Starting a daycare can be very profitable. With proper planning, execution and hard work, you can enjoy great success. Below you will learn the keys to launching a successful daycare.
Importantly, a critical step in starting a daycare is to complete your business plan. To help you out, you should download Growthink’s Ultimate Business Plan Template here.
14 Steps To Start a Daycare:
- Choose the Name for Your Daycare
- Develop Your Daycare Plan
- Choose the Legal Structure for Your Daycare
- Secure Startup Funding for Your Daycare (If Needed)
- Secure a Location for Your Business
- Register Your Daycare with the IRS
- Open a Business Bank Account
- Get a Business Credit Card
- Get the Required Business Licenses and Permits
- Get Business Insurance for Your Daycare
- Buy or Lease the Right Daycare Equipment
- Develop Your Daycare Marketing Materials
- Purchase and Setup the Software Needed to Run Your Daycare
- Open for Business
1. Choose the Name for Your Daycare
The first step to starting a daycare is to choose your business’ name.
This is a very important choice since your company name is your brand and will last for the lifetime of your own business. Ideally you choose a name that is meaningful and memorable. Here are some tips for choosing a name for your own child care business:
- Make sure the name is available. Check your desired name against trademark databases and your state’s list of registered business names to see if it’s available. Also check to see if a suitable domain name is available.
- Keep it simple. The best names are usually ones that are easy to remember, pronounce and spell.
- Think about marketing. Come up with a name that reflects the desired brand and/or focus of your daycare.
2. Develop Your Daycare Plan
One of the most important steps in starting a child care center is to develop your daycare business plan. The process of creating your plan ensures that you fully understand your market and your business strategy. The plan also provides you with a roadmap to follow and if needed, to present to funding sources to raise capital for your business.
Your business plan should include the following sections:
- Executive Summary – this section should summarize your entire business plan so readers can quickly understand the key details of your daycare.
- Company Overview – this section tells the reader about the history of your daycare and what type of daycare you operate. For example, are you a home daycare, center-based daycare, or a family daycare?
- Industry Analysis – here you will document key information about the daycare industry. Conduct market research and document how big the industry is and what trends are affecting it.
- Customer Analysis – in this section, you will document who your ideal or target customers are and their demographics. For example, how old are they? Where do they live? What do they find important when purchasing services like the ones you will offer?
- Competitive Analysis – here you will document the key direct and indirect competitors you will face and how you will build competitive advantage.
- Marketing Plan – your marketing plan should address the 4Ps: Product, Price, Promotions and Place.
- Product: Determine and document what products/services you will offer
- Prices: Document the prices of your products/services
- Place: Where will your business be located and how will that location help you increase sales?
- Promotions: What promotional methods will you use to attract customers to your daycare? For example, you might decide to use pay-per-click advertising, public relations, search engine optimization and/or social media marketing.
- Operations Plan – here you will determine the key processes you will need to run your day-to-day operations. You will also determine your staffing needs. Finally, in this section of your plan, you will create a projected growth timeline showing the milestones you hope to achieve in the coming years.
- Management Team – this section details the background of your company’s management team.
- Financial Plan – finally, the financial plan answers questions including the following:
- What startup costs will you incur?
- How will your daycare make money?
- What are your projected sales and expenses for the next five years?
- Do you need to raise funding to launch your business?
3. Choose the Legal Structure for Your Daycare
Next you need to choose a legal structure for your own daycare business and register it and your business name with the Secretary of State in each state where you operate your business.
Below are the five most common legal structures:
1) Sole proprietorship
A sole proprietorship is a business entity in which the daycare business owner and the business are the same legal person. The owner of a sole proprietorship is responsible for all debts and obligations of the business. There are no formalities required to establish a sole proprietorship, and it is easy to set up and operate. The main advantage of a sole proprietorship is that it is simple and inexpensive to establish. The main disadvantage is that the owner is liable for all debts and obligations of the business.
A partnership is a legal structure that is popular among small businesses. It is an agreement between two or more people who want to start a daycare together. The partners share in the profits and losses of the business.
The advantages of a partnership are that it is easy to set up, and the partners share in the profits and losses of the business. The disadvantages of a partnership are that the partners are jointly liable for the debts of the business, and disagreements between partners can be difficult to resolve.
3) Limited Liability Company (LLC)
A limited liability company, or LLC, is a type of business entity that provides limited liability to its owners. This means that the owners of an LLC are not personally responsible for the debts and liabilities of the business. The advantages of an LLC for a daycare include flexibility in management, pass-through taxation (avoids double taxation as explained below), and limited personal liability. The disadvantages of an LLC include lack of availability in some states and self-employment taxes.
