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Written by: Carolyn Young
Carolyn Young is a business writer who focuses on entrepreneurial concepts and the business formation. She has over 25 years of experience in business roles, and has authored several entrepreneurship textbooks.
Edited by: David Lepeska
David has been writing and learning about business, finance and globalization for a quarter-century, starting with a small New York consulting firm in the 1990s.
Updated on March 23, 2023
Investment range
$12,650 - $52,300
Revenue potential
$265,000 - $832,000 p.a.
Time to build
1 - 3 months
Profit potential
$17,000 - $54,000 p.a.
Industry trend
Growing
Commitment
Full-time
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.
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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.
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.
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.
Trends in the daycare industry include:
Challenges in the daycare industry include:
The startup costs for a daycare business range from $12,000 to about $52,000. You could run a daycare from your home for much less, but you will have less capacity.
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:
| Start-up Costs | Ballpark Range | Average |
|---|---|---|
| Setting up a business name and corporation | $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 | $2,000 |
| Space lease security deposit or purchase down payment | $5,000 - $30,000 | $17,500 |
| Space remodeling and preparation | $5,000 - $10,000 | $7,500 |
| Toys and supplies | $1,000 - $8,000 | $4,500 |
| Total | $12,650 - $52,300 | $32,475 |
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 more than $17,000.
As your brand gains recognition you might cater to 40 children and increase your weekly price to $400 per child, leading to annual revenue of $832,000 and a profit of more than $54,000.
There are several barriers to entry for a daycare business. Your biggest challenges will be:
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.
Market research will give you the upper hand, even if you’re already positive that you have a perfect product or service. Conducting market research is important, because it can help you understand your customers better, who your competitors are, and your business landscape.
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.
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.
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. Once you know your costs, you can use this Step By Step profit margin calculator to determine your mark-up and final price points. Remember, the prices you use at launch should be subject to change if warranted by the 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.
You will need a location near residential neighborhoods so it’s convenient for parents. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.
When choosing a commercial space, you may want to follow these four rules of thumb:
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:
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 using our Domain Name Search tool. 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. Your business name is one of the key differentiators that set your business apart. Once you pick your company name, and start with the branding, it is hard to change the business name. Therefore, it’s important to carefully consider your choice before you start a business entity.
Every business needs a plan. This will function as a guidebook to take your startup through the launch process and maintain focus on your key goals. A business plan also enables potential partners and investors to better understand your company and its vision:
If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.
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!
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 could offer real advantages when it comes to daycare centers.
If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state.
Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your daycare business will shape your taxes, personal liability, and business registration requirements, so choose wisely.
Here are the main options:
We recommend that new business owners choose LLC as it offers liability protection and pass-through taxation while being simpler to form than a corporation. You can form an LLC in as little as five minutes using an online LLC formation service. They will check that your business name is available before filing, submit your articles of organization, and answer any questions you might have.
Choose Your State
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.
Securing financing is your next step and there are plenty of ways to raise capital:
Bank and SBA loans are probably the best options, other than friends and family, for funding a daycare business. You might also try crowdfunding if you have an innovative concept.
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 (DBA), health licenses and permits 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 and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more.
You could also check this SBA guide for your state’s requirements, but 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 ensure you’re fully compliant.
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.
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 daycare business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.
Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account.
Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.
Here are some types of insurance to consider:
As opening day nears, prepare for launch by reviewing and improving some key elements of your business.
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.
You may want to use industry-specific software such as illumine, Storypark, and HiMama to manage billing and attendance, share reports, and communicate with the parents.
Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism.
You can create your own website using services like WordPress, Wix, 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 designer or developer to create a custom website for your business.
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.
Some of your business will come from the casual passerby or online visitors, but you should still invest in digital marketing! Getting the word out is especially important for new businesses, as it’ll boost customer and brand awareness.
Once your website is up and running, link it to your social media accounts and vice versa. Social media is a great tool for promoting your business because you can create engaging posts that advertise your products:
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:
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.
Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your daycare business could be:
You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a daycare business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in daycare for years and can offer invaluable insight and industry connections.
The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in daycare. You’ll probably generate new customers or find companies with which you could establish a partnership. Online businesses might also consider affiliate marketing as a way to build relationships with potential partners and boost business.
Even a fledgling daycare business needs employees to fill various job roles, including:
Your business may at some point need to hire all of these positions, or just one or two of them, depending on the size and needs of your business. 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, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent.
Now that you have all the knowledge you need to open a daycare center, you’re ready to take the first step in your entrepreneurial journey. The next thing to do is to work on your regulatory requirements, look for the ideal location, and hone your networking skills to find your first clients.
Running a daycare center may require utmost attention, a lot of patience, and long hours from you and your staff, but it’s emotionally and financially rewarding. Besides, you’ll be your own boss. With proper planning and research, your daycare center is well on its way to success!
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.
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.
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.
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.
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