How Much Money Does it Cost to Start a Small Daycare?

According to recent data, the daycare industry is currently a $48 billion business. We can all agree it is a profitable industry! If you’re interested in becoming part of this industry, you might be wondering…how much money does it really take to start a small daycare?

Depending on the scope, the initial investment required for a small childcare center ranges from $10,000 to $50,000. This figure includes legalities, insurance policies, certifications, supplies, and marketing, but note that there may be other expenses such as building renovations, payroll, and additional administrative costs to consider.

Different elements may impact the amount you need to invest in specific aspects of your business. Judging from my personal experience, the most important are:

Table of Contents

Legalities

Probably one of the most significant chunks of your investment will go into permits and licenses. In the United States, there are stringent laws regarding the childcare industry, as most states require extensive legal considerations. These requirements include, but are not limited to, the following.

Registering the company

Like any other business, the first thing you would need to do is choose a business entity (e.g., LLC, sole proprietorship, partnership). Consider your options! Usually, it costs around $40 – $60 if you register as individual entrepreneurship (or sole proprietorship) or $100 – $500 if you register as a Limited Liability Company (LLC). Even though the cost is considerably higher, I recommend registering as an LLC — mainly because it gives you better legal protection if you were to be involved in a lawsuit or legal dispute.

Filing for necessary permits

After legally establishing your company, you then will need to file for all the necessary permits. The most common required licenses are:

1. License to Operate

This is a standard license required by most states to operate a business. Depending on the city or region you are in, you will need to contact the State Department of Children Services, your local city hall, or the county courthouse. Whatever the case may be, more often than not, you will need to have a license to operate a child care center.

2. Fire Department’s Permits

All places where a high number of people congregate like movie theaters, stadiums, schools, and daycares need the approval of the local Fire Department. Why? Simple, the city needs to make sure that your business meets all safety regulations.

Furthermore, note that this is not a one-time thing as most fire departments will schedule periodic inspections. You will need to pass the regular examination, or else receive a citation that can result in the closing of your establishment.

3. Health Department’s Permits

As a daycare, you might need to serve food such as snacks, lunch, or even breakfast. Thus, you will need a permit that certifies you are qualified to handle food adequately.

Besides the ‘Food Handler’s Permit’ mentioned above, there are other Health Department regulations you should consider like the ‘Air & Water Pollution Permit.’ Visit their website to get the appropriate information.

4. Building Permit

Usually, this kind of permit authorizes you to build or remodel the establishment where your daycare operates. It is common for daycare facilities to require a lot of work such as fencing, child-proving, zoning regulations, and more. Largely, getting a location up-to-date can amount to thousands of dollars.

Like I said before, depending on your location, you may also need various other permits and certifications before you can operate a daycare. Therefore, I recommend you check with the National Childcare Information Center (NCCIC) to make sure you comply with all the needed requirements.

Legalities Cost Breakdown:

Registering a company $100 – $500

Licenses & Permits

License to Operate $100 – $200
Building Permit $400 – $1,900
Other Permits $200 – $400

Overall, complying with all the legal formalities, regulations, and requirements adds up to $800 – $3,000.

Insurance Policies

All businesses need insurance to avoid losing significant investments in the hands of an accident, robbery, or legal dispute. When it comes to childcare centers, you can never be too careful. Taking care of children is a delicate thing. Aside from regular General Liability coverage, Property Insurance, and Worker’s Compensation insurance, you might want to have:

Professional Liability insurance
Abuse and Molestation coverage
Commercial Auto insurance

Insurance Policies’ Cost Breakdown:

General Liability $200 – $500
Property $500 – $1,000
Workers’ Compensation $.075 – $3.00*
Professional Liability $500 – $1,200
Abuse and Molestation $5 – $12**
Commercial Auto $1,500 – $3,000

*This range includes the amount per employee and varies greatly depending on the state you are based.

