Opening a daycare center can be a very profitable business if it is done correctly. With many families needing both parents to work, the demand for child care services is as high as it’s ever been. Before you start making money, however, you need to spend money on startup costs to get your facility off the ground.
The average startup costs for a home-based daycare center is between $10,000 and $50,000, while larger facilities range from $50,000 to $2,000,000.
There are a number of factors that can influence what your startup costs will be. In this article, we will go over these factors and help you get an accurate estimate of your startup costs.
What kind of daycare center are you opening?
Perhaps the biggest factor in determining your startup costs is what kind of daycare center you are going to be running. When you are starting a daycare center, there are typically 4 options to choose from.
- Privately-owned daycare facility
- Purchase of an existing daycare center
A home-based daycare center is very popular for start-ups for a number of reasons. Lower start-up costs, fewer regulations, and fewer business tasks all make a home-based daycare center a relatively accessible startup business.
There are still requirements and regulations that you need to complete before starting your home-based daycare, such as:
- Business licensing
- Fire safety check
- Background check
On top of that, you will still need to get the basics, such as educational materials, furniture, and food.
The good news is you won’t have a rent or mortgage to pay. Also, your utilities, maintenance, and tax expenses will all be lower relative to a daycare facility.
One cost of choosing a home-based daycare facility doesn’t involve numbers. Operating a daycare out of your home has a significant impact on your family and your home. Bringing a business into the home will put some stress on your family and put some limitations on what you can do in your own home. This type of daycare is still the right option for many business owners, but make sure you factor this into your final analysis.
A small, home-based daycare facility usually costs between $10,000 and $50,000 to start.
Privately-owned daycare facility
A privately-owned daycare facility can be significantly more cost upfront compared to a home-based daycare facility, but it has the potential for much greater profits down the road.
This type of daycare facility brings in additional regulations, cost of rent/mortgage, and renovations to the building. There are also certain regulations for the size of your building as well as the outdoor area that will limit your options for facilities.
Because of these additional costs, you will need to take care of more children to make your business profitable. Caring for more children means hiring a well-trained staff, purchasing playground equipment, and having a pick-up and drop-off zone.
A privately-owned daycare facility will typically be at least $75,000 and going all the way up to $2,000,000 depending on the size of the facility.
If you are looking for some assistance with marketing, business operations, and name recognition, franchising a daycare center could be the right fit for you.
Franchising a daycare center means you get to use the business brand and receive some assistance with starting your business. This can eliminate many of the headaches associated with starting a daycare business, but it doesn’t eliminate the startup costs.
Another thing to consider with franchising is a portion of your profits will be sent directly to the franchise instead of into your own pocket. This limits your long term ability to grow and profit from your daycare business.
Franchising a daycare facility can range from $100,000 to $3,000,000.
Purchase of an existing daycare center
The most turn-key option available for starting a daycare center is to purchase an existing center. When you purchase a daycare you will be purchasing the brand, the current client base, and sometimes the facility and real estate associated with it.
Purchasing a daycare center doesn’t mean you aren’t going to have issues. The business may not be in a great position in the market, or some customers might choose to leave because of new ownership. If you are going to purchase a daycare center, be prepared to adjust and make changes as necessary.
Purchasing an existing daycare center typically ranges from $200,000 to $2,000,000
Size of your daycare
Along with the type of facility you plan to open, the size of your daycare is another important factor that can change your startup costs significantly. In general, the smaller the facility the smaller the startup costs. But make sure you take into account how profitable you can be based on how large your facility is.
Startup cost estimates based on the number of children:
- <10 = <$50,000
- 10-30 = $50,000-$300,000
- 30-50 = $100,000-$500,000
- 50< = $500,000-$3,000,000
The types of services you provide will also greatly influence your startup costs. Are you going to be teaching kids with technology? Is your focus going to be on physical activity and play? Are you going to be teaching kids 2 languages?
These services will all have an impact of what kind of facility you need to purchase, what kind of equipment to purchase, and the type of staff you need to hire.
Some common services daycares provide that will affect your startup costs:
- Gifted and talented
- Special needs
- Outdoor play areas
- Playground equipment
- Overnight stay option
- 24-hour facility
- Types of meals provided
Typical startup expenses
Now that we have gone through the factors that can make your startup costs fluctuate, it’s time to look at what you typically need to open a daycare facility, how much they cost, and estimate your startup costs.
Below is a list of typical startup expenses. In this example, we will be identifying costs for a privately-owned daycare facility that takes care of 50 children daily.
|Child Care Costs
Educational supplies/equipment (toys, books, etc.)
Printed marketing material
|Furniture, equipment, improvements
Indoor furniture/equipment (Smoke detectors, computers, tablets, television, sleeping mats, etc.)
Outdoor equipment (Playground equipment, outdoor toys)
Office furniture/supplies (laptop, chairs, desk, printer, phone)
Parking lot signage
Working capital (8 months)
Subtotal one-time costs
|TOTAL ONE-TIME COSTS||$121,497|
Using this template you can adjust for things unique to your situation and add or subtract what makes sense. It is best to be as accurate as possible with these numbers, but if you are unsure about some items, it is best to round up just to be safe.
In order to get accurate estimates, you can search online, ask members of online forums what their startup costs were, or hire the help of a professional. If you have accurate and well-researched cost estimates, you will have a much easier time receiving funding.
How to find funding
For the vast majority of aspiring daycare owners, putting down $100,00+ to start a daycare just isn’t an option. Luckily there is plenty of assistance and loan opportunities at the local, state and federal level.
Receiving a grant to start a daycare center is very desirable relative to a business loan. If you designate your daycare facility as a non-profit, you will have many more grant opportunities. However, this greatly changes your business model compared to a for-profit center. For more information on the difference between the two, click here.
Once you have that sorted out, you should reach out to agencies that offer funding for daycare centers. This includes:
- Head Start
- Child care and development fund
- Social services block grant
- Child and adult care food program
- Even Start
- Individuals with disabilities education act
- S. Department of health and human services
- Child care bureau
If you can’t find much luck with grants, the next source of funding is loans. The process is pretty straightforward. You will first need to apply for a loan, which you can do through a number of financial institutions. Next, you will need to provide them with detailed financial and business information, this should include your business plan, budget, and financial projections.
Once you have applied for the loan, the lender will offer you either all or part of your funding amount. It is best to apply for loans at multiple institutions to compare rates.
Every little bit helps when you are opening a daycare center, and donations can help to provide a little extra support. Reach out to other local businesses and organizations to see if they would be willing to either donate supplies or help out financially.
- I have bad credit but need a loan to start my daycare business, will this be a problem?
This could be an issue if you are a sole proprietor. Financial institutions will either not lend to you, or hike up your rate due to your credit history.
One way around this is to find a business partner who has good credit that could help you out with the financial side of the business.
- Where can I go to help me make accurate financial projections?
One of the easiest and most accessible information sources is online forums. These online communities are there to support one another and have plenty of reliable information.
Some great ones are:
Aside from online forums, you can hire the help of a financial advisor who could walk you through the process.
Please note: This blog post is for educational purposes only and does not constitute legal advice. Please consult a legal expert to address your specific needs.
Checkout our startup course and documents here to get started TODAY!