How to Start a Daycare: A 10-Step Guide

Despite the rise of remote work, the demand for daycare services is at an all-time high. According to Grand View Research, a leading research publication, the U.S. child care industry stood at $63 billion as of 2023, and the market is expected to grow by another 5.86% through 2030. 

For an entrepreneur looking to start a small business in child care, these numbers certainly exhibit opportunities for success and profit. But where does one begin? 

Let LegalZoom help. Learn how to start the daycare center of your dreams.

Is now the time to start a daycare? 

We’d say yes! This year and the coming years are poised to be lucrative times to step into the child care market. Trends driving this surge in demand include:

• Parents returning to the office
• High demand for women-led industries, like health care and educational services
• Increasing number of parents pursuing higher education and specialized training 
• More women pursuing entrepreneurship
• Increased awareness about early childhood education 
• More homes where both parents are working

From a business standpoint, a child care business presents ongoing demand and exciting prospects. Here are some numbers to back that up.

• Approximately 62% of U.S. children population are in some form of child care
• Profit margins are a respectable 10%-15% 
• Start-up costs range from $10,000-$50,000
• Recovering economy is poised to give parents more disposable income
• More grant options for child care businesses from organizations like First Children’s and WomensNet

How to open a daycare in 10 steps

Excited about working with children and running your own business? The pathway to success begins with market research. 

Step 1: Research your market

The child care business has stiff competition, and to be successful, you need to know what you’re up against and what you need to do.

Here are a few steps that help you dig deep and assess whether a child care center is a viable business idea.

• Analyze demand. Study your area's demographics, like parental income, families with kids, and population trends, to identify if there’s a demand for your business. The U.S. Census is a good starting point for this information. 
• Finalize age group. Daycare centers cover a spectrum of age groups, each with its benefits and challenges. It’s important to understand which group you wish to serve. In addition, assess your skill set—are you better with babies or more comfortable dealing with toddlers or older?
• Study the competition. Look at local child care centers and learn their set up, target market, pricing strategy, and what they bring to the table. You can even examine their cost structure—what the salaries and rent expenditures are, and how much the supplies and materials cost?   
• Identify market gaps. Ask yourself, “What can you do to differentiate yourself?” and “What are the pain points of the parents?” 
• Understand state guidelines. While a bachelor's degree in education is not mandatory for running a daycare, the job involves working with a vulnerable age group and some teaching and training. Many states require daycare business owners to have some minimum qualification, like a GED, an associate degree in childhood education, or a child development associate certification. If you're missing this, get started as you build your center. Your state’s office of Child Care Services or Health and Human Services can give you all the details about the training, experience, and credentials you need to legally operate a child care center.

Step 2: Find a location

Many people have successful child care centers operating from their homes or basements when state law permits. If you plan to go that route, ensure you have a safe and sufficient place in your house that doesn’t disturb your own children or family members' daily routines. 

If you need to look externally, run an online search and contact local recreational clubs, gyms, churches, and other small businesses. Often, they will have an underutilized space they can rent out at an affordable price. 

Location parameters to keep in mind while you go space hunting include: 

• Size
• Safety
• Accessibility
• Budget
• Scalability

After you have narrowed down location options, check with your local zoning, fire, homeowner association, and health department for compliance requirements.

Step 3: Make a daycare business plan

Having an idea isn’t enough; to operate a successful daycare center you need a well-thought-out business plan that includes everything from competitor analysis to financial statements, marketing strategy, and details about managing conflicts.

