The Ultimate Guide to
Starting a Daycare Business

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Starting a Daycare Business: A Quick Checklist
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1. Why start a daycare?

Before learning how to start a daycare in your home, why would anyone want to do so in the first place? There are numerous benefits that accompany running a daycare that goes well beyond monetary gain, although that is certainly one of them. Some of the most notable benefits of running a daycare are:

Personal childcare

If you have children, they would require a daycare service if you had a different job. When operating your own daycare, your child is one of the children under your care. It typically costs a few hundred dollars per month to have your child in a daycare, so you’ll be saving those fees in addition to the revenue generated by the business. Of course, you also get to be an active participant in your child’s development and help them reach important milestones during their development.

A strong source of income

How much money can you make owning a daycare center? The answer depends on how many children are within your care. Daycares that operate out of the home will generally bring in less revenue than a full commercial daycare center. This is primarily due to having a lower maximum number of students when running a daycare out of your home. Additionally, you can typically charge more per child when you have a dedicated daycare center. The exact revenue of your daycare will depend on numerous factors, such as the location, size of the facility, and the success of marketing campaigns. Generally speaking, daycares tend to have high gross margins, typically around 96%.

Daily emotional rewards

Anyone who wants to run a daycare should have a vested interest in the emotional, physical, and mental development of the children they care for. Providing them with the right environment to grow during such an important time in their development is greatly rewarding. Additionally, you’ll spend most of your time surrounded by children who appreciate the simple, fun things in life.

Still interested in how to start your own daycare center? It’s time to go over the startup costs that you’ll require before diving deep into the exact steps you need to follow to make your dream of operating a daycare a reality.

How much does it cost to open a daycare? Your exact startup costs will vary based on how you decide to execute many of the steps within this guide. Every individual learning how to open a childcare business will have unique startup costs, but we’ll aim to provide you with a general overview to help you understand if opening a childcare business is an affordable endeavor.

One of the biggest factors influencing your startup costs is whether you're operating out of your home or a commercial location. If you want to learn how to run a home daycare, you won’t have to take on an entirely new set of bills, including renting a commercial location, paying for utilities, and having an Internet connection. However, you’ll have a firm limit on how many children you can care for, preventing the growth of your business. We will explore the differences between the two daycare types further on in the guide, but for now, realize that this decision will significantly impact startup costs.

The second-largest factor impacting startup costs is the age of the children that you will care for. Caring for infants, rather than pre-school or school-aged children, will greatly influence your startup costs and operating expenses. One way the child’s age plays a role is by complying with local regulations. For example, a facility caring for babies in California must have one adult caregiver per three babies. That regulation means you will have to hire new employees faster than if you were to care for other ages.

Now that we’ve gone over two important factors that will influence your startup and operating costs, let’s go over the remaining startup and operating expenses that are common for childcare centers. Any recurring expenses are represented as their annual cost:

Marketing and advertising: $4,000
Payroll for part-time help or substitutes: $10,000
Beverages, meals, and snacks: $4,800
Business licenses and other regulatory fees: $1,200
Phone and electric: $4,000
Furnishing: $2,500
Other equipment: $2,500
Water and trash services: $1,800
Supplies (often $50 per child per month): $2,400 to $3,600

The total startup costs are $34,400 on average.

This budget is only reflective of a home-operated daycare center. A commercial daycare center will have an additional lease expense that could add an additional $24,000 annually (based on the average $2,000 lease amount for daycare centers). This is why anyone interested in how to start up a daycare should decide early in the planning process which type of daycare center they wish to operate.

Take note that there are minimal payroll expenses included since many people start without employees or only part-time aides. Payroll will be one of the first notable expenses to increase as your business expands. For example, taking on 5 employees with a salary of $20,000 per year will add $100,000 per year to your annual operating expenses. The average salary of daycare workers ranges between $17,000 and $31,000.

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3. Begin with thorough planning

It’s time to dive in! The process for opening a daycare begins with thorough planning. Each of these steps is important, so don’t skip any of them.

Create a business plan

Any good business starts with a business plan. This is a proven way to start taking an inventory of all of your ideas, along with fleshing out any elements of your business that may be missing. One of the best ways to write a business plan is to find a template online and complete the prompts.

The purpose of writing a business plan is to think and plan ahead. The goal is to anticipate challenges that may appear and already have steps in place to overcome them. Some of the other questions answered by a business plan are:

Is there enough demand for a child daycare in my area?
What are the overall operating costs for my area?
How much space will you have? How many children can you care for?
What are the overall operating costs for my area?
How will you promote your business?

