How to Start a Daycare Business

As long as working parents rely on professionals to look after their kids, there will be a need for daycares. In fact, 6.7 million children–roughly a third of American children–are regularly looked after by a nonrelative, while 4.8 million children attend a preschool or daycare.  For the right individual, opening a daycare can be a fulfilling and steady line of work. It’s a type of small business that is dependably necessary for the foreseeable future.  

In this post, we’ll explain what it takes to run a daycare and describe the necessary steps to open a daycare business.

Is a daycare business right for you?

Before you write up your daycare business plan, stop to consider whether or not you have the appropriate qualities for the work.  Running a daycare business full-time is hard work, and it won’t make you a millionaire, so make sure that you are the type of person that will accrue non-materialistic benefits from the endeavor.  

You love spending time with children.

Unless you plan to purely finance a daycare center and leave the day-to-day running of the center to others, you will be around children for much of your working hours. For many, this will be a pleasure, but if you don’t like kids that much, a daycare center is probably not for you.

You are patient and able to mediate effectively.

Loving kids and being able to tolerate them without blowing a fuse are two different qualities. In addition to having to endure rowdy kids on a daily basis, you’ll also have to regularly interact with their parents or primary caretakers, who can be a handful in their own right, with lofty expectations and a refusal to believe that their own child occasionally behaves poorly. What’s more, having employees working under you as a daycare center director adds another dimension to the role.  

As the operator of a daycare business, being patient and tolerant of others and possessing the skills to communicate and manage effectively are vital necessities.  

You don’t expect to become rich.

Home daycare owners rarely make over $15 an hour, and the salaries of daycare center directors seldom crack $60K a year. Don’t expect to make a ton of money in this business. Your motivation for the work must come from a genuine love of the profession rather than from the possibility of generating a large income. 

Starting a daycare business

1. Choose the type of daycare business you wish to open

In starting a daycare business, you have two principal options: running a daycare out of your home or opening up a commercial daycare center. The first option has much lower startup costs (around $2000 to $3000), but there also be a lower ceiling to the income you can generate.

Alternatively, opening up a daycare center is a more complicated and expensive process, but it may appeal to a business owner, as the potential for financial success is considerably higher. The route you choose depends on a few factors, including the financial resources available to you and the general ambition/vision you have for your business. 

2. Calculate your expenses and purchase necessary items

Here are some of the main costs to consider in opening a daycare business.

• Rent or buy a facility. If you aren’t running the daycare from your home, then this will be your largest expense, by far. At the start, a smaller space is the way to go. Of course, property and rental values vary considerably between areas, so be sure to choose a spot that is well within your budget.
• Toys and books. Kids will need things to play with and keep them entertained while they are under your supervision. Consider spending an initial $1000 on toys, games, and books, preferably with an educational bent, for your daycare business. 
• First aid and medicine. Kids get sick and often hurt themselves playing. Being able to treat minor cuts and bruises promptly is important, so stock up on bandaids, child medicines, and other essential first aid materials. 
• Employee salaries. If you are opening a larger daycare center, you may consider employing other workers for the business, which will significantly increase the number of children you can watch over and improves the daycare worker to child ratio. The going rate for a daycare worker ranges from $10-$15 an hour. 

3. Acquire funding, choose a business entity, register your business, and obtain federal and state tax ID numbers

Refer to our How to Start a Business Guide for instructions on how to complete these essential steps.

4. Obtain the necessary licenses and permits 

Generally, the only requirement to open a childcare center is a high school diploma or GED equivalent, however, state and local governments may have additional educational or licensing requirements, including:

• Childcare Development Associate Credential License – One of the most important and widely attained child care licensing credentials in the industry. Many businesses require a CDA for the position of daycare center director.  
• CPR Certification – Emergencies happen, and you want to be prepared for them. Getting certified in CPR and first aid will enable you able to help a child in the case of a serious situation.
• Associate degree in Child Development or Early Childhood Education – A two-year degree in either of these fields, even if not obligatory, should prove tremendously helpful in running a day-to-day child care business.  

5. Choose a location for your daycare business

Those that choose to run their daycare out of their own home can bypass this one, but it’s a very important concern for those that plan to open a separate child care facility. 

Ideally, you would want to make it convenient for parents and children by locating the daycare facility near a school or near local businesses where many people work, that way parents can drop off their child on the way to their employer. However, local zoning laws could prohibit you from opening your business as close to a school as you’d prefer. 

6. Buy insurance coverage

Insurance coverage is an essential means of protection for any business. In fact, businesses with employees are required by the federal government to have two types of insurance, while others are strongly encouraged, or required at the state level. 

Here are the forms of insurance you should consider for your daycare business:

Required forms of insurance for all business with employees:

• Workers’ compensation: Covers medical costs and disability benefits if an employee is injured or becomes ill on the job.
• Unemployment insurance: Provides benefits to workers after a loss of job through no personal fault.

Recommended forms of insurance for a daycare business:

• Professional liability insurance: Covers losses as a result of property damage, medical expenses, libel, slander, and negligence claims. 
• Commercial daycare insurance – Many providers offer a specialized form of daycare, or home child care insurance, that affords multiple protections. 

7. Market your daycare business  

No new business can thrive without local advertisements and a well-established online presence. Here are the key steps for developing a marketing plan and promoting your daycare business:

• Create a website. Register a domain name for a company website (You can use domain.com, Bluehost, GoDaddy.com, or Namecheap.com). Hire a web designer to develop the website (or do it yourself). Be sure to include detailed contact information on the site.
• Open social media accounts. Register accounts on the popular social media services (Twitter, Facebook, Instagram)
• Register a Google profile. This will allow you to add pictures of your business, respond to positive customer reviews, and address customer concerns.
• Respond to online customer feedback. Register accounts on business review platforms such as Yelp and TripAdvisor. This will allow you to write thank-you notes in response to glowing reviews and address negative reviews.
• Take out ads on billboards and in local publications. It still pays to increase visibility by buying ads in local newspapers and on highway billboards. 

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Daycare business resources

• Child Development Associate Council: CDA Credential – Information on the CDA license and how to obtain one. 
• Childcare.gov – Resources and information for those providing child care services and caregivers, alike.
• Child Care Center Resource E-book – A fantastic collection of resources released by Childcare Aware of America to aid and instruct daycare center directors and operators.
• National Association of Family Child Care – A 501(c)(3) nonprofit membership organization that supports child care providers around the country and provides accreditation for eligible daycare providers. 
• Recalls.gov – A regularly updated list of products, food, and drug recalls. An important resource for staying informed on things that you shouldn’t keep around your daycare business.