How to Start a Daycare

Parents are increasingly having to work more jobs or longer hours to make ends meet — that means there’s never been a greater need for reliable daycare organizations that can take care of the little ones.

If you have experience looking after children, then starting a daycare business could be a great idea.

You’ll need a combination of childcare experience, people management and administrative skills. The right daycare marketing and a solid business plan will give you a great launching pad to appeal to parents.

We want to help you get your daycare business off the ground.

Since 2004, we’ve helped over 500,000 people to become entrepreneurs, starting exciting businesses and bringing their ideas to life. We’ll give you the support, guidance and advice you need to create a daycare business and make it into a success.

From validating your childcare business and doing the research to filing your paperwork and running your business, this guide will help you out. We’ll talk you through the main things you need to do to get your daycare business off of the ground.

Read on for some insight into creating your own childcare organization and becoming an entrepreneur.

Why You Should Start a New Daycare Business

Childcare and daycare businesses can be extremely successful — here are some surprising statistics on their popularity.

700K

Number of daycare businesses in the U.S.

$50B

Total revenue generated by childcare and daycare businesses in 2018

$1.5M

People are employed in the industry.

40
%
Of customers for daycare businesses come from households with incomes ranging between $40,000 and $100,000

Childcare and daycare business revenue is projected to grow by almost 2% a year

There are over 8.5 million children enrolled in pre-primary school institutions in the U.S.

Many daycare operators are self-employed and don’t have any employees

The time to take advantage is now — we’ll help you be a part of that success!

Is a Childcare Business Right for You?

Although it can be exciting to form a daycare business, there will be significant demands on you as a small business owner. Here are some of the things you can expect.

A Day in the Life of a Daycare Business Owner

Here are some of the typical tasks you’ll be performing for your daycare business on a daily basis:

Speaking with parents about their child's requirements

Caring for children for five or six hours a day (or more)

Managing diapering, feeding, napping and other requirements of young children

Thinking of new activities and entertainment

Buying supplies and equipment

Dealing with minor issues

Administering your business, including marketing and invoicing

Skills You Will Need to Open a Daycare Business

The following skills will be very useful in your role as a daycare small business owner:

The right approach, patience and perspective to care for several children at a time

The ability to think up and carry out entertaining activities

Understanding where every child is and what they are doing at all times

Good interpersonal skills for dealing with the various needs of parents and their children

Great administrative skills for managing cash flow and business operations

What Your Daycare Customers Are Looking For

Your daycare customers are going to be parents who are juggling kids, work and other responsibilities. They're looking for a daycare organization they can trust to provide safe, affordable childcare to their children, while keeping them engaged and entertained. If you can meet those needs while managing the administration of your business, your daycare will thrive.

What Type of Daycare Should You Start?

There are several different types of daycare business that you can start. Here are some of the more popular options:

1

Employer-Sponsored Childcare

Many large employers provide daycare services to their employees, either onsite or remotely. Understanding the services that employers need and getting in touch with their HR departments could be a great way to get a foot in the door.

2

Specialized Daycare for Children With Unique Needs

You might consider running a specialized daycare center for particular children. For example, you might offer daycare for children with special dietary needs like being gluten-intolerant or vegetarian. You could also offer daycare services for children with mild learning or physical disabilities, if you have the right training.

3

Franchise Daycare Businesses

Some large daycare businesses have franchise opportunities. In these circumstances, you pay a franchise fee but get brand recognition, support and advice on how to set up and manage your daycare business.

Validating Your Daycare Business Idea

The areas we’ve listed above are just starting points — there are many different types of daycare businesses. Once you’ve identified specific daycare areas you might like to go into, you need to validate your daycare business idea.

Remember too that every daycare business will have many competitors. You will need to stand out and offer superior childcare to excel as a daycare business owner.

Look at who your childcare competitors are in the space

Having competitors is a good thing as it shows there’s a market, but if there are too many, you’re likely to struggle without a really good unique selling point. Remember that daycare services are very local, so you will need to be located in the right area.

Identify your daycare business’s unique selling points (USPs)

You need to find something unique to offer parents. Whether it’s specialized entertainment and activities or customized childcare services, this is going to be one of your main strengths.

Understand your market

Clearly identify exactly who your daycare customers are likely to be, where they hang out and how you’re going to reach them. This will be essential to your marketing and communications (especially word-of-mouth recommendations).

Talk to parents

Speak with parents to understand what they want from your childcare business. Validate your ideas and approach by asking if they would consider placing their child with you.

Not every idea you have will make it through to becoming a daycare business. There are all sorts of reasons to say “yes” or “no” to specific ideas and approaches — think about what your strengths and weaknesses are so you can choose a type of daycare business that you’d be great at.

Your Daycare Business Plan

You might think your daycare business doesn’t need a business plan, but you’d be wrong. You will need to clearly understand and capture how you’re going to run your daycare business, market yourself, get sales, make a profit and grow. This can only come about through creating a watertight daycare business plan.

Business plans do vary slightly, but they should all cover the following areas:

1

An executive summary with the most important points from your business plan

2

Your goals and what you hope to achieve with your daycare business, including your unique childcare approach

3

A description of your daycare business, including background information and context

4

A market analysis and likely demand, focused on your local area and parents

5

An overview of how your daycare business is structured

6

Your business model for making money

7

How you will market and sell your childcare services

8

Financial projections, revenue and profitability

9

Appendices

We’ve got the perfect guide to writing your business plan.

