How to Start a Daycare Business

Once you have decided to start your own daycare business, there is a list of essential steps you must follow to help your new business become successful. Completing the right steps in the right order will be important for starting your business off on the right path. To help you along your new journey of opening a daycare business, we have provided a step by step guide that will help your daycare be a huge success!

The step by step process of starting a new daycare business includes:

Evaluate Demand in Your Market
Write Down Business Goals
Decide on Business Name
Research Local Regulations
Evaluate Your Funding Options
Decide on Location of Daycare
Purchase Business Insurance
Acquire Licenses and Permits
Set Your Rates or Packages
Purchase Your Supplies
Create a Client Contract
Hire an Accountant
Create a Website and Social Media
Announce Opening Date
Hire Additional Caregivers
Invest in Marketing

Table of Contents

Step 1: Evaluate Demand in Your Market

The first step in starting a new daycare business is evaluating the demand in your market. In order to ensure your business will be successful, it is essential to have a clear understanding of what the childcare industry looks like in your community.

When you are beginning your evaluation, the first factor you want to research is the number of competitors within a 10-mile radius of your area. Is there already a large number of daycares close to you? Knowing the precise location of other daycare facilities will help you during future steps, like deciding on your location.

The next factor you want to research is what your competitors are known for. Are there areas they specialize in? Is there a specialty or a specific need that’s missing in your area? What is a way you can set your business apart and stand out in your community? These are all important questions to ask yourself when you’re evaluating your market.

Step 2: Write Down Business Goals

Before you start making long-term plans for your daycare business, you need to write down your business goals first. Having a clear understanding of both your short-term and long-term goals will help you make important business decisions down the road.

We recommend starting with writing down your short-term business goals for your daycare. Within the next year, where do you want to see your business going? What are you the most excited to achieve? Examples of short-term goals for a daycare business may be booking ten clients, filling your toddler classroom or hiring two additional caregivers.

For your long-term goals, you want to ask yourself what you would like your business to achieve within the next five to ten years. Where do you ideally see your business going? Examples of long-term goals for a daycare could include moving to a larger facility, upgrading your playground equipment or having a total of 10 employees.

Your business goals will be uniquely yours and will largely depend on your ultimate vision for your business. Do you plan on keeping your daycare small and intimate? Do you want to continually expand and move into a larger space? There are no right or wrong ways to decide on your business goals if they fit into what you want for your business.

There are multiple benefits to writing down your business goals. The first benefit is the excitement caused by seeing one of your goals checked off. Once you achieve a goal on your list, your new achievement can give you the extra momentum and spark you may be needing. Even if your long-term goals seem far away, achieving a short-term goal will give you the motivation to keep going.

The next benefit of writing down your business goals is you have an easy place to remind yourself of your vision. When you are starting a new business, you can easily get caught up in all the day to day activities. By reviewing your list of goals regularly, you will be reminded of the vision you’re working towards.

Step 3: Decide on Business Name

Before you can begin setting up your new business legally, you need to decide on a business name! Your business name will be a key part of your business and it is often the first part of your business your potential clients will see. This is not a step to take lightly.

When deciding on your business name, there are three main factors you want to keep in mind before making your final decision. First, your business name should give your potential clients a very clear understanding of what your business does. We highly recommend that you include the words daycare or childcare in the name.

For the second factor, your business name should be easy to remember and easy to pronounce. You want a business name that is really going to stick with your potential clients. Business names that are catchy or rhyme are always the best picks. If your business name is hard to pronounce, it will be more likely to get skipped over or forgotten about.

The last important factor in your business name is picking a name that you will use for years to come. Changing your business name after you have established clients can be extremely harmful for the success of your business. Therefore, it is important to pick a name in the beginning that you can see yourself using for the next 5 to 10 years.

Once you have decided on your top 3 potential business names, you need to check each one and make sure they are not currently already in use in your specific area. If a business has already been registered in your state with your potential name, you will not be able to successfully register your new business with that name.

