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How to Start a Daycare Business

Updated on January 19, 2022

How to Start a Daycare Business

How to Start a Daycare Business

Countless working parents rely on quality daycare every weekday, which makes it an absolutely necessary and crucial service across the United States and beyond. If you love young children, you could open your own daycare business and play a key role in their early development.

Starting any kind of business, however, takes a lot of work. The key is to have the knowledge that will help you avoid common mistakes and the patience to move through the development and launch process detailed in this step-by-step guide.

Fast Facts

Investment range

$27,650 - $72,300

Time to build

1-3 months

Industry trend

growing

Profit potential

$17,238- $33,800 p.a.

Step 1: Decide if the Business Is Right for You

Photo of young attractive thoughtful minded pretty lovely girl thinking look copyspace isolated on grey color background

Starting a daycare business requires time, effort, and commitment, not to mention a love of toddlers. You will be taking a major risk, so educating yourself is critical before deciding whether to dive in.

Pros and Cons

Every business has its pros and cons. You will need to weigh these factors to decide if starting a daycare business is your best choice.

Here are some basic pros and cons of starting and running a daycare business.

Pros

  • Providing an invaluable service
  • Quality time with young children
  • No educational requirements
  • Day-time work only

Cons

  • The daycare business is quite competitive
  • Marketing will be required to build your brand
  • Hours can be long; daycare centers usually open at 6 a.m.

Industry trends

Market analyst Grandview Research valued the US child care industry at $54.3 billion in 2019 and expects it to grow 3.9% annually through 2027.[1]https://www.grandviewresearch.com/industry-analysis/us-child-care-market Sector growth is being driven by an increase in the number of working parents, even though the pandemic reduced demand due to the increase in parents working from home.

There is a direct link between economic fluctuations and the daycare industry. When the economy is growing, more people are employed and need child care services.

How much does it cost to start a daycare business?

The start-up costs for a daycare business range from $27,000 to about $72,000. You could run a daycare from your home for much less, but you will have less capacity.

Start-up CostsBallpark RangeAverage
Setting up a business name and corportation$150 - $200$175
Licenses and permits$200 - $300$250
Insurance$100 - $500$300
Business cards and brochures$200 - $300$250
Website setup$1,000 - $3,000$2000
Space lease security deposit or purchase down payment$5000 - $30,000$17,500
Space remodeling and preparation$20,000 - $30,000$25,000
Toys and supplies, both indoor and outdoor$1,000 - $8,000$4,500
Total$27,650 - $72,300$49,975

How much can you earn from a daycare business?

Your profit will vary depending on how large your space is and how many children it can accommodate.

The average cost for full-time care of one child at a US daycare center is $340 per week, while industry profit margins average 6.5%. The primary costs are labor and overhead, including rent and materials. If your center can cater to 15 children, your annual revenue will be around $265,000, with a profit of about $17,000.

As your brand gains recognition you might upgrade to a 25-child capacity space and increase your weekly price to $400 per child, leading to annual revenue of $520,000 and a profit of more than $33,000.

What barriers to entry are there?

There are several barriers to entry for a daycare business. Your biggest challenges will be:

  • Building a reliable reputation and standing out from the competition
  • Securing a prime location, accessible to many parents
  • High startup costs, mainly rent and labor

Step 2: Hone Your Idea

Now that you know what’s involved in starting a daycare business, it’s a good idea to hone your concept as you prepare to enter a competitive market.

Why? Identify an opportunity

Since you will have no track record in the business, you need to find a way to stand out from the competition. An important first step is to find a densely populated area with few or no other daycare businesses.

Next, you should determine how you can establish trust with potential clients, and what you can offer that will make your business seem superior to other daycare options.

What? Determine your products or services

Think about what you can offer in your daycare center that will give you an advantage. These might be nutritious food choices or advanced educational activities using special toys and games.

How much should you charge for daycare services?

Again, the average cost of daycare per week is $340 per child. You could initially charge a little less than average, but you want to be careful not to position yourself as a discount daycare center, which could reduce customer trust.

Research daycare businesses in your area to determine the best prices for your market.

Who? Identify your target market

Your target market will be working parents who need daily child care. You might also target parents who need after-school care by contacting schools in the area.

After you get started, word-of-mouth referrals and repeat customers will be your biggest source of business, so be sure to provide a reliable service.

Where? Choose your business premises

You will need a location near residential neighborhoods so it’s convenient for parents.

Find commercial space to rent in your area on Loopnet, Craigslist, Crexi and Commercial Cafe.

