The workforce has changed a lot since the 1950s — and this means that, more often than not, both parents are kept out of the house and away from their children. In 2010, less than one third of toddlers stayed at home with a parent during the day, and that figure has only grown.
According to the most recent research from the U.S. Bureau of Labor Statistics, 66.4% of mothers with children younger than six years old and 93.4% of fathers with children younger than 18 years old were employed. If that’s the case, who watches the kids?
In a world where parents are working more than ever, starting a daycare business at home isn’t just a rewarding career in early childhood education — it’s also a necessary service. For this reason, childcare centers and other daycare businesses have some of the fastest employment growth out of any industry, per the U.S. Bureau of Labor Statistics.
It’s also a fairly easy business to start. Though business owners don’t explicitly need a specific level of education to open a daycare, there are certain child care licensing requirements, fees, and legal odds and ends. Here’s how to start a daycare at home.
Benefits of Starting a Daycare at Home
You’re not just shaping young minds with an at-home daycare center. Overall, it’s a massively large and lucrative market with the flexibility of setting your own work hours. There are 54,000 commercial childcare centers in the United States with a combined annual revenue of $27 billion, but that’s just direct revenue.
Home-based daycares, like most home-based businesses, have relatively low overhead costs since they don’t require any extra rent. In fact, there are major tax benefits that allow you to deduct a portion of your existing expenses — like rent, mortgage interest, and utilities — as business expenses. Food costs can also be offset by the Federal Food Program, so you’re really only paying for supplies, insurance, advertising, and additional food and beverage expenses.
How to Start a Daycare at Home Checklist
Business owners who start a daycare at home have to jump through a couple legal hoops before they can get started. Luckily, this is one of those businesses that can be started quickly because you’re not waiting to set up a specific location, nor do you have to wait for permits.
This process can be handled in a matter of weeks, and if you’re moving swiftly, it’s possible to open your at-home daycare in the time it takes to acquire a family child care license.
The process is as as follows:
1. Create a Business Plan
Even if you’re starting a small business from home, a business plan is a must-have. It’s the one way you can determine what you’ll need, how you’ll operate, and if your business is likely to succeed. It also gives you guidelines on how to handle any potential problems that can occur. Think of it as your one-stop shop for every business question you may have in the future.
To craft a solid business plan for an at home daycare center, it’s important to:
- Lay out your goals
- Look at the licensing requirements of an at-home daycare
- Determine how you’ll measure progress
- Determine (and set a plan to solve) potential problems
- Create a daycare curriculum
- Create a marketing plan
- Outline overhead costs and revenue streams
👶 If you want more in-depth guidance when writing your first business plan, check out our handy guide.
2. Choose a Business Structure
All types of businesses must be registered with the IRS, but in doing so, business owners have to choose a business structure, which serves as both a legal structure and tax structure. As a small business, at-home childcare centers are generally registered as:
- LLCs (limited-liability companies), which offer liability protection and tax flexibility
- Sole proprietorships, which are easier and cheaper to set up but don’t offer the same protection
Since parents are entrusting you with the lives of their children, the liability protection provided by an LLC is highly recommended. You don’t want anyone to be able to go after your personal assets in the event of a lawsuit. It’s also a popular option because it avoids the double taxation of a corporation. Corporations are taxed once on their profits and again when the profits go to owners or shareholders. In addition, single-member LLCs are taxed as sole proprietorships, anyway. It’s often considered the best of both worlds.
You can file for an LLC online, but first, you’ll need to get a general business license and the family child care license required in your state. It can take about one to two weeks to process your request if you opt for expedited filing or as little as three to five business days if you opt for rush filing. Processing time is determined by the state, and each state charges different fees.
3. Determine Your Business Costs
In order to open a daycare at home, you need to have the cash — but how much does it cost? This can be determined by examining the type of daycare you’re running and your business model. For example, are you hiring any staff? Are you only watching a handful of kids? How much does your equipment cost? To determine your daycare’s costs, calculate:
- One-time expenses, like start-up equipment (think: floor mats, toys, first aid kits, cleaning supplies, etc.)
- Ongoing expenses, like payroll, accounting services, and rent or mortgage payments
- Fixed expenses, like leases, insurance, utilities, and administrative costs
Make sure to add in a cushion to cover unexpected or emergency expenses. It’s also important to check for any tax breaks or local grants that can save you money both up front and long term.
👶 Learn more about the costs of starting a business in this guide →
How to Fund Startup Costs
Not everyone has the capital to start a small business without financial assistance. The good news is that most small business owners can get started with just $10,000. This is a totally feasible goal for a home-based daycare center, and you can raise money a number of ways, including:
- Government assistance: There are a number of government resources available to small business owners, especially in today’s economic climate.
- Credit cards: Since daycare centers don’t cost very much to start, there is the option of funding your business through credit cards. This option is easy but often comes with high interest rates.
- Loans: The Small Business Administration offers loans to help entrepreneurs start small businesses, but it’s not available to every business. You can also approach your bank for a business or personal loan with varying repayment terms.
- Friends and family: Oftentimes, the best place to get started is by asking friends and family to invest. This often comes with looser repayment terms, but it can complicate personal relationships.
4. Name Your Business
A business is only as good as its name. This is what people remember, and this is how they’ll judge your business. Your daycare’s name should be easy to understand and slick enough that it can be easily recognized across social media profiles, the web, and advertisements.
When creating your business name, make sure to choose something truly original. If it’s already taken, there can be legal repercussions, and you don’t want someone else to already have registered the web domain. That will get confusing. Check with local business registration services and perform an extensive online search to make sure that your name is brand new.
👶 Naming Tips: How to Come Up with a Catchy Business Name →
5. Register Your Business and Open Financial Accounts
Opening a daycare center at home has a number of legal and licensing requirements to sort out before you can open for business. These include:
- Registering your business structure (i.e., LLC)
- Getting an Employee Identification Number. This is used to fill out tax forms, and the IRS should give it to you with your registration. You can also get one online through their website.
- Obtaining a general liability insurance policy (you’re working with children, so this is extremely important).
- Obtaining daycare-specific insurance
- Obtaining a general business license, which can be done through your local municipality.
- Obtaining a family child care license. Each state has varying laws and procedures, so check online to see your local requirements.
- Opening a business bank account. You want to keep business assets separate from your personal assets in case of an audit or lawsuit.
6. Purchase Equipment for Your Daycare Business
At-home daycare equipment is generally very basic and can typically be purchased through Amazon or a big-box store like Walmart, OfficeMax, and Target. Take inventory of what you already have at home and consider purchasing things like:
- Toys
- Mats
- First-aid kits
- Cleaning supplies
- Binders and paper
- Markers, crayons, and