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How to Start a Daycare

How to Start a Daycare: Opening a Childcare Business at Home or in a Center

A daycare is an ongoing service that provides childcare services throughout the day, usually by someone other than the child’s legal guardians. Many daycares start organically and there are vast reasons as to why people choose to do so. Perhaps you are currently at home with children, you are a retired teacher with decades of experience, or maybe you are already watching your grandkids and are looking for some extra cash. Regardless of the reason, childcare businesses have requirements for protecting children that you may not know about and this article outlines the step-by-step process for establishing a compliant daycare.

1. Decide on a Daycare Type

The first step in establishing your daycare is deciding what type of daycare you will be running. Will you run your daycare at home or in a center? What age group will you serve? After all, infants, toddlers, preschoolers, older children, or combinations of these subgroups require different services and operations. These are crucial questions you must think about before proceeding. Licensing, a business plan, startup costs, and other steps to start a daycare all depend on your specific type of daycare.

2. Research Licensing Requirements and Apply

There are many rules and regulations in place to govern childcare services and to protect children. Some examples include child-staff ratio and building safety (emergency exits, cleanliness, etc.), as well as training and health requirements for employees. 

Childcare licenses are handled by state and local governments so it’s critical that you research the relevant licenses for your area. Childcare licenses do not guarantee the quality of the operation but proper licensing is a firm requirement for most parents and governing authorities. Childcare licensing regulations cover many topics, including the following:

  • Child-staff ration and the number of children allowed in a group size
  • Supervision of children
  • Building safety
  • Immunizations, handwashing, diapering, and other methods to stop the spread of disease
  • Nutrition of food served to children
  • Training, health, and other requirements for staff

Because the specific licensing requirements vary from each city and state, it is critical that you understand your local legislation. Contact your local business licensing authorities to find out the specific licensing requirements for your operation.

3. Write a Daycare Business Plan

Just like any other business, it is essential to write a business plan to ensure that your daycare will be financially sound. Your business plan should look about 3-5 years in the future, serving as the cornerstone of your vision moving forward. It is important to think about all aspects of your business so you can be as prepared as possible. Consider how many children will attend and understand your fixed and variable costs, including ones that may not be obvious such as insurance, supplies, and staff. The more organized you are in planning your business, the greater chance you will have at being financially successful.

Your business plan should cover each of the following components:

  1. Executive Summary – A concise, well-written introduction geared at drawing readers in to learn more about your daycare service
  2. Company Description – A high-level view of your business explaining who you are, how you operate, and what your goals are
  3. Products and Services – Other than childcare, use this as an opportunity to highlight the key benefits of your daycare business
  4. Market Analysis – Illustrate your industry knowledge and present conclusions based on market research and the competitive landscape
  5. Strategy and Implementation – Summarize your marketing and sales strategy as well as your operating plan
  6. Organization and Management – Outline your daycare services organization structure, ownership, management, and board of directors (as applicable)
  7. Financial Plan and Projections – This final section should be developed with the assistance of a finance or accounting professional, based on your market analysis and historical data

While you may not have all of the above information readily available, you should be able to find the necessary details for your business through online searches, personal data, and by working with professionals in your industry and local area. While the financial plan and projections may be difficult if you have not already started operating, you should be able to gather concrete numbers by benchmarking your competitors’ costs and pricing.

4. Get Startup Funds or Apply for a Business Loan

Starting a new venture or expanding a successful business can be very costly. On top of licensing costs, space conversion or leasing, supplies, marketing, payroll, and other expenses, many childcare services have trouble ensuring that they have enough cash flow on hand to cover all operations.

If you do not have ample liquidity on hand, small business loans can help. Working capital loans, lines of credit, merchant cash advances, and SBA loan programs are great options for stabilizing working capital and providing the cash reserves you need to ensure operations continue to run smoothly. Since many daycares experience seasonal or inconsistent cash flows, cash advances and lines of credit are incredibly popular within the industry as they provide more flexibility while stabilizing cash flows. Equipment financing, SBA programs, and working capital loans tend to be preferred for implementing safety precautions, investing in transportation, paying employees, or expanding locations

In general, additional financing can give you the money you need to get your business operating smoothly while providing ample working capital to support operations. 

5. Find a Business Location or Prepare Your Home

The number one priority when opening a daycare is ensuring the safety of children. Children love to wander around and play, and it is your responsibility to maintain a safe environment. If you are planning on running your daycare from home, you will need to take time to childproof and stock your home accordingly. If you are renting a commercial space, you must take the time to properly prepare it for children.

6. Get Daycare Business Insurance

Business insurance is an absolute must for starting a daycare, including liability and property insurance. Even with all the preparation and proper precautions in the world, children are unpredictable and accidents can happen. Insurance and liability coverage will help protect your business from litigation and taking bad financial losses when accidents happen. It is well worth the investment to protect yourself in the case that things go awry. 

Please note that if you are running your daycare at home, your current homeowner’s insurance will likely not cover potential injuries or liabilities for business activities, so you will want to look into additional insurance.

7. Create Childcare Policies and Procedures

Just like any other business, it is important to have policies and procedures to ensure your childcare business runs smoothly. These guidelines will help keep your customer informed, protecting both the clients and your business. For example, providing opening and closing hours and setting expectations and protocols for sick children is critical to success and should be outlined and communicated formally. Any time an issue or disagreement arises, create a policy so that the problem does not continue.

8. Hire Staff, If Necessary

Daycares can be a lot to handle for just one person. You may want to consider hiring other people, especially if there are several children at a time. This will also give you more leeway in your hours as you can have people covering different shifts. If your business is a home daycare without other regular staff, you need to consider what to do if you fall ill or have a conflict on your calendar that cannot be avoided. Parents need ample warning to make other plans so it’s helpful to hire someone who can be on call as a backup.

9. Market Your Daycare and Open Your Business

After all your legal and procedural requirements are in place, it is time to begin marketing and accepting applications. In the daycare business, trust is very important, as people are counting on you to care for their child. Open houses, access to contracts, and space and background reports will be more important than in some other industries, and pursuing these early can help you quickly establish trust with your customers.

Because proximity and trust are so critical to your customers it is crucial that you take advantage of business listing platforms, review sites, and social media. Google My Business and other local listing sites help your business get found when prospects search for your service in the local area. Be sure to collect reviews on Google My Business, Trustpilot, and other review sites to show potential customers the quality of your operations. Having a great organic presence on social media can also drive quite a bit of business, but you can also serve targeted digital ads to prospects in your local area while keeping costs minimal. Regardless of the platforms you operate on, if you can establish trust and a local presence, you should be able to bring in plenty of customers at a low cost.

All in all, starting a childcare business requires a significant amount of planning and preparation. With all of the necessary legal and procedural work, it’s critical that you are organized and thorough. However, doing so is very rewarding as you begin to build great relationships with the children and parents.