How Much Money To Start A Daycare Center

Start a daycare by following these 10 steps:

You have found the perfect business idea, and now you are ready to take the next step. There is more to starting a business than just registering it with the state. We have put together this simple guide to starting your daycare. These steps will ensure that your new business is well planned out, registered properly and legally compliant.

Check out our How to Start a Business page.

STEP 1: Plan your business

A clear plan is essential for success as an entrepreneur. It will help you map out the specifics of your business and discover some unknowns. A few important topics to consider are:

What are the startup and ongoing costs?
Who is your target market?
How much can you charge customers?
What will you name your business?

Luckily we have done a lot of this research for you.

What are the costs involved in opening a daycare?

The cheapest business model for a start-up daycare is to run your daycare out of your own home. In this scenario, you could accommodate up to four or five children without having to pay rent for a separate facility, and your only monthly expenses would be food, toys, and other educational materials. Expect a one-time cost of up to $300 or $400 per child for general supplies, and an additional $80 to $100 a month for food. You may require different devices, like a child lock gate, and other safety locks for drawers and cabinets. In total this shouldn't cost much more than $100.

In addition, you will also likely want to invest in some small-scale local advertising, and a custom-built sign for the front of your home.

The final major start-up cost for your business will be the legal fees associated with registering your business and drawing up contracts to protect your business from liability claims.

Total start-up costs for a home daycare could range anywhere from $1000 to $4000.

However, these costs will be much more if you plan to open your own daycare center. Whether you plan to purchase or lease the property, what kind of renovations the space needs, and how many staff members you will need to hire are some of the key considerations when determining your start-up costs.

What are the ongoing expenses for a daycare?

For a home daycare, monthly costs could be as little as $50 per child for basic food items and other supplies. Bigger daycare facilities will need to pay rent and utilities, as well as insurance costs, depending on the number of children they accommodate.

Staffing expenses will likely be the greatest monthly cost, as most states require several adults to be present at any given time when group sizes go beyond a certain amount of kids.

Annual salaries for a daycare worker and daycare teacher are approximately $20,000 and $25,000 respectively, depending on experience

Who is the target market?

Your main clientele will be working parents who have young children and who need someone to help watch their kids during the day. Depending on your location and the specific needs of your local community, you may also wish to cater your services to a certain demographic. The kinds of clients you attract will also largely depend on how much you charge and the quality of care you are able to provide.

How does a daycare make money?

Day care providers are paid either an hourly rate per child or a fixed monthly or annual rate.

How much can you charge customers?

Childcare rates are adjusted according to the following four factors:

Whether your business is located in an urban, suburban, or rural setting
What kind of childcare you provide, and what special services you offer
The age of the child
The number of hours the child will spend at your center each week

Daycare centers throughout the United States charge anywhere from $350 to over $1,000 per month per child for full-time care. Average expenses vary state-by-state, with states like Massachusetts, New York, and Minnesota tending to be the most costly, and states like Mississippi, Kentucky, and Louisiana tending to be the cheapest.

How much profit can a daycare make?

In a smaller center that can accommodate thirty kids, with six full-time staff, annual profit could reach $40,000 to $60,000. This is based on a monthly rate of $800 per child, and allows for a generous budget of $180,000 to cover employee expenses.

Net profit for your business will change according to your unique business model.

How can you make your business more profitable?

While in some industries cutting costs is a good way to increase profit, the childcare business is not one of them. Quality care is what all parents are seeking, and in general, your business will thrive to the degree that you are able to surpass parents' expectations and keep their children happy.

One way to increase revenue is to offer optional extras for parents, like kids classes in music, yoga, or dance. You could also hire a full-time cook to prepare nutritious and tasty meals for your kids, and factor the costs of ingredients and labor into the monthly rate your business charges per child, thus saving parents the time it takes to prepare a daily meal for their children.

What will you name your business?

Choosing the right name is important and challenging. If you don't already have a name in mind, visit our How to Name a Business guide or get help brainstorming a name with our Daycare Name Generator

If you operate a sole proprietorship, you might want to operate under a business name other than your own name. Visit our DBA guide to learn more.

When registering a business name, we recommend researching your business name by checking:

Your state's business records
Federal and state trademark records
Social media platforms
Web domain availability.

It's very important to secure your domain name before someone else does.

STEP 2: Form a legal entity

The most common business structure types are the sole proprietorship, partnership, limited liability company (LLC), and corporation.

Establishing a legal business entity such as an LLC or corporation protects you from being held personally liable if your daycare is sued.

