tutor, however having one will boost your credentials with potential customers.

While a teaching license isn’t typically required for a private tutor, general business licenses and permits will be needed. These permits and licenses can vary based on the state and town where the business is located. A few permits include having a business license, whether you will employ staff (Employer Identification Number), whether you will rent or purchase a dedicated space (Occupancy Permit).

To improve your business’ credibility with customers, to attract top talent, and to keep up to date with the latest research and trends, consider certifications and credentials from known associations such as the National Tutoring Association or American Tutoring Association, for example.

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 tutoring business is another.  Should you need a loan, you as the borrower(s) will need to have good credit and be able to invest 15-25% of their money 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 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

A tutoring business will need to set aside a budget to cover marketing and communications costs, especially during the start-up phase. Common communication channels for tutoring businesses include social media marketing, online advertising, flyers on bulletin boards, advertising in newspapers, and more.

It is also worth looking into approaching local schools and colleges or universities and seeing whether you can promote your services through their newsletters, for example. You might also consider creating a student loyalty program.

Related: Low-cost ideas to market a new business

Every business is going to need a logo. Make a professional logo in no time with the free Canvaa logo maker!

Step 9: Get Business Insurance

There are several types of insurance to consider when starting a tutoring business. A couple of these include:
– General liability insurance protects the business from expenses like medical and legal bills that it could face if a customer is ever hurt while on the business’ property.
– Worker’s compensation insurance covers expenses like medical bills and legal fees that a business might face if an employee were ever hurt while working.

The cost to insure a private tutoring business will vary in cost depending on factors like the business’s location, the type of work being done, and the number of employees on staff. To get the most accurate idea of insurance costs, request quotes from multiple providers.

Related: Common types of insurance a business may need

Step 10: Hire Employees

According to the US Consensus Bureau, most tutoring businesses have between 1 and 4 employees. Having staff, at least on-call can help cover high volumes of work, especially around exam times, and offer a broader range of subjects. According to PayScale, the average pay for a tutor is $17.75.

In addition to salary costs, a tutoring business’ budget will also need to include other employee-related expenses. Workman’s comp insurance, unemployment insurance, and paid time off are common expenses that a shop will need to cover when hiring staff.

Related: Hiring your first employee

Step 11: Set up an Accounting System

Setting up an accounting system for your private tutoring business is critical to its long-term success.

Staying on top of taxes keeps the business out of trouble with the government. A solid accounting system will also help you track and monitor trends, stay on top of invoicing, and ultimately maximize profits.

Related: Setting up the accounting for your business

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 tutoring business?

Tutoring businesses face a low barrier to market entry and startup costs can vary greatly.

You have the option to start out by yourself. You might consider offering this from home or online. You also might decide to provide tutoring at the student’s home, or in a classroom after school hours, or you might start your business with several employees in a rented or purpose-built facility. These decisions will greatly influence what your start-up costs and monthly expenses such as insurance, rent, and staffing costs will be.

Make sure you budget for relevant technology and online teaching programs and platforms, though. Marketing and communications are other expenses. Budget a substantial amount for the start-up phase and set aside a smaller amount for monthly updates. Also, consider certification costs and costs relating to training your employees – and yourself.

How much does a tutoring business owner make?

Setup costs for a tutoring business are relatively low compared to other sectors or businesses that need a high volume of stock, for example. You can also easily scale up or scale down your operations in line with changing or seasonal demand. Considering the low cost to start, increase in online tutoring platforms, and flexible schedule, there is strong competition for tutors. That said, strong growth is forecast for this industry in the next five years, and according to PayScale, an experienced tutor can expect an hourly rate of $25 and higher per hour.

Demand for tutoring services will vary throughout the year and tends to be highest during the school year and slowest during holidays and summer vacations. This will impact cash flow, so it’s important to budget for seasonal fluctuations. If employees will be hired, having a flexible staff is important to your profitability.

Are there grants to start a tutoring business?

It’s extremely rare to find a grant to start a tutoring business. 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 tutoring business?

The NAICS code for a tutoring business is 611691, which is classified under Exam Preparation and Tutoring.

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.

Related: What is a NAICS code and how to find yours

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