When choosing a commercial space, you may want to follow these four rules of thumb:

  • Central location accessible via public transport
  • Ventilated and spacious, with good natural light
  • Flexible lease that can be extended as your business grows
  • Ready-to-use space with no major renovations or repairs needed
Should You Start a Daycare Business

Step 3: Brainstorm a Business Name

Your business name is your business identity, so choose one that encapsulates your objectives, services, and mission in just a few words. You probably want a name that’s short and easy to remember, since much of your business, and your initial business in particular, will come from word-of-mouth referrals.

Here are some ideas for brainstorming your business name:

  • Short, unique, and catchy names tend to stand out
  • Names that are easy to say and spell tend to do better
  • The name should be relevant to your product or service offerings
  • Ask around — family, friends, colleagues, social media — for suggestions
  • Including keywords in the name, such as “child” or “care”, boosts SEO
  • Choose a name that allows for expansion: “Jim’s Bakery” rather than “Jim’s Cookies”
  • Avoid location-based names that might hinder future expansion
  • Use online tools like the Step by Step business name generator

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names at a web cataloging site such as NameChk. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these.

Finally, make your choice among the names that pass this screening and go ahead with domain registration and social media account creation. And if you’ve exhausted all your creative juices but still don’t have a business name, don’t stress! Instead, check out our business name generator. Just type in a few keywords and hit “generate” and you’ll have dozens of suggestions at your fingertips.

Step 4: Create a Business Plan

Every business needs a plan, a rough outline that helps guide a startup through the launch process while maintaining focus on key goals. A business plan is also crucial for helping potential partners and investors understand your company and vision:

  • Executive Summary: Brief overview of the entire business plan; should be written after the plan is complete.
  • Business Overview: Overview of the company, vision, mission, ownership, and corporate goals.
  • Product and Services: Describe your shop’s services in detail.
  • Market Analysis: Assess market trends such as variations in demand and prospects for growth, and do a SWOT analysis.
  • Competitive Analysis: Analyze main competitors, assessing their strengths and weaknesses, and create a list of the advantages of your services.
  • Sales and Marketing: Examine your companies’ unique selling propositions (USPs) and develop sales, marketing, and promotional strategies.
  • Management Team: Overview of management team, detailing their roles and professional background, along with a corporate hierarchy.
  • Operations Plan: Your company’s operational plan includes procurement, office location, key assets and equipment, and other logistical details.
  • Financial Plan: Three years of financial planning, including startup costs, break-even analysis, profit and loss estimates, cash flow, and balance sheet.
  • Appendix: Include any additional financial or business-related documents.

If you’ve never created a business plan yourself before, it can be an intimidating task. Consider hiring an experienced business plan writer on Fiverr to create a professional business plan for you.

Step 5: Register Your Business

Registering your business is an absolutely crucial step — a prerequisite to paying taxes, raising capital, opening a bank account, and other guideposts on the road to getting a business up and running.

Plus, registration is exciting because it makes the entire process official. Once it’s done, you have your own business!

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states offer real advantages when it comes to daycare.

If you’re willing to move, you could really maximize your business!

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your barbershop will shape your taxes, personal liability, and business registration requirements, so choose wisely.

Here are the four main options:

  • Sole proprietorship – The most common structure for small businesses makes no legal distinction between company and owner: you get to keep all the profits, but you’re personally liable for all debts.
  • Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses.
  • Corporation – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly.
  • Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.

We recommend that most new business owners form an LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can quickly and cheaply form an LLC using ZenBusiness’s online LLC formation service (it can take as little as 5 minutes). They will check that your business name is available before filing, submit your Articles of Organization and be on hand to answer any questions you have about the company formation process.

Business structure comparison infographic

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN.

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate on a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

The IRS website also offers a tax-payers checklist, and taxes can be filed online. It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

  • Bank loans: This is the most common method, but getting approved requires a rock-solid business plan and strong credit history.
  • SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
  • Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
  • Venture capital: Offer potential investors an ownership stake in exchange for funds, keeping in mind that you would be sacrificing some control over your business.
  • Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund an entrepreneur’s vision.
  • Personal: Self-fund your business via your savings, the sale of property or other assets, and support from family and friends.

Step 8: Apply for Licenses/Permits

Starting a daycare business requires obtaining a number of licenses and permits from local, state, and federal governments.

Federal regulations, licenses and permits associated with starting your business include doing business as, health license and permit from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits.

You may also need state-level licenses, a business license, and local county or city-based health licenses and permits. Additional permits may be required by your state, such as a general business permit or license. The license requirements and how to obtain them vary from state to state, so check your state government’s website or contact the appropriate person to inquire about licenses and permits needed to run a catering business. You could also use the SBA’s guide to identify your state’s requirements.

Your city, town, or county may also have additional requirements, such as signage and zoning permits. You may want to speak to representatives of your local governments about licensing requirements.