Read our Guide to Form Your Own LLC

Have a Professional Service Form your LLC for You

Two such reliable services:

You can start an LLC yourself and pay only the minimal state LLC costs or hire one of the Best LLC Services for a small, additional fee.

Recommended: You will need to elect a registered agent for your LLC. LLC formation packages usually include a free year of registered agent services. You can choose to hire a registered agent or act as your own.

STEP 3: Register for taxes

You will need to register for a variety of state and federal taxes before you can open for business.

In order to register for taxes you will need to apply for an EIN. It's really easy and free!

You can acquire your EIN for free through the IRS website, via fax, or by mail. If you would like to learn more about EINs and how they can benefit your LLC, read our article, What is an EIN?.

Learn how to get an EIN in our What is an EIN guide or find your existing EIN using our EIN lookup guide.

Small Business Taxes

Depending on which business structure you choose, you might have different options for how your business will be taxed. For example, some LLCs could benefit from being taxed as an S corporation (S corp).

You can learn more about small business taxes in these guides:

LLC Taxes
Sole Proprietorship vs LLC
LLC vs Corporation
LLC vs S Corp
How to Start an S Corp

There are specific state taxes that might apply to your business. Learn more about state sales tax and franchise taxes in our state sales tax guides.

STEP 4: Open a business bank account & credit card

Using dedicated business banking and credit accounts is essential for personal asset protection.

When your personal and business accounts are mixed, your personal assets (your home, car, and other valuables) are at risk in the event your business is sued. In business law, this is referred to as piercing your corporate veil.

Additionally, learning how to build business credit can help you get credit cards and other financing in your business's name (instead of yours), better interest rates, higher lines of credit, and more.

Open a business bank account

This separates your personal assets from your company's assets, which is necessary for personal asset protection.
It also makes accounting and tax filing easier.

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Recommended: Read our Best Banks for Small Business review to find the best national bank, credit union, business-loan friendly banks, one with many brick-and-mortar locations, and more.

Open net-30 accounts

When it comes to establishing your business credit, net-30 vendors are considered the way to go. The term "net-30," which is popular among vendors, refers to a business credit arrangement where the company pays the vendor within 30 days of receiving goods or services.

Net-30 credit terms are often used for businesses that need to obtain inventory quickly but do not have the cash on hand.

Besides establishing business relationships with vendors, net-30 credit accounts get reported to the major business credit bureaus (Dun & Bradstreet, Experian Business, and Equifax Business Credit). This is how businesses build business credit so they can qualify for credit cards and other lines of credit.

Get a business credit card

This helps you separate personal and business expenses by putting your business' expenses all in one place.
It also builds your company's credit history, which can be useful to raise money and investment later on.

STEP 5: Set up business accounting

Recording your various expenses and sources of income is critical to understanding the financial performance of your business. Keeping accurate and detailed accounts also greatly simplifies your annual tax filing.

STEP 6: Obtain necessary permits and licenses

Failure to acquire necessary permits and licenses can result in hefty fines, or even cause your business to be shut down.

State & Local Business Licensing Requirements

Each state has its own regulations regarding child care licensing. Here you can check out your state's information and make sure your day care center is operating according to state law.

If you are serving food at your daycare center, you will likely need to pass a health inspection with your local health department. Here are some tips for faring well on a health inspection.

Most businesses are required to collect sales tax on the goods or services they provide. To learn more about how sales tax will affect your business, read our article, Sales Tax for Small Businesses.

For more information about local licenses and permits:

Check with your town, city or county clerk's office
Get assistance from one of the local associations listed in US Small Business Associations directory of local business resources

Service Agreement

Daycare businesses should consider requiring clients to sign a service agreement before starting a new project. This agreement should clarify client expectations and minimize risk of legal disputes by setting out payment terms and conditions, service level expectations, and intellectual property ownership. Here is an example service agreement.

Recommended: Rocket Lawyer makes it easy to create a professional service agreement for your daycare business when you sign up for their premium membership. For $39.95 per month, members receive access to hundreds of legal agreements and on call attorneys to get complimentary legal advice.

Release of Liability and Medical Waiver

Childcare providers will also need to obtain written consent from parents to protect them from lawsuits should children have any injuries or accidents while under their care. Here is an example of such a liability form.

However, it is important to know your responsibilities as a care provider and when you may nevertheless be held legally accountable for a child's injuries at your home or center. This site offers an informative overview of several court cases that give a broader understanding of the topic.