We also recommend checking potential website URLs to see if the names you like are available. For example: If you love the name ABC Beginnings Daycare, you should check and see if either abcbeginnings.com or abcbeginningsdaycare.com are available for you to purchase. Even if you don’t plan on creating a website right away, owning the URL can be extremely beneficial in protecting your business down the road.

Step 4: Research Local Regulations

Each state will vary when it comes to what regulations they require every daycare business to follow, both before and after you open for business. To ensure that you start your new daycare business off on a solid foundation, it is essential to research the specific regulations for your own state.

If you are not sure who to contact regarding your state’s regulations, we recommend visiting the website for the National Database of Childcare. This website will help you locate your state’s childcare department, along with providing a list of your area’s specific regulations. You can find their website by visiting childcareta.acf.hhs.gov.

For example, your state may have requirements for the building that your daycare is held in, how many children you can watch at one time, how much experience in childcare the main caregiver must have and how much movement the children must get daily.

If you have any questions regarding the regulations for your own area, we always recommend calling your state’s local childcare department. Before you open for business, it is essential that you don’t have any confusion and that you have a clear understanding of what will be required for your business.

Step 5: Evaluate Your Funding Options

Funding is an essential step to opening a new daycare business. Funding will be required for future steps like acquiring licenses and permits, purchasing your supplies and hiring an accountant. Before moving on to the next steps, you need to have a clear picture of what your funding situation currently looks like and what options are available to you.

If the funds you personally have available are extremely limited, you may want to consider applying for business grants or business loans. The benefit of business grants is you don’t have to pay them back over time like you will for a business loan. However, you do need to keep in mind that business grants are time-consuming to apply for and will also take longer to acquire the funding.

If you need more funds for your business in a shorter time frame, a business loan will the best option for you. When you are searching for a business loan, we recommend comparing the interest rates from various banks and credit unions, along with the monthly payments and the time you will have to pay back the loan. It’s important to make sure the loan fits into your monthly budget for your business.

The last activity involved in funding your business is creating a budget. Although your budget for your business will change over time and as your business grows, it is still important to have an idea of what you plan on spending when you open your business. By knowing what you plan on spending, you will be better prepared and can make sure you get a grant or a business loan that will cover your initial startup costs.

A large benefit of having a budget is it will help you stay within your means when you are renting a commercial space or purchasing supplies. You are less likely to overspend on your daycare supplies if you have a budget set in place before you do any shopping.

Step 6: Decide on Location of Daycare

One of the most important decisions you will make for your daycare business is the location. You first need to decide if you will operate your daycare out of your own home or if you will be renting a commercial space for the daycare.

Many new business owners choose to operate their daycare out of their home as they are getting started. This is an excellent way for you to keep your costs low. However, your home will need to have enough space to comfortably hold the children you care for. Since some states will require a certain amount of square footage for every daycare facility, you need to refer to your local state regulations to see if using your own home is a possibility.

If you do decide to use your own home for your daycare, you also need to decide on where in the home you will set up your business. If you plan on caring for multiple children, a large living area like an open basement will be ideal for setting up your business. You also want to look at your outdoor space to ensure you have enough room for the children to play.

Renting commercial space can be ideal if you have more funding available and you plan on growing your daycare business quickly. Since commercial spaces tend to provide much more space than your home, you will be able to accept more clients and grow your business into a larger organization.

When searching for a commercial space, it is essential that the monthly rent fits within your budget that you’ve already set. If the monthly rent is far outside of your budget, it can cause your business finances to go in the negative and risk your business failing. Other factors you need to keep in mind is the square footage available and how soon the commercial space is available for you to take over.

Step 7: Purchase Business Insurance

Business insurance is a vital tool for all daycare businesses. Insurance acts as protection for your business. Without business insurance, you can end up being financially responsible for any accidents or situations that may arise in your daycare.

In some states, you will be required to have a certain amount of insurance coverage before you open your daycare. When you are searching for your insurance, you need to refer to your local regulations to make sure you meet the minimum coverage amount.