Your business plan should detail the following: 

• Your business entity structure. A small business owner can opt between a sole proprietorship, limited liability company, or S corporation. Your chosen structure will influence your tax filings, bookkeeping, administrative duties, and daily operations. LegalZoom can help you select and form a registered business entity that aligns with your business goals.
• Business proposition. What service does your daycare provide—full-day, half-day, or an after-school program? Will the daycare follow a certain learning philosophy like Waldorf or Montessori? Will extra services like reading classes or tutoring be offered? Write out your mission statement and short and long-term goals. 
• Pricing strategy. How will you charge parents? Will discounts be offered for those who sign up long-term? Your market research will help you set a pricing plan. 
• Operating plan. How will the day-to-day run? What processes will help you manage the place? Will you be hiring staff, or will your daycare be a one-person show? 
• Business expenses and financial projections. Include accurate start-up costs and expense estimates alongside income projections. Do you have enough savings to cover the startup costs? If not, how will you secure funds? Be realistic about when you expect to start making money and leave some buffer for future and unexpected expenses. Getting into the financial nitty-gritty will give you a framework to operate.
• Marketing strategy. How will you reach your target audience? Will you rely on social media or a door-to-door campaign? Also, consider local partnerships (schools and businesses) you can establish to bring in clients.

The more planning and prep work done upfront, the higher the chances of success. SCORE offers a business plan template that can ensure a strong start off the blocks.

Step 4: Get your licenses and permits 

Securing the right licenses, permits, and certifications is one of the most important aspects of starting any business. These licenses and certifications protect your business from unfavorable conditions and often inform your customers about your commitment to safety.

Licenses and permits that you may require are: 

• Family child care home license
• Commercial group child care license
• General business license
• Building permit 
• Fire permit
• Health-related permit 

Most permits and licensing requirements are regulated by the state government. Also, the licenses and permits required depend on the size of the daycare and whether you are operating from your home or a commercial place. LegalZoom’s Business Licenses service can help identify and meet your licensing requirements.

Step 5: Secure funding

The financial aspect of your child care center business might not be as fun as selecting a name or designing the space. Still, it’s a catalyst that gets you one step closer to becoming a successful entrepreneur. 

Can’t bootstrap your way into business and require external financial assistance? Don't panic, here are a few alternative sources of money that you can look at: 

• Small Business Administration (SBA) microloans. These loans, typically between $500 to $10,000, are mainly geared towards startups. They are given to women, minorities, and those operating in low-income areas.
• Online business loans. Online loans are an alternate means of getting capital that doesn’t have the same barriers as traditional business loans, like stronger credit scores or years of establishment. They also tend to provide quicker access to capital but with higher interest rates.
• Private and government grants. An attractive source of funding because you don’t have to pay back the amount. Grants are generally offered by the government, private foundations, or corporations. Check out your state’s Child Care and Development Fund Administrators and grant marketplaces like OpenGrant and GrantWatch to see if you qualify for any. 
• Business credit cards. A cost-effective, fast, and short-term way to cover your startup costs even if you don’t have the best credit rating. The advantage of a business credit card is it can actually help you build credit while keeping your personal and business expenses separate. These cards can also link directly to a business bank account.
• Crowdfunding. A popular and inexpensive way to raise funds without any obligation to pay back the debt. Crowdfunding allows small business owners to reach a wider pool of investors through an online portal. Popular crowdfunding sites include Fundable, Kickstarter, and Indiegogo. 

Step 6: Design your daycare center

This is the best part! Proper design and layout of your daycare can be instrumental in fostering a nurturing environment where kids can thrive and grow. The challenge you might face is designing an aesthetically pleasing and functional that abides by the required safety regulations. You can hire an interior designer or get ideas from Pinterest to overcome this hurdle.

While designing, factor in the following: 

• Designated areas for learning, napping, and eating
• Child safety locks and gates for stairs, storage, and equipment
• Open floor space that allows for movement
• Cleaning and sanitizing of all equipment and surfaces
• Security measures like CCTV cameras, smoke detectors, and fire extinguishers

Running a daycare center requires massive investment in supplies and equipment—from tables and chairs, disinfectants, wipes, and books to toys and bibs and various art materials. You can search online marketplaces to find preloved materials at a bargain or explore suppliers like Discount School Supply and Lakeshore Learning. 

Step 7: Hire qualified staff (if required)

The need to hire staff depends on your state of residence as well as the age and number of children in your daycare. For example, in New York State, a child care center must have one adult for every six children under the age of six. 