This is not a step to be taken lightly, as failing to comply with legal requirements can result in hefty penalties. If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

For peace of mind and to save time, we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state, and provide them to you to make sure you’re fully compliant.

Step 9: Open a Business Bank Account

Before you begin making money, you will need to have somewhere to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your catering business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer business account options, just inquire at your preferred bank to learn about rates and features.

But it is a good idea to look at a few options, as banks vary in terms of offerings, and you want to find the plan that works best for you. Once you choose your bank, you just need to bring your EIN (or Social Security Number if you decide on a sole proprietorship) and your articles of incorporation or other legal documentation that proves your business is registered.

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked but is vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business, and your life.

Here are some types of insurance to consider:

  • General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
  • Business Property: Provides coverage for your equipment and supplies.
  • Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
  • Worker’s compensation: Provides compensation to employees injured on the job.
  • Property: Covers your physical space, whether it is a cart, storefront, or office.
  • Commercial auto: Protection for your company-owned vehicle.
  • Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
  • Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of any of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business.

Develop your website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. They are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. These are steps that help pages rank higher in the results of top search engines like Google.

You can create your own website using services like WordPress or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web developer to create a custom website for your business.

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks. We examine several of them below.

Marketing

Some of your business will come from walk-by customers and web surfers, but you should still spend time on marketing! Especially as a new business, getting the word out and increasing customer awareness is crucial.

Once your website is up and running, make sure you link to your social media accounts and vice versa. Social media is a particularly good way of promoting your business because you can create engaging posts that advertise your products:

  • Facebook: Great platform for paid advertising, allows you to target specific demographics, like men over age 50 in the Cleveland area.
  • Instagram: Same benefits as Facebook but with different target audiences.
  • Website: Search engine optimization (SEO) will help your website appear closer to the top in relevant search results, a crucial element for increasing sales.

Accounting

  • Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero.
  • If you are unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Equipment

You will need to procure a few different items to successfully launch a daycare business. Here is a list of things to get you started:

  • Toys and games
  • Art supplies
  • Educational materials
  • Food-service equipment

Step 12: Build Your Team

Even a fledgling daycare business needs employees to fill various job roles, including:

  • General manager – Scheduling, ordering, hiring and firing
  • Daycare workers – Care for children and clean up.
  • Food service workers — Provide breakfast, lunch, and snacks.
  • Marketing lead – Social media marketing and SEO for your website

Your business may at some point need to hire all of these positions, or just one or two of them, depending upon its size and needs. You might also hire multiple workers for a single role, or a single worker for multiple roles, again depending on your needs.

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn or Facebook, or using free classified sites like Jobs and AngelList. You might also use a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Finally, you could also hire a recruitment agency to help you find talent.

You may also consider engaging the services of a recruitment agency to help you find the right talent.

Step 13: Start Making Money!

Focus on USPs

Unique selling propositions, or USPs, are the unique characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your daycare center meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire.

Some signature USPs for your daycare business could be:

  • Extended hours, into the evening
  • Advanced educational activities
  • Certified teachers
  • Healthy food options
USP venn diagram

Kickstart Marketing

Take advantage of your website, social media presence and real-life activities to increase awareness of your offerings and build your brand. Some suggestions include:

  • Competitions and giveaways – Generate interest by offering prizes for customers who complete a certain action, such as being the 10th customer on Black Friday.
  • Optimize calls to action (CTAs) – Experiment with text, color, size and position of calls to action such as “Buy Now”. This can sharply increase purchases.
  • Signage – Put up eye-catching signage at your store and website
  • Flyering – Distribute flyers in your neighbourhood and at industry events
  • In-Person Sales (IPS) – Offer your products at local markets, tradeshows

Build Affiliate Relationships

Affiliate marketing is advertising in which you compensate third parties, who are your affiliates, in order to generate traffic to your website. You develop long-term relationships with these affiliates and generate traffic for each other on an ongoing basis.

Daycare Business FAQs

How much money do you make owning a daycare?

Despite an average margin of just 6.5%, the profit potential is solid. Annual revenues range from $250,000 to more than half a million, even in your first few years of business. Running a daycare business from home has less revenue potential, but profit margins are much higher, at 90% or better.

What certifications do I need to open a daycare?

Your daycare center needs to have a child care license from the state and meet all other requirements of your state and your local area.

Is opening a daycare worth it?

It is possible to be very successful running a daycare center, whether you run it from your home or another location. If you love children, you will also get the reward of watching them grow and thrive under your care.

How can I start a daycare center with no money?

You can start a daycare from your home with very little money, but you will need to spend at least some money to set up your business entity, get any required business licenses, and prepare your home for children. To open a daycare in another space takes much more money but there are financing options available.