** This range consists of the amount per child and changes depending on the insurance company and location.

Hence, the insurance policies for a daycare center (with 50 children and 10 employees) can range between $2,800 – $6,100.

Certifications

Another vital thing to take into account is the expenses that come with training, certifications, and other considerations. For instance, from a professional standpoint, childcare givers often only need a high school diploma or GED. Nonetheless, you and your teachers/assistants may also need to take basic babysitting and childcare courses. These training courses are often available online and administered by specialized organizations such as the American Red Cross, Newborn Care Specialist Association (NCSA), YMCA, and more.

In my case, I took an ‘Advance Child Care’ course with the American Red Cross. But please note that these types of training programs do not replace state-licensed childcare provider certifications and may not meet all state requirements for such permits.

Also, it is highly advisable to get certified in First Aid, cardiopulmonary resuscitation (CPR), and automated external defibrillator (AED) practices. Remember taking care of children is not an easy task and carries a lot of responsibility.

It is crucial to highlight that these certifications are only valid for two years – meaning they can signify a recurring expense.

Certifications Cost Breakdown:

CPR $30 – $95
AED $30 – $95
First Aid $15 – $75

If you decide to get certified on all of the practice mentioned above, your total certification cost will add up to $75 – $265 bi-yearly per person.

Supplies

Now that you have taken care of all the bureaucracy, it is time to talk about the expenses that come with day-to-day activities like art supplies, play materials, cleaning supplies, safety equipment, furniture, and so on.

As you may have guessed, the list of supplies is long and highly expensive. But do not panic! You can make your way through the list as time passes. Below are lists of a few of the essentials to get you started.

1. Safety:

First Aid Kit
Smoke Detectors
Fire Extinguisher

2. Cleaning/Sanitizing:

Hand Sanitizer/Hand Soap
Wipes/Toilette Paper
Plastic bags
Mop/Broom
Cleaning bucket
Disinfectant
Multi-purpose Cleaner

3. Art Supplies:

Pencils/Colors/Markers
Watercolors/Tempera paints
Masking Tape
Colored paper
Scissors
Glue

4. Toys:

Puzzles
Books
Legos/Wooden blocks
Board Games
Play Dough

5. Nap Time & Feeding Time

Mats
Blankets
Pillows
Plates
Cups/Baby Bottles
Spoons
Bibs/Aprons

Supplies Cost Breakdown:

Safety $200 – $350
Cleaning/Sanitizing $100 – $200
Art Supplies $100 – $180
Toys $400 – $600
Nap-Time & Eating-Time $300 – $550

Altogether, having the necessary supplies for 20+ children and staff can amount to $900 – $1,800. It all depends on the number of kids, teachers/assistants, and quantity/quality of supplies you buy. Find a more detailed list of supplies here.

Marketing

Marketing is vital, especially when you are starting a new business. There’s a lot of competition with years of experience and possibly a steady clientele. But, don’t let this bring you down! Here’s where marketing plays an important role.

Splurge some money on a professional-looking logo, flyers, and brochures. You can pass these materials around, place them on mailboxes, or hand them door-to-door in neighboring communities. Also, I recommend you talk to other institutions like dance schools, soccer camps, and such to see if you can advertise within their facilities.

Word-of-mouth and referrals are your best option since they have little to no cost. If you want to reach a bigger audience, though, the best way to do it is by developing an online presence. Start by creating social media profiles on different platforms. Choose the ones that you feel comfortable using and start posting if you spend a little extra money on local promotions even better, this way; you can reach more parents! Sponsored content is an excellent way to broaden your horizons and position your brand.

Lastly, think about developing a simple (yet professional) website. A site can give go along way when it comes to daycare centers since it is the perfect outlet to highlight your services, qualifications, and facilities. You do not need to hire a specialist. In the beginning, a simple website created through platforms like Wix or Square Space that require no technical knowledge will do.

Marketing Cost Breakdown: