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How to Start a Daycare: A Step-by-Step Guide

Caroline Goldstein

Contributing Writer at Fundera
Caroline is a former Fundera staff writer and current freelance writer, specializing in small business and finance. She has an MFA in fiction from New York University. She loves finding creative ways to help entrepreneurs grow.
Editorial Note: Fundera exists to help you make better business decisions. That’s why we make sure our editorial integrity isn’t influenced by our own business. The opinions, analyses, reviews, or recommendations in this article are those of our editorial team alone.

If you’re a teacher, former teacher, or simply have years of experience caring for children—and an entrepreneurial streak—you might have considered starting your own daycare center, either from home or in a dedicated facility. And at an expected job growth of 7% over the next decade, working in childcare is a stable career choice. So, if you’re seriously wondering how to start a daycare center, you’ve come to the right place.         

As is the case with businesses within any industry, however, your passion for your craft alone—or, in this case, your students—isn’t quite enough to ensure that your daycare business is copacetic, either financially or legally. You’ll need to do a good amount of due diligence to start your daycare business, paying special attention to licensing requirements and ensuring that your facility and program aligns with your state’s health and safety codes.

That said, if you’re a pro at educating, training, supporting, and generally corralling large groups of small children, you should be pretty unperturbed by the work it takes to start a daycare business. Here’s what you need to know.      

How to Start a Daycare: All the Steps You Need to Take

Although every path toward starting a business looks different for every business owner, there are a few steps that every aspiring daycare owner needs to take to set themselves up for success.

Obtain the Necessary Certification and Licenses

You may not need a master’s degree in education to become a daycare teacher, but each state does require some combination of licensing and certification to start a daycare. Visit your state’s Division of Child Care Services (or its equivalent) to find out the training, experience, and credentials you need to legally operate a daycare facility.  

In New York State, for instance, the head of the daycare facility must have one of the following:

  • An associate degree in early childhood education or an equivalent
  • A CDA credential (Child Development Associate) and at least two years of experience caring for children
  • A high school diploma and at least three years’ experience caring for children

Also, your state may require that you and any staff you hire are CPR-certified, and you should be trained in at least basic first aid for children. You and your staff might also need to be fingerprinted and undergo background checks before being cleared for work.

Even if your state doesn’t require that you obtain a license, you should consider doing so, as your licensing course will go over all the boxes you need to check to operate your daycare in your state—including meeting health and safety regulations, proper food preparation, the required child-to-adult ratio, and more.     

Find a (Safe) Daycare Facility

In certain states, in order to obtain the proper licenses or registration you’ll first need to show that your daycare facility meets your state’s health and safety requirements. So whether you choose to open your daycare facility in your own home or buy or lease a new property, you’ll need to make sure your facility meets zoning, fire, and health and safety laws.

Get Insured

Another requirement for obtaining your license? Getting insured. In certain states, you’ll need to be licensed by the Department of Health and Human Services to run your daycare center, but to do so, you’ll first need liability insurance.

The exception is home-based daycare centers, which don’t need insurance to be licensed by the DHHS. Still, those opening daycare centers from their homes should seriously consider obtaining small business insurance. You always run the risk of a lawsuit when you’re running your own business, but that risk increases when caring for other people’s children—so protect yourself whenever possible!

There are several types of insurance that cover daycare businesses—general liability insurance, workers’ compensation, property insurance, abuse and molestation insurance, and others—so contact an insurance broker to help you decide which coverage is best for your business.

how to start a daycare

Hire a Staff

You may be planning on running your daycare facility solo, but depending on your state and the number of children you’re looking after, that might not be an option—every state sets a required ratio of staff to children to ensure that every child receives adequate care. They also dictate the maximum number of children permitted in a group.  

Adult-to-child ratios and class sizes depend on the age of the children, and they might also depend on the size of the daycare facility. For a daycare center in New York state, for example, there must be one adult to every seven children aged 3, with a maximum of 18 students allowed in a single group. Your own children may or may not be included in that count, too.    

So while hiring right off the bat really depends upon your state’s requirements, it makes sense to leave room for a staff in your business budget. That way, you’ll be prepared for growth, without worrying about your operation shutting down because you’re not properly prepared for it. (Just keep in mind that any staff you hire needs to be appropriately licensed or trained for it, and potentially undergo a background check.)   

Write Your Daycare Contract and Policies

To further legally protect your business, it’s crucial that you draw up a contract and write your daycare policies, and require that potential clients (or, more likely, the parents of potential clients) review and sign both documents before accepting their patronage.

To clarify, your contract is the document stating that you’ll provide child care; be compensated for providing care, according to the payment terms you specify; and have the right to terminate providing care. Your policies, on the other hand, provide parents with important logistical information regarding how you’ll run your daycare center. Outline protocol regarding vacation, illness, inclement weather, drop-off and pickup times, curriculum, field trips, and anything else you believe is important for your clients to understand and agree to about your daycare center.     

How to Start a Daycare Business

Now that you’ve secured the proper licenses, training, and insurance, your facility is cleared, and you have the right amount of staff in place, you can move forward with opening your daycare—and making your business official.

Here are a few crucial steps that every entrepreneur should take to set the foundation for their new business:   

Create a Business Budget

The costs associated with opening and running your daycare center can never be accurately totaled, but nailing down a budget will give you some parameters to work within (and some peace of mind).