4) C Corporation
A C Corporation is a business entity that is separate from its owners. It has its own tax ID and can have shareholders. The main advantage of a C Corporation for a daycare is that it offers limited liability to its owners. This means that the owners are not personally responsible for the debts and liabilities of the business. The disadvantage is that C Corporations are subject to double taxation. This means that the corporation pays taxes on its profits, and the shareholders also pay taxes on their dividends.
5) S Corporation
An S Corporation is a type of corporation that provides its owners with limited liability protection and allows them to pass their business income through to their personal income tax returns, thus avoiding double taxation. There are several limitations on S Corporations including the number of shareholders they can have among others.
Once you register your own daycare center, your state will send you your official “Articles of Incorporation.” You will need this among other documentation when establishing your banking account (see below). We recommend that you consult an attorney in determining which legal structure is best suited for your company.
4. Secure Startup Funding for Your Daycare (If Needed)
In developing your daycare plan, you might have determined that you need to raise funding to launch your business.
If so, the main sources of funding for a daycare to consider are personal savings, family and friends, credit card financing, bank loans, crowdfunding and angel investors. Angel investors are individuals who provide capital to early-stage businesses. Angel investors typically will invest in a daycare that they believe has high potential for growth.
5. Secure a Location for Your Business
When starting a daycare business, one of the most important decisions you’ll make is where to locate your business. There are a few things you’ll want to consider when choosing a location:
-How much space do you need?
-What kind of zoning laws are in place?
-What’s the traffic like in the area?
-Is there room for on-site parking?
-What are the surrounding local businesses like?
Once you’ve narrowed down your options, it’s important to do your research and make sure the location you choose is the best fit for your business.
6. Register Your Daycare with the IRS
Next, you need to register your business with the Internal Revenue Service (IRS) which will result in the IRS issuing you an Employer Identification Number (EIN).
Most banks will require you to have an EIN in order to open up an account. In addition, in order to hire employees, you will need an EIN since that is how the IRS tracks your payroll tax payments.
Note that if you are a sole proprietor without employees, you generally do not need to get an EIN. Rather, you would use your social security number (instead of your EIN) as your taxpayer identification number.
7. Open a Business Bank Account
It is important to establish a bank account in your daycare’ name. This process is fairly simple and involves the following steps:
- Identify and contact the bank you want to use
- Gather and present the required documents (generally include your company’s Articles of Incorporation, driver’s license or passport, and proof of address)
- Complete the bank’s application form and provide all relevant information
- Meet with a banker to discuss your business needs and establish a relationship with them
8. Get a Business Credit Card
You should get a business credit card for your daycare to help you separate personal and business expenses.
You can either apply for a business credit card through your bank or apply for one through a credit card company.
When you’re applying for a business credit card, you’ll need to provide some information about your business. This includes the name of your business, the address of your business, and the type of business you’re running. You’ll also need to provide some information about yourself, including your name, Social Security number, and date of birth.
Once you’ve been approved for a business credit card, you’ll be able to use it to make purchases for your business. You can also use it to build your credit history which could be very important in securing loans and getting credit lines for your business in the future.
9. Get the Required Business Licenses and Permits
To start a daycare, you will likely need a business license and a childcare permit. You may also need a zoning permit if your daycare is located in a residential area. You should contact your local licensing and permitting authority to find out what specific licenses and permits you need.
10. Get Business Insurance for Your Daycare
The type of insurance you need to operate a daycare will vary depending on the state.
Some business insurance policies you should consider for your daycare include:
- General liability insurance: This covers accidents and injuries that occur on your property. It also covers damages caused by your employees or products.
- Auto insurance: If a vehicle is used in your business, this type of insurance will cover if a vehicle is damaged or stolen.
- Workers’ compensation insurance: If you have employees, this type of policy works with your general liability policy to protect against workplace injuries and accidents. It also covers medical expenses and lost wages.
- Commercial property insurance: This covers damage to your property caused by fire, theft, or vandalism.
- Business interruption insurance: This covers lost income and expenses if your business is forced to close due to a covered event.
- Professional liability insurance: This protects your business against claims of professional negligence.
Find an insurance agent, tell them about your business and its needs, and they will recommend policies that fit those needs.
11. Buy or Lease the Right Daycare Equipment
You will need a few pieces of essential equipment to run your daycare successfully. This includes items such as cribs, high chairs, and playpens. You will also need a vacuum cleaner, mop, and broom to keep your daycare clean. Finally, you’ll need some toys and books to keep the children entertained.
12. Develop Your Daycare Marketing Materials
Marketing materials will be required to attract and retain customers to your daycare.
The key marketing materials you will need are as follows:
- Logo: Spend some time developing a good logo for your daycare. Your logo will be printed on company stationery, business cards, marketing materials and so forth. The right logo can increase customer trust and awareness of your brand.