When you are looking for business insurance, we recommend getting quotes from around 3-5 different insurance companies. You want to compare the amount of coverage for each policy, the deductible you will need to pay and ask if there are any other benefits included in the insurance policy. This will help you choose the best insurance company and policy for the needs of your business.

Step 8: Acquire Licenses and Permits

Once you have decided on important factors for your business like your business name and location, you will be ready to acquire your required licenses and permits. When you submit the application for your business license, you need to make sure you’ve met all the regulations that are required upfront.

Applying for your business license is a process that requires you to pay close attention to detail. You want to ensure that you have all the required permits and documents before you submit your application. If you must edit or make changes to your application after you’ve already submitted it once, it can delay the time it takes to receive your business license and it can cause you to pay more in fees. We always recommend being prepared upfront.

Once you have your business license and all the required permits, you want to keep these documents in places they can easily be seen. When potential clients are looking at your daycare facility, they will want to see that your business is legal and has met all the local state requirements.

Step 9: Set Your Rates or Packages

The prices you charge your clients is a large part in determining how successful your business will be in the long run. If your price is too low, your business can end up struggling financially. If your prices are too high for your area, you can experience a more difficult time landing enough clients to keep your business positive.

Before deciding on your rates, we recommend finding the common rates in your specific area for childcare services. To find your rate, you want to call around to 3 to 4 different daycare facilities near you that have good reviews. You want to ask for their rates for various child ages, along with part-time care verse full-time care.

Once you’ve collected the rates from daycares around you, it’s time to evaluate the rates. Is there a common range that all the daycares fall into? As you are starting your new business, we recommend staying within this range. As you book more clients and get more experience, you can raise your prices later.

Step 10: Purchase Your Supplies

No matter what your vision is for your daycare, there are certain supplies that you will be required to purchase to operate properly. Every daycare facility will need safety equipment, toys, learning materials, and cleaning supplies. You must purchase all your supplies before you open your doors for business.

Like renting a commercial space, it is important to stay within your budget when you are purchasing supplies for your business. To help you stay within your budget, we recommend making a list of the supplies you will need before you start shopping. This will help you stay on the right track when you are out shopping.

You will need to include toys on your list for each of the age ranges you plan on caring for. We recommend purchasing toys suitable for infants, toddlers, and pre-school aged children. Examples of toys you want to purchase include blocks to match colors, toy cars, and dolls. You can start with a lower amount of toys and then purchase more toys as the number of children you care for increases.

For learning materials, we recommend purchasing art supplies, books, math worksheets and plenty of blank paper. As your budget increases, you can purchase other learning material like devices to introduce new sounds or music. Learning materials will need to be replenished frequently as you run out of materials.

Cleaning supplies are also a vital part of every daycare facility. It’s important for you to have the right cleaning supplies to keep the germs and sickness away from your facility. We recommend investing in a good multi-purpose cleaner, disinfecting wipes, cloths, bathroom cleaner and large amounts of hand soap.

Step 11: Create a Client Contract

Like business insurance, client contracts act as a form of protection for your business. Well written contracts avoid any confusion between you and your clients. Each party will know the details about the services provided and will know what to expect.

When you are preparing your contracts, we recommend writing out exactly what services the parents can expect to be provided. Will you be providing snacks or meals? Is there a certain amount of exercise the children will get every day? Will the children be taking naps at certain times every day? Your contract should be clear and easy to understand.

Another important factor to include in your client contract is your price rate or details regarding your package. Does your client need to pay for a certain amount of time upfront? Will each client be committing to a month of service or longer? By including the time frame in your contract, it will protect you if your client chooses to cancel early down the road.

Step 12: Hire an Accountant

Your business finances are not an area of your business you want to take lightly. Finances will ultimately make or break a business. Therefore, hiring an accountant that specializes in small businesses in the beginning stages of your business is an essential step.