As a general rule, the more thorough the business plan, the more prepared you will be to open and operate your new daycare. Of course, some parts of your plan may change once they’re put into practice.

Additionally, some financing companies and other potential investors will want to see a formalized business plan before getting involved with your new business. Having a well-written business plan shows that you are taking the matter seriously and the way that you address challenges within it will create confidence with any investors or lenders.

Decide on your legal structure
Pick a location

If you’ll be operating your daycare out of your home, then you can skip this section.

For everyone else who wishes to open a commercial location, choose your location wisely. Begin by reviewing the licensing rules and regulations for daycares to understand exactly what must be present at any prospective location. For example, you will likely be required to have a functioning bathroom that’s usable by children, which may not be common at some commercial locations.

Your next step in how to open a daycare business is to identify a particular community in your area that needs and will directly benefit from a daycare center. Word of mouth and real estate analysis websites can help you determine the overall location that would be receptive to a new daycare.

Hopefully, you’ve narrowed down the target area from an entire city down to a specific community. From there, follow the below tips to help you hone in on the best commercial location for your new daycare:

Find a location that’s near a main street: The easier it is to find and commute to, the happier parents will be.
If you have to choose between a better deal and a better location, choose location: It will likely mean having to spend less money on marketing, and it will certainly start your business off on the right foot.
Natural lighting is important: It may even be a local requirement for daycares in your area.
Visit multiple locations: This is important even if you absolutely fall in love with the first location you visit.
Know how much space you need: Focus on price-per-square-foot as your primary metric for comparing prices
Be mindful of regulations: Understand what regulations exist when it comes to the number of children you can have per square foot of space
Look for spaces that require minimal renovations: Consider any added features already in place that may be beneficial, along with the cost for making any changes that you’ll need

You may be tempted to buy the property. While this isn’t necessarily a bad decision, renting for the first few years as you establish your business may end up preventing an unfortunate situation in which the business fails and you’re stuck with a commercial building that may have decreased in value. Of course, buying the property gives you much more control over the property and can be worth doing if you can afford it.

Determine how you’ll fund the startup costs

There are seemingly endless costs associated with starting and operating a daycare: toys, first aid supplies, cleaning supplies, markers, paper, food, software solutions to run your daycare, advertising, and more. It can be intimidating to approach all of these costs that quickly add up.

In an ideal world, you will already personally have all the money that you need saved up and ready to invest. If that’s your situation, congratulations, you can skip this step. For the rest of us, you’ll need to consider how to fund the startup costs for your daycare, along with having an operating budget to carry you until the daycare starts filling up.

We provided a brief overview of the costs earlier in this article, but how can you fund those startup costs? There are three notable sources of funding, and many people can secure at least one of them.

1. Friends and family

A good place to start is within your personal network of friends and family. They may have money to invest and might be glad to do so. You can offer them a percentage ownership of the business, or treat it as a simple loan. Loans from friends and family typically have a much lower APR, which is sometimes 0%, as compared to traditional financing options. Even though you know the lender personally, you should still draw up a fully legal and notarized contract that details the loan agreement.

2. Banks and credit unions

Banks and credit unions are a great next stop. These financial institutions offer small business loans that might cover the startup costs entirely, depending on the amount you can obtain. It’s important that you carefully consider the loan’s monthly payment along with the rest of your anticipated budget before agreeing to any small business loans. You don’t want to put too heavy of a burden on your business right when you’re getting started.

3. Small business grants and subsidies

Check your local, provincial, and federal websites for any small business grants that may be applicable to daycare. You may be surprised by how many are available, although this will certainly vary by region. Even if you doubt that you’ll be awarded the grant, it’s still worth applying for any that you qualify for. Grants and subsidies can often cover a substantial portion of your startup costs.

Pick a name and branding for your daycare

Your name and overall branding are vital to your success as a daycare. It’s important to find a name that:

Is easy to remember and spell
Describes what your business does
Somewhat clever, maybe even a pun
Helps your business stand out

It can take weeks or even months to finally decide on the right name for your daycare. A good way to approach the task is to have a note app on your phone that you use to jot down any inspiration that comes to you. Keep brainstorming and bouncing your ideas off of people in your life. If you need extra help, there are plenty of business name generators available online to explore. You can check out the Business Name Generator or Namelix.

Once you’ve landed on a name, your next step is to create a logo and select the colors for your brand. This might seem a little early on in the process, but you’ll quickly find that it’s time to create social media accounts, order signage, and print t-shirts. Having a logo and color scheme already created will help once you reach these steps.