- Website: Likewise, a professional daycare website provides potential customers with information about the services you offer, your company’s history, and contact information. Importantly, remember that the look and feel of your business website will affect how customers perceive you.
- Social Media Accounts: establish social media accounts in your company’s name. Accounts on Facebook, Twitter, LinkedIn and/or other social media networks will help customers and others find and interact with your daycare.
13. Purchase and Setup the Software Needed to Run Your Daycare
To run a daycare, you’ll need software to keep track of your clients, appointments, and payments. You’ll also need software to keep track of your staff, their hours, and their pay. Finally, you’ll need software to keep track of your inventory and supplies.
14. Open for Business
You are now ready to open your daycare. If you followed the steps above, you should be in a great position to build a successful business. Below are answers to frequently asked questions that might further help you.
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How to Start a Daycare FAQs
Is it hard to start a daycare?
No, it's not hard to start a daycare. It can be a lot of work, but it's worth it if you're passionate about working with kids. There are a few key things you'll need to do to get your daycare up and running:
First, you'll need to find a location for your business. This can be a tricky process, but it's essential to find a spot that is accessible and affordable.
Next, you'll need to set up your licensing and insurance. This can be a time consuming task, but it’s an important step. There are plenty of resources available to help you get set up with the right licenses and insurance policies for your business.
Finally, you'll need to market your daycare. This can be done in a variety of ways, but it's important to spread the message of your services in the community to generate interest and acquire customers.
Once you've done all of this, you'll be ready to open your doors and start caring for children.
How can I start a daycare with no experience?
There is no one-size-fits-all answer to this question, as the best way to start a child care business will vary depending on your specific situation and experience. However, some tips on how to start a daycare with no experience include doing some research on the industry, networking with other daycare providers, and getting certified.
If you're looking for specific advice on starting a daycare, start by contacting your local licensing agency. They can provide you with information on the requirements in your area and help you get started. In addition, there are several online resources available to help you learn about running a daycare, such as the National Association for Family Child Care and the Child Care Aware of America.
Another helpful step is to network with other daycare providers. These providers are a valuable resource, as they can share their own experiences and tips on starting a daycare. You may want to attend local meetings or workshops or join online forums or groups to connect with other providers in your area.
Finally, get certified, which is an important step in starting a daycare. There are many certification programs available, and each one will have its requirements. Contact your local licensing agency to learn more about the certifications available in your area.
What type of daycare is most profitable?
A few different types of daycare elements can make them profitable. One is specializing in a particular age group, such as infants or toddlers. Another is offering a flexible schedule to appeal to parents looking for convenience. Finally, daycares that price their services competitively may attract and retain more customers.
How much does it cost to start a daycare?
Starting a daycare can be expensive, with costs ranging from $10,000 to $50,000. This includes start-up costs such as licensing, insurance, and other start-up expenses. Some start-up costs include furniture, fixtures, and equipment.
What are the ongoing expenses for a daycare?
Ongoing expenses for a daycare can include things like supplies, staff, and rent. Daycare centers typically require a lot of supplies, such as diapers, wipes, and formula. Staff can be costly, especially if you need to hire multiple people to watch the children. Rent is also often a large expense for child care centers.
You may also need to consider expenses like liability insurance and licensing fees. These can vary depending on the state. Overall, it's important to be aware of all of the expenses involved in running a daycare so that you can create an accurate budget and ensure your daycare is profitable.
How does a daycare make money?
A successful child care business can make money by charging a fee per child, by getting government funding, or by receiving donations from individuals or businesses. Child care businesses can also make money by providing other services, such as before- and after-school care, summer camp, and babysitting. Some child care providers also offer classes or workshops for parents.
Is owning a daycare profitable?
Yes, owning a daycare business can be profitable. One reason is that parents often prefer to have someone they can trust to watch their children, rather than leaving them with a stranger. Daycare centers also offer a variety of services, such as early childhood education, meals, and nap time, which makes them a convenient option for parents. In addition, the demand for daycare services is growing, as more parents are working full time. All of these factors help to make owning a daycare a profitable business.
Why do daycares fail?
One of the main reasons daycares fail is a lack of funding. Without funding, daycares may not be able to set up the business properly, market effectively, or hire qualified staff. If daycares cannot recruit qualified employees, the quality of care will likely decline. Moreover, if there are not enough qualified staff members, the daycare may not meet the needs of all the children who attend.
Another reason daycares may fail is a lack of parental support. If parents do not send their children to daycare, or if they do not participate in the activities at the daycare, the daycare may not be successful. Daycares may struggle to attract new customers without parental support and may eventually have to close down.