Choose the Right Business Structure and Register Your Daycare Business

There are five main business structures you can have in the U.S., and it’s important to choose the right one. We’ve shared your options below. They are:

Sole Proprietorship

If you don’t choose to form a legal business entity for your daycare business, you will be a sole proprietor by default. This won’t give you the legal protections you need, so we do not recommend this.

Partnership Company or LLC

This is a type of business that is formed when two or more people work together without creating a more formal business entity. Like a sole proprietorship, it may not give you all the protections your daycare business may need.

Limited Liability Company or LLC

The most common type of business entity. An LLC is fast, simple and inexpensive to set up and maintain. It protects your personal finances and assets and is a great way to start your daycare business.

S Corporation

This is a more complex type of business and isn't generally recommended for smaller organizations, like a daycare business.

C Corporation

These are the largest and most complex types of businesses and are typically far more than the average entrepreneur or daycare business owner will need.

For more information on the advantages and disadvantages of different types of businesses, please see our in-depth guide. If you’ve still got questions, we’ve answered them to help you choose the right business structure for your daycare business.

In most cases, our recommendation for a daycare business would be to create an LLC. We’ve got a complete guide to everything you need to do. LLC formation does vary from state to state, but we’ve got you covered, wherever you are.

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Setting up Your Daycare Business and Business Operations

Once you've legally created your daycare business, you’ll need to get some other things in place.

Location of Your Daycare: In Home or Out?

The location of your business will be critical. You want somewhere with a good amount of potential customers, but also with the right pricing so you don’t spend all your money on rent. You will need to make sure that the location is childproof to reduce the risk of injuries or incidents. Some people open daycares in their own homes, which allows you to save on rent.

Marketing Your Daycare Business

Marketing will be a huge part of your daycare business. Naturally, you will need an awesome website, but you'll also need to get branding, newsletters, digital ads, social media accounts and other channels in place. Make sure that you clearly explain the unique approach you take with childcare to build reassurance and trust with parents.

Equipment for Your Daycare

In addition to the computer equipment you will need to manage your business, you will also need toys, games, art supplies and more to keep the children occupied and entertained. This could include both inside and outside activities, so plan for both.

Finances and Taxes

You will need a separate business bank account for your construction business. You might also want to consider a business credit card. Additionally, you will also need to keep careful bookkeeping records and file business and personal taxes. Here at Incfile we can even help you file your taxes.

Employees

Many daycare business owners don’t employ anyone else to begin with. Once your business gets off the ground you can look into hiring other qualified childcare professionals.

Software and Process

The right software and processes will make running your daycare business much easier. See our list of the best apps and software at the end of this guide.

The Complete "Start Your Business" Checklist

A Clear and Comprehensive Guide to Starting Your Business the Right Way

Rules, Regulations and Taxes for Your Daycare Business

Running a daycare business means you’ll probably need to satisfy a fair amount of licenses, permits and regulations. You will need to explore local, state and federal licenses and permits for childcare and other aspects of your business. We can help out with researching your business licensing needs.

Taxes

Taxes are a fact of life if you’re in business, and there are various ways you will need to file and pay them. This can include self-employment tax, state income tax and federal income tax. Depending on where and how you’re selling products and services, you may also be liable for sales and use tax.

As a rule of thumb, we recommend holding back around a third of your earnings to pay your taxes. We can also prepare and file your tax returns for you.

Insurance for Your Daycare Business

Most daycare businesses should have comprehensive business insurance. There are various types.

Workers Compensation Insurance

Workers’ compensation insurance provides coverage for job-related illnesses, disabilities or injuries that affect employees. Regulations for this insurance vary from state to state. It typically covers areas like medical costs, loss of earnings, compensation and retraining. If you do not have employees, you may not need this insurance.

General Liability Insurance

This insurance protects your daycare business from claims due to being sued. This may include injury to children or members of the public, property damage, personal liabilities, legal defense and more. It can help protect your business from financial penalties and bankruptcy. This type of insurance could be essential to your daycare business, as you will be looking after small children and will need the reassurance of a good insurance policy.

Home and Auto Insurance

If you are working from home on the administration of your daycare business or driving a vehicle for work, check whether your existing home and auto policies cover you for work use of your home or car. If not, you should either expand your policy so you’re covered or get dedicated business insurance.

Maintaining Your Daycare Business

There are certain forms and legalities you need to follow to keep your daycare business in good standing.

1

File an Annual Report

Depending on the state you’re located in, you will probably have to file a report every year. This report tells the state about any major changes to your business, and we can file your Annual Report on your behalf.

Annual Report
2

Pay estimated taxes

You will be expected to pay estimated taxes on what you plan to earn in the current business year. Typically, you will need to pay estimated taxes in April, June, September and January (of the following year).

3

Renew Business Permits and Licenses

Your federal, state, regional and city licenses and permits may need to be renewed on a regular basis, typically once a year.

4

File your taxes

You will need to file your taxes once a year.

5

Pay payroll and sales taxes

If applicable, you will need to make payroll and sales tax payments on a regular basis.

6

Prepare Your Taxes

You will need to work with your accountant to prepare all the taxes you need to pay.

Groups and Forums for Daycare Owners

Here are some useful places where you can connect with other daycare entrepreneurs.

Useful Online Tools for Your Daycare Business

Here are some really great online tools for managing your daycare business. They will reduce the time you spend on administration, help you to collaborate with others and free up your time to grow and manage your new venture.

Conclusion

If you love kids and get along with their parents, then daycare entrepreneurship could be perfect for you. Find your niche, put together a business plan and perfect your marketing, and you’ll get on the road to success!

Start your Daycare Business with us, today