A creative and captivating color scheme can really help establish the brand identity of your business. A great website for exploring color schemes is Coolors, a website used by website designers and graphic artists to find unique and engaging color schemes.

Create a projected budget

How much does it cost to start a daycare? We’ve explored this question in a general sense before, but at this stage in the process, you’ll be able to create a more specific budget that is reflective of your unique situation.

Create your budget based on monthly operating expenses, rather than startup expenses. Create an extremely thorough budget that you can depend on to help you manage the cash flow of your business. Some items that you’ll need to include are:

Staff salaries
Administrative fees
Books
Marketing
Telephone and Internet
Aides salaries
Activities
Utilities
Rent or mortgage
Software to power your business

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One of the key benefits of creating a budget is that it can help you determine the tuition rates of your daycare. You’ll know how much you need to make in order to turn a profit, so you can base your tuition rate on that information.

Pick a billing and payments solution

You’re going to need a software solution that allows you to easily collect money from parents. Ideally, parents will be able to opt-in to auto-renew, along with having an interface where they can view current and past invoices. The chosen solution should also provide email alerts when tuition is due.

Kinderpass is a fully integrated software solution that daycares can use to manage billing and payments. With our all-in-one software, you can send invoices, notify parents of due payments, and receive your fees on time with our contactless digital payments feature. Our solution goes well beyond a simple billing solution and will also provide you with the capability to easily correspond with parents, manage your attendance, and manage bookkeeping.

Go Contactless With Our Billing & Payment Solution

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Create a parent communication policy

Parents need to know what their child has been doing all day. Parents want to see that their child was properly fed, napped, had enrichment activities, and any other information about their day. As such, your daycare should have a clear parent communication policy.

Create a policy that dictates that parents will receive a daily activity sheet covering what their child has done that day. In the past, educators had to often rely on creating these daily reports after the fact and base it largely on their memory. Fortunately, a digital childcare management solution like Kinderpass allows educators to track student activity from their mobile devices, creating accurate and detailed reports. This report should include any observations, activity reports, dietary intake, and any other notes.

On top of the daily report, you’ll need a system for parents to communicate with you. Relying on calls and texting can quickly become confusing. Instead, Kinderpass also has an integrated correspondence system that will allow parents to easily communicate in real-time.

Why Communication Is Important When Running a Daycare

Create a marketing strategy

How do you plan on letting people know about your daycare? Marketing your new daycare is certainly challenging, especially when starting out, but there are certain strategies that tend to work well for daycares that you can employ.

A brochure is an essential piece of marketing material. Create an informational brochure that communicates all of the benefits of your daycare. Include details such as size, amenities, rates, and location. You can design one yourself in something like Canva, or hire a professional. A brochure gives prospective parents something to have physically in front of them when comparing different daycare centers.

You can distribute your brochure door-to-door for nearby houses, or place them in other stores related to childcare. For example, you may partner with a kid’s toy store to have a stack of your brochures near the exit.

Eventually, you’re going to need a website and a robust social media presence. We’ll get into these in more detail in the next section, as they are not a requirement to open your daycare. However, you can certainly create a website and social media profiles before launching your daycare if you wish.

5 Reasons Why Your Daycare Needs a Childcare Management App in 2022

Setup a robust online presence

Throughout the course of your business, from before you open your days to several years in operation, you will rely on having a robust online presence to find new customers. This presence allows parents to explore your facility, policies, practices, and reputation without even stepping foot in your facility.

Some cornerstones of your online presence are:

Google My Business: You absolutely want people to find you on Google Maps, so set this up once you have secured a location for your daycare. You can set up a Google My Business listing with the steps in this article.
A website: Ideally, you willhave a website online before you open your doors, but that’s by no means a requirement. However, your website is a vital sales tool that can even allow parents to directly sign upand begin the onboarding process. You can hire a designer, or set up something yourself with Wix or a similar service.
Social media: Facebook and Instagram are the two platforms to focus on for daycare businesses. You may have some success with other platforms, but you don’t want to spread yourself too thin. Facebook and Instagram allow you to communicate with the public, along with running targeted paid ads to bring in new leads.

If you do not want to do all of this yourself, there are endless agencies and freelancers available to help you carry out any task related to online marketing. Check out sites like Fiverr and Upwork to help you find the right specialists.

6. The bottom line

Opening a daycare can be scary and demanding but it can also reward you financially and emotionally. Spending your days caring for and educating children will bring certain difficulties, but for the right person, this type of business will be endlessly rewarding. There’s no blueprint for success, but the key is to stay motivated and remember why you’re doing it.

Let the above guide serve as your walkthrough to take you from the ideation phase to your grand opening.

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