Your state’s Office of Child and Family Services or licensing agency can inform you of the required staff-to-children ratio and the necessary qualifications and experience for hired staff.

There are still more things you have to complete after you have identified the number of people you need: 

• Run necessary background checks, including criminal background checks and references.
• Sign contractor or full-time employment agreements to protect your business from fraudulent claims and ensure there are no discrepancies about roles, responsibilities, and pay. 
• Create detailed job descriptions so everyone knows what they have to do. 
• Train staff on child development, early learning frameworks, emergency preparedness, and basic health and safety measures like CPR and first aid. 

An employment attorney can steer you away from legal issues and ensure you’re following your state’s employment laws and mandates while hiring and managing your staff. 

Step 8: Create a business handbook

This business handbook is the master blueprint your daycare runs on. If you have any doubts or confusion about how to deal with the families or your staff, the handbook should have the answers. 

For families, the handbook should cover crucial logistical information, such as:

• Enrollment procedures
• Tuition fees and payment procedures
• Description of curriculum and activities
• Field trip process
• Health and safety measures
• Sick kid protocol
• Communication policy
• Discipline code 
• Pick-up and drop process
• Food and nutrition (if you are providing meals)

For your staff, the employment handbook should include:

• Pay and benefits
• Personal leave policy
• Child care guidelines
• Hiring and termination procedures
• Disaster and emergency plans
• Performance evaluation process
• Hygiene and cleanliness protocols 

Step 9: Market your daycare

You can have the best daycare in the area, but nobody will know about it if you don’t market it. And by marketing, we don’t just mean a few flyers or social media posts; an entire strategy has to be set that addresses the question, “Why should families choose you?” 

To start, pick a creative name for your daycare and design a logo. You can collaborate with a graphic designer or utilize online design tools like Canva and Snappa. Getting a trademark can protect your business from potential copycats.

In today’s world, an online presence is a must. Develop a business website and social media presence. You don’t need to be active on all channels—just the ones that resonate with your target audience. 

Pro tip: Get a website domain name and social media handle that matches your business name. It will create brand consistency and make it easier for parents to find you. 

A free and powerful marketing tool is to set up a Google Business Profile. Collaborate with local businesses, like libraries, gyms, restaurants, and grocery stores, to advertise your business. Also, getting featured in a local newspaper or hosting an open house or free parenting class can also go a long way. 

Step 10: Stage your grand opening

This is premiere night, and you should put on a show to get people through the door. You’ve one shot to make a positive impression, so give this your all. 

A popular and effective way of getting people through the door is to host an opening with engaging activities that speak to your target group. Consider offering:

• Scavenger hunts
• Art and craft sessions
• Reading time
• Free-play
• Area tour

This allows you to showcase your skills while potential clients get first-hand experience of what it would be like for their child. To boost brand recall, make sure every person who attends leaves with a memorable freebie with your daycare’s name and logo, such as tote bags, stationery items, or even a T-shirt. 

Pro tip: You can further encourage attendees to submit enrollment forms by offering a special discount, such as waived registration fees or a significant discount. 

How to get started with your new business

Starting a business is challenging, but it’s also the most rewarding and fulfilling experience. We understand that the start-up to-do list may seem endless, but remember, you don’t have to do it all on your own. 

We can turn your passion for transforming future generations into a thriving business with our Business Formation services. With the right information and resources for every big or small question, our start-up experts will smoothen your entrepreneurship journey.

FAQs

Can I run a child care center from my home?

You might be able to, but it’s best to check with your local licensing authority about the number of kids you can care for and the space requirements for a home-based daycare. 

How much does a daycare owner make? 

It’s difficult to pinpoint an exact figure because it depends on the number of kids enrolled, operational costs, location, and competition. If you are in an area with multiple other family child care providers, you will have to keep your rates competitive. 

What insurance do I need for my daycare? 

Daycare centers typically require property, workers' compensation, professional, and general liability insurance coverage. An insurance broker can help you pick the right policies for your business.