What Does It Take To Start A Daycare?

What Does It Take To Start A Daycare?

What Does It Take To Start A Daycare?

It’s often said that the best way to start a business is to find a problem and solve it. For many parents with young children, finding reliable, quality daycare can be a challenge. If you enjoy working with children, starting a daycare can be a rewarding, and profitable, way to solve that problem. 

While there are fairly low barriers to entry, you must invest time and money to make sure you set up and run your business professionally. There are several key steps to starting a daycare: 

1. Get Licenses and Certifications

Many types of businesses require a business license, but with daycare it’s especially important to make sure you are properly licensed. You’ll be working with children, and government agencies often license daycares to help ensure safety. 

The state where your business is located will often have a Department of Childcare Services or Department of Children and Family Services (or something similar) that will spell out what’s required to get licensed in your state.  

You may need to take courses to ensure you understand the rules required for operating a daycare, and you will likely need to be trained in basic first aid and CPR. (Even if it’s not required, it’s a good idea.) A background check and fingerprinting may be required. Some states also require you meet a certain number of continuing education hours. 

2. Form a Business Entity

It’s always wise to run a business as an LLC or Corporation, but it’s even more important with businesses like daycares that have a higher risk of liability. An LLC or other business structure can help protect your personal assets from activity of the business. Some daycare providers choose to form a non-profit organization to run their business. 

3. Get Insurance 

You’ll want to make sure you get the proper business insurance, including liability insurance. If you decide to operate your daycare out of your home, check with your current homeowner’s insurance company to see what additional coverage you need. It’s very risky to run a business without insurance, and that’s especially true if you will be taking care of children.

4. Choose a Location

On top of the basic logistics you also need to find a space for your daycare. This may be your home or another location, but either way it will need to meet the safety standards required by your state. 

You may choose to run your daycare from your home, in another facility such as a church, or in a dedicated childcare center. Each has its pros and cons, but regardless there will be expenses involved, either in the form of rent, or upgrades to create the space to care for children in your own home. 

Make sure there are no zoning restrictions or homeowner association rules that prevent you from running your daycare from your home if you choose that as your location.

Whether you operate from home or open a daycare center, you’ll need to take steps to ensure safety. That may mean installing childproof locks on cabinets and doors, bolting bookshelves, having fire extinguishers available, etc.  

5. Purchase Supplies

You’ll also need supplies, such as learning materials, toys and perhaps even playground equipment  to ensure an enriching environment for the children you care for. You may need sleeping mats or cribs, food dishes and utensils, diapers, or baby monitors.

You’ll also want to make sure the products you buy–especially second-hand–aren’t subject to safety recalls. 

6. Prepare for Taxes

You’ll want to set up a bookkeeping system to ensure you track your business expenses and income to take advantage of available tax deductions. Whether you choose to do it yourself using accounting software, or hire a bookkeeping service, getting set up properly from the beginning will make it a lot easier than trying to scramble when taxes are due. 

7. Create a Business Plan

Every business owner needs a business plan, and a daycare business is no different. Even if your goal is to start a small home daycare business, it’s smart to create a business plan so you understand who your customers will be, how you’ll find them, and how much you’ll need to charge to be profitable. 

Your business plan will also help you think about advertising and how you’ll identify customers. If there’s enough demand in your area, social media marketing may be sufficient to drum up business, but in other cases you may need to consider investing in a formal advertising program. 

If you’re not sure how to create a daycare business plan, you can get free help from Small Business Administration (SBA) resource partners such as SCORE or your Small Business Development Center. Both organizations offer free mentoring for entrepreneurs. Find local help here.

The Childcare Technical Assistance Network (part of the US Department of Health and Human Services) offers a free resource guide with information and resources for running a childcare business. 

Can Running A Daycare Be Profitable?

Yes, running a daycare can be a profitable business. Grandview Research estimates that the annual compound growth rate for the U.S. child care market will be 3.9% from 2020 through 2027. This ever growing field offers opportunities for those wanting to start a daycare business.

According to the Bureau of Labor statistics for May 2021, the annual mean wage for child day care services administrators was $50,450. Of course, actual profits (income after expenses) will vary depending on where the business is located, how many children it serves, and their ages, employee costs and overhead. 

Keep in mind that if you plan to open a daycare in order to be home with your own children, that will limit how many other children you can take in, as most states mandate provider/child ratios. That may be a worthwhile trade off for you and you can continue the business if your children.

Are Daycare Franchises Profitable?

Daycare franchises can be profitable, and they often provide a number of benefits including an already developed business model, name recognition and marketing support. 

However, just to get started requires a franchise fee which can range from as little as $25,000 to $135,000 or more. You’ll have to recoup that fee, plus other startup and ongoing costs, to make money. 

You’ll want to very carefully evaluate the franchise opportunity if you’re considering going this route. You could also consider buying an existing daycare business instead of franchising. 

Is Starting A Daycare With Only $5000 Feasible?

It may be possible to start a daycare business with as little as $5000, though many resources peg the minimum startup costs at $10,000—$15,000. And it can cost a lot more if you want to open a freestanding child care facility.

One way to reduce your costs is to start by starting as a home-based daycare while you build clientele and a reputation. Not having to buy or lease a space can save you a lot of money but you will likely be limited in terms of the number of children you can enroll. It is important to think about costs that may need to go into modifying your home to make it safe for a daycare, as well as additional insurance costs.  

Another way to get started for less is to look into loans and grants. A variety of different funding programs may help you reduce the cost of starting a daycare, though grants are unlikely to pay the full cost of getting started. 

How Do Daycares Accept Payment?

First, it’s good practice for daycares to set up a formal written policy describing rates and payment terms and have parents or guardians sign a contract that spells out those terms, including fees for late payments or returned checks (NSF). 

Then, you want to regularly invoice clients to minimize any disputes about what is owed. 

You may choose to accept payment by cash or check, or by credit or debit card. To accept credit or debit cards, you’ll either need to use a platform like Venmo or Paypal, or set up a merchant account through a provider like Square or Stripe. With any of these services there will be fees that you’ll have to pay. You may want to offer a discount for payment by cash or check to help offset fees. 

How Can I Get More Money For Daycare?

If you aren’t fully self-funding your daycare, you will need to find financing through loans and/or grants. A business plan can be essential when applying for grants. 

There may be some funding available through non-profit organizations such First Children’s Finance or microlenders

You can also look into financing from private sources such as small business loans, SBA loans, business lines of credit, or business credit cards. You can build business credit for your daycare, and when you do, you may have more financing options available.

Learn how to get a business loan for a daycare here

Some providers contract with employers to help subsidize the cost of the daycare for employees. This can make your services more affordable to parents, and may minimize turnover or collection hassles. 

Frequently Asked Questions About How Much Money You Can Make Running a Daycare

It’s difficult to pinpoint exactly how much childcare providers make on average, due to the many variables involved including the local childcare market, number and ages of children, staff salaries, etc. 

But data from administrator salaries can give you some idea of what you may be able to expect from a full-staffed daycare. (Note that salaries are different from profits.)

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