Is Opening a Daycare Worth It? (Business Risks & Returns Explained)

The thought of caring for children daily to fulfill your calling is a great feeling. However, you must handle the hurdle of starting up the business before you can enjoy serving your community. So is opening a daycare worth it?

Yes, opening a daycare is worth it after considering:

  • The average startup costs of daycare. 

  • The low annual daycare expenses. 

  • The high money-making potential on daycare tuition.

  • The overall profit you can make annually when running a daycare center.

As you go through each step, don’t forget to think of ways you can heighten your income and lower your expenses to make the daycare business yield a larger return on investment for you. 

What are the average startup costs of a daycare?

Small Business Chron reported that The Entrepreneur Magazine has found the average startup costs of a daycare business to be anywhere from $10,000 to $50,000.

Is Opening a Daycare Worth It? (Business Risks & Returns Explained)If you want to start a center-based daycare, you can:

  • Get licensed and registered as a daycare center. 
  • Find deals on daycare furniture or find them gently used second-hand. 
  • Hire and train employees for opening day. 
  • Create a daycare website.
  • Create a Facebook business profile. 
  • Get your Google profile set up. 

While it will take longer to prep for opening a center-based daycare, you will have great monetary returns as you can enroll more children and make more money from tuition.

If you want to do an at-home daycare center, The Entrepreneur Magazine found out from GOBankingRates that you can start this business for as little as $1,000 to as high as $5,000.

If you want to start your home daycare business right away, you can:

  • Get your house ready for a daycare-type environment.
  • Designate certain rooms as the playroom/classroom (spare bedroom) and the cafeteria (possibly the dining room). 
  • Enroll some children up to your zoning mandate set by local authorities. 
  • Purchase daycare friend wall decorations and furniture to make your environment look presentable to potential parents enrolling their children.

Hence, the average startup costs for your daycare business will depend on:

  • The type of daycare you want to have whether it’s home-based or center-based.
  • How many children your home or center can care for based on zoning mandates.
  • The supplies you need to carry out your specific daycare curriculum. 
  • The registration and licensing fees in your state of operation.

After startup costs, what are the annual daycare expenses?

Getting through the startup costs is only the largest hurdle in which you will have to conquer when starting a daycare. 

You will have lower expenses with a home daycare because of the lower number of children enrolled at your home facility. There will be more expenses with a center-based daycare because of the larger building, having to pay a higher rent or mortgage for said building, and all the utilities and maintenance linked to renting or owning it. 

Average annual daycare expenses include:

  • Employees labor.
  • Building rent/mortgage and property taxes.
  • Payment for business insurance policies. 
  • Consumable goods like cleaning solutions, food, and art supplies.

Employee labor will depend on if you are running a home-based or center-based daycare. You will spend more on labor if you are running a larger center-based daycare. If you are running a small home-based daycare, it may only be yourself and another person in which you will have to pay labor costs. 

Let’s say you pay about $200,000 in labor per year for your Director, Teachers, and Aides to watch over 40 children total at your daycare facility.

You can write off your mortgage or rent payment for the entire year if you are running a daycare out of your home. Running a center-based daycare will require a rent or mortgage payment and any property taxes that accrue. According to Small Business Chron, you may pay as much as 5% to 10% of your daycare income annually for building costs. 

Let’s say you pay about $2,500 in building rent and property taxes per month. That’s $30,000 annually for building costs.

No matter the type of daycare you run, you must have a liability insurance policy and property insurance policy to cover any accidents that may occur at your daycare. These accidents could be related to the children in your care or something that malfunctions at your property during business hours. 

Let’s say you pay about $1,200 in insurance policies per year. 

If you serve lunch at your daycare, you must account for food costs. You may be able to receive free food from your local school district that prepares and delivers the meals for you daily. 

Let’s say you do not pay out-of-pocket for the children’s lunches, but you do have to pay about $50 per month in cleaning supplies. That’s $600 per year. 

If you have 40 kids, you may spend about $200 on art supplies each month, depending on the number of crafts and art projects that are done in classrooms daily. That’s $2400 per year. 

Hence, you could be spending $235,000 or more in annual expenses for running larger center-based daycares. However, tuition and administrative fees will make up for this large monetary value of daycare expenses. 