In your budget plan, don’t forget to factor in:

  • Your startup costs, including daycare equipment, food, toys and educational tools, wages, insurance, and licensing
  • How much tuition you’ll charge
  • Your predicted revenue over the next two-three years
  • When you’ll break even

Also know that daycare centers can claim certain tax deductions, which can ease your annual financial burden.    

Register Your Business

Next, consider forming a business entity, which dictates how you pay taxes and afford you legal protection. There are several business entities to choose from, but the easiest route to take is to register as an LLC. The registration process is simpler to form an LLC than most other types of business entities, but this entity type will still protect your personal assets from potential lawsuits. You can also choose whether you want the IRS to tax you as a corporation or as a pass-through entity.     

Separate Your Business and Personal Finances

It’s crucial to separate your personal and business expenses for many reasons, not the least is which is to reduce your burden (or your accountant’s) come tax season. It’s simply the most professional way to conduct your business, too. Set yourself up now by signing up for a business credit card and opening a business bank account, and be diligent about using both solely for your daycare’s finances.  

Choose an Accounting Software

If you’re not inherently numbers-minded, keeping your business’s books may be the most intimidating aspect of starting your own daycare center—but that’s where the right business accounting software can be a lifesaver.

Start your search with QuickBooks Online, which works well for businesses in the service industry with straightforward invoices. Starting at $10 per month, QuickBooks Online is an affordable option, too.

how to start a daycare

Market Your Daycare Center

If you’re seriously considering opening your own daycare center, it’s likely that you’ve already been caring for children in your area for some time and have built up a network of local parents. That’s one, valuable method of attracting customers (aka word of mouth) covered. Still, implementing even a basic marketing plan can help define and legitimize your business—and if you need to implement a waitlist as a result, that’s great too!

Your marketing efforts can be relatively simple and low-cost. Start by creating a Facebook page for your daycare center and building a business website, making sure to include your contact information and a little bit about your business. If possible, include pictures of your facilities and testimonials from happy customers.

If you’re a fan of social media, it also can’t hurt to create an Instagram, LinkedIn, and/or Twitter account to keep both current and prospective customers updated on your business. Just be sure to receive permission from parents before posting pictures of their children, of course.

Analog marketing techniques would work well here, too. If possible, consider distributing flyers or brochures to your libraries, schools, places of worship, or any other local gathering spots.      

Get the Right Financing for Your Daycare Center

Most entrepreneurs bootstrap their businesses at the beginning, as it’s difficult for brand-new businesses with limited credit history to secure outside financing, either from a bank or from an alternative lender.

That said, your financing options aren’t limited to your own purse strings (or your friends’ and family’s). Here are a few other ways for new daycare businesses to obtain funding:

SBA Microloan

Although most SBA loans are available only to businesses with a few years of experience under their belts, SBA Microloans are actually designed to help startups get off the ground. They’re especially accessible to women, veterans, minorities, and business owners in low-income areas. And unlike most other SBA loan programs, SBA Microloans are disbursed by nonprofit lenders, rather than banks.

As the name suggests, SBA Microloans tend to be on the smaller side, with amounts capped at $50,000, but they may be as low as $500. (For more context, the average Microloan amount was $14,000 in 2017.) And because Microloans are designed for new businesses, business owners with average or even challenged credit may still be accepted, as long as other aspects of their SBA loan applications are in good shape.    

Government Grants

You might be able to obtain financial assistance to start and run your daycare through state or federal funding programs for early childhood education providers. For instance, you can contact your state’s Child Care and Development Fund Plan (CCDF) to look into startup funds, or your state’s school meal contacts to seek funding for your daycare center’s meals.

Take a look at the Administration for Children and Families Office of Child Care’s list for a more comprehensive overview of federal and state financing programs for child care centers.

Business Credit Card

As we mentioned, it’s important to use a business credit card to keep your daycare’s expenses separate from your own. Of course, using a credit card is also the most convenient way to pay for your daily expenses. And since credit limits for business credit cards tend to exceed those of consumer cards, you can spend more liberally without worrying about maxing out your card.

Another bonus? Using your business card responsibly (by which we mostly mean paying off your balance in full and on time, every time) can help you build business credit. And with a healthy business credit score, you’re in a better position to secure business loans with great terms down the line.

If you opt for a card with a long 0% intro APR period, you can essentially use that introductory grace period as an interest-free loan. Look into the American Express Blue Business Plus card, which, at 15 months, carries one of the longest interest-free introductory periods in a business credit card right now. After your 15 interest-free months are up, though, a variable APR kicks in at a rate depending on your creditworthiness and the market. Check the issuer’s terms and conditions for the latest APR information.       

How to Start a Daycare Center as a New Entrepreneur

As you can likely tell, starting a daycare center is not for everyone. Opening your own childcare facility means becoming equal parts childcare provider and small business owner, and taking on the duties attendant to both.

That said, opening and running your own daycare center can be incredibly rewarding. Just be sure to take the proper steps—especially in regards to licensing and insuring your facility—to make sure your daycare center operates safely. You, your charges, and (especially) their parents will thank you for your hard work.  

Caroline Goldstein

Contributing Writer at Fundera
Caroline is a former Fundera staff writer and current freelance writer, specializing in small business and finance. She has an MFA in fiction from New York University. She loves finding creative ways to help entrepreneurs grow.

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