Certificate of Occupancy

Businesses operating out of a physical location typically require a Certificate of Occupancy (CO). A CO confirms that all building codes, zoning laws and government regulations have been met.

If you plan to lease a location:
- It is generally the landlord's responsibility to obtain a CO.
- Before leasing, confirm that your landlord has or can obtain a valid CO that is applicable to a daycare business.
- After a major renovation, a new CO often needs to be issued. If your place of business will be renovated before opening, it is recommended to include language in your lease agreement stating that lease payments will not commence until a valid CO is issued.

If you plan to purchase or build a location:
- You will be responsible for obtaining a valid CO from a local government authority.
- Review all building codes and zoning requirements for you business' location to ensure your daycare business will be in compliance and able to obtain a CO.

STEP 7: Get business insurance

Just as with licenses and permits, your business needs insurance in order to operate safely and lawfully. Business Insurance protects your company's financial wellbeing in the event of a covered loss.

There are several types of insurance policies created for different types of businesses with different risks. If you're unsure of the types of risks that your business may face, begin with General Liability Insurance. This is the most common coverage that small businesses need, so it's a great place to start for your business.

Learn more about General Liability Insurance.

Another notable insurance policy that many businesses need is Workers' Compensation Insurance. If your business will have employees, it's a good chance that your state will require you to carry Workers' Compensation Coverage.

STEP 8: Define your brand

Your brand is what your company stands for, as well as how your business is perceived by the public. A strong brand will help your business stand out from competitors.

If you aren't feeling confident about designing your small business logo, then check out our Design Guides for Beginners, we'll give you helpful tips and advice for creating the best unique logo for your business.

If you already have a logo, you can also add it to a QR code with our Free QR Code Generator. Choose from 13 QR code types to create a code for your business cards and publications, or to help spread awareness for your new website.

How to promote & market a daycare

The scope of your marketing strategy will depend on the size of your daycare business. If you are just starting and plan to operate out of your own home, taking on three or four full-time children, you probably don't need to hire a web development team or a graphic designer for a billboard ad. However, as your business expands, and if you decide to lease or purchase space for a physical center that can accommodate a dozen or more kids, you will at least need a website. This allows parents, who are your prospective clients, to find your business on the Internet, learn about your personality, your childcare center's core values, the types of activities you have available for your kids, and also a little about the people you have on staff working with you. Making this information attractive and easily accessible will help new parents feel comfortable bringing you their children. Also, you can include testimonials from past or current clients whose kids loved spending time with you.

How to keep customers coming back

It is important to know your target market and develop a unique brand for your daycare center. For example, some daycare centers succeed by catering to wealthier families who wish to provide their children with specialized educational opportunities early on. This daycare center offers kids an immersion-learning experience in Mandarin Chinese. While this kind of childcare may not appeal to you, try to find something unique that you have to offer which will attract clients to your center. Of course, nothing beats having genuine affection for kids and a sincere desire to provide them with a safe space to play and learn.

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Still unsure about what kind of business you want to start? Check out the latest Small Business Trends to help inspire you.

STEP 9: Create your business website

After defining your brand and creating your logo the next step is to create a website for your business.

While creating a website is an essential step, some may fear that it's out of their reach because they don't have any website-building experience. While this may have been a reasonable fear back in 2015, web technology has seen huge advancements in the past few years that makes the lives of small business owners much simpler.

Here are the main reasons why you shouldn't delay building your website:

All legitimate businesses have websites - full stop. The size or industry of your business does not matter when it comes to getting your business online.
Social media accounts like Facebook pages or LinkedIn business profiles are not a replacement for a business website that you own.
Website builder tools like the GoDaddy Website Builder have made creating a basic website extremely simple. You don't need to hire a web developer or designer to create a website that you can be proud of.

Using our website building guides, the process will be simple and painless and shouldn't take you any longer than 2-3 hours to complete.

Other popular website builders are: WordPress, WIX, Weebly, Squarespace, and Shopify.

STEP 10: Set up your business phone system

Getting a phone set up for your business is one of the best ways to help keep your personal life and business life separate and private. That's not the only benefit; it also helps you make your business more automated, gives your business legitimacy, and makes it easier for potential customers to find and contact you.

There are many services available to entrepreneurs who want to set up a business phone system. We've reviewed the top companies and rated them based on price, features, and ease of use. Check out our review of the Best Business Phone Systems 2021 to find the best phone service for your small business.

Recommended Business Phone Service: Nextiva

Nextiva is our top choice for small business phone numbers because of all the features it offers for small businesses and it's fair pricing.