How much can you make on annual tuition per child when running a daycare?

According to Money Under 30, the average child care costs for babies and toddlers are about $972 per month. Tuition for babies will be higher than tuition for toddlers because infants require more care and attention than toddlers with regular diaper changing and more feedings. Since most Is Opening a Daycare Worth It? (Business Risks & Returns Explained)toddlers are potty trained, more mobile, and more independent with self-feeding, their tuition will cost a little less than a baby’s tuition. 

Let’s go with the example that you still have 40 children enrolled at your daycare center before your grand opening day. Say that you have 16 infants and 24 toddlers. 

You can charge $1,200 tuition per month for each infant and $900 tuition per month for toddlers. That’s $14,400 in annual tuition per infant enrolled and $10,800 for each toddler enrolled at your daycare. Let’s do the math!

16 infants x $14,400 per year

Total Annual Infant Tuition Income= $230,400

24 toddlers x $10,800 per year

Total Annual Toddler Tuition Income= $259,200

$230,400 in Infant Tuition + $259,200 in Toddler Tuition

Total Annual Tuition Income= $489,600

What’s the average annual profit a daycare can make?

According to Daycare Business Boss, the average profit of a daycare center is $37,000 per year. Overall profit in your daycare business will depend on how high your business expenses are and how much tuition income and administrative fees (registration, late payments, late pickup) you can accrue over the year. Your expenses can also be outweighed by any donations or grants you receive.

What are the business risks of opening a daycare?

The business risks of opening a daycare include:

  • Low enrollment rates.
    • Hard to build your brand as a new daycare. 
    • Need better ways to attract parents to enroll at your facility. 
  • Safety risks.
    • Must keep a headcount of children in class at all times.
    • Be ready for intruders that may try to enter your facility. 
    • Lock-down procedures to keep everyone safe. 
  • Child care center hazards.
    • Taking precautions to keep the children safe.
    • Outlet covers on electrical outlets.
    • Sturdy shelves and furniture bolted to the wall if necessary. 
    • Sturdy high-up shelves do not have too much on them, so nothing falls on the children. 
    • Keep all cleaning and diapering supplies locked up and out of reach of children.
  • Staffing risks.
    • Must screen for child sex offenders.
    • Make sure staff has a clean record with no crimes.  
    • Daycares have high turnover rates, so children may have different people caring for them and not build a ready bond with someone.

What are the business returns on investment (ROI) of opening a daycare?

The business returns on investment (ROI) of opening a daycare include:

  • Working with children and helping them learn and grow. 
    • Helps you as the owner and employees feel they are fulfilling a purpose.
    • The children have a safe, fun, and educational place to go while their parents are at work. 
  • Participating in a profitable business that positively helps families. 
    • More two-parent households are working jobs outside the home.
    • This requires a higher need for daycare centers throughout the country. 
  • Generating a community relationship with the families enrolled at the daycare. 
  • Providing jobs for your local area. 
  • You make your own money as a daycare owner!

Learn HOW MUCH you can make as a daycare owner HERE.

Is opening a daycare worth it? 

Yes, opening a daycare is worth it! The returns on investment outweigh the risks involved. 

As long as you and your staff are vigilant with the risks involved in running a daycare facility, you can be successful monetarily and-more importantly-with teaching the children and helping them to grow and learn about their world. 

Related Questions

1. What if a parent is having trouble keeping up with daycare payments?

If a parent is having trouble keeping up with daycare payments, try to set up a payment plan with him or her to keep their child’s tuition bill as current as possible. Of course, continue to charge the one-time late payment every month if it continually happens. However, you can ask that the current month’s tuition bill be paid by a certain date agreed upon with the parent. Then, you can set up an incremental payment plan for the parent to get the overdue balance paid down. 

2. How can I lower my daycare business expenses?

You can lower your daycare business expenses by:

  • Shopping around for the cheapest yet most effective liability insurance policy and property insurance policy for your business.
  • Plan ahead of art activities to spend accordingly on art supplies and not overspend on a month-to-month basis. 
  • Acting as the Director even though you are the Owner to lower labor costs.

Is Opening a Daycare Worth It? (Business Risks & Returns Explained)

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.

To learn more on how to start your own daycare checkout my startup course and documents here.