When you are hiring an accountant, you want to take your time to find the right person. You will be trusting this person with a large responsibility for your business. You want to ensure that this person has the experience you need. You can get an overview of the quality of their services by reading reviews from any of their previous clients.

One of the most important things your accountant will be helping you with for your business is your taxes. Your accountant will be a valuable resource in making sure you are filing your taxes frequently enough and that you’re saving enough money throughout the year to pay for your taxes when it’s time.

If you avoid hiring an accountant and don’t set aside any funds for taxes, you can end up being unpleasantly surprised when you file your taxes. If your business is late on taxes, you can end up paying expensive fees and can put your business in jeopardy. Hiring an account is always worth the investment.

Step 13: Create Website and Social Media

Every new business needs to have an online presence to capture their potential clients. When a parent is looking for a daycare for their child, they will often begin their search by looking on the Internet. Therefore, it is essential for your business to be online.

Your business will ultimately need both a website and social media business accounts. If you are limited on time or funds, you can begin with one of the two. However, we do recommend obtaining both eventually to take your business to the next level.

Creating a website does not have to be costly or time-consuming! Many website hosts like GoDaddy will have packages that include website builders. With a website builder, you can build the website on your own, by dragging and dropping in your own content. These types of websites do not require any website experience or coding skills! The monthly cost to operate a website like this is usually around $20 to $30 per month.

Social media business accounts are completely free to start and can be created within minutes. This is a great option to start with if you are limited on time or funds. There are multiple benefits to having social media business accounts. Your clients will be able to share your business with their friends easily. You can also create ads in the future when you’re ready to grow your business and audience.

Step 14: Announce Opening Date

Once you have all the previous steps completed, it is time for you to officially announce the opening date for your daycare business! You want to announce your opening date on your social media accounts, along with also telling your friends and family members.

By announcing your opening date, you will know the exact date that you need to have everything set up and in place. All the toys, safety equipment, and playing equipment should be set up and in place by the time you open. You should also complete a thorough cleaning before your opening date as well.

A benefit of announcing your opening date is your friends and family can also share this exciting news! If you create a post on your social media accounts, your friends and family members can easily share the announcement. This will bring more attention to your new business and help you book new clients!

Step 15: Hire Additional Caregivers

After you have secured a few clients, it will be time for you to hire additional caregivers. Most states will only allow one caregiver to watch so many children at one time. Once you have reached the legal amount in your area, you will need to hire at least one more caregiver before you can accept any more clients.

Hiring more caregivers not only allows you to accept more clients, but it also frees up your own time to work more on your business. If you have help watching the children, you will have more time to work on your social media accounts, plan advertising or complete other activities that will help your business grow.

By having more help available, you will also be able to take regular breaks throughout the day. When you are caring for children, difficult situations can arise. For example: You may have a hard time getting a specific child to behave. If you have an extra caregiver, you can step away from the situation and give yourself time to relax before returning to the children.

We recommend steadily hiring additional caregivers as your business grows. If you are at your full capacity with your current staff, you can start a waitlist for potential clients. Once you have hired another caregiver and have room for more children, you can start calling those that are on your waitlist.

Step 16: Invest in Marketing

If your long-term goal for your business includes growing it into a larger daycare, you will need to invest in marketing and advertising. Marketing will be the quickest way to help your business become more visible in your community and book more clients. There are marketing and advertising options for all budgets.

If your budget is on the low end, you can use marketing strategies like starting a referral program. By offering an incentive to your clients for sharing your business, they will be more likely to tell their friends and family members about your services. The thing we love about a referral program is it also benefits your current clients as well.

Other low-cost options for marketing include hanging up flyers in local community areas like coffee shops or recreational centers that parents may be visiting frequently. Creating social media ads can also be cost-effective since you decide on your budget. These types of ads will allow you to reach a larger number of potential clients as well.

By following our step by step guide above, your new daycare business will be off to the right start. You will not only be positively affecting the lives of the children in your care, but you will also be creating a business that will change your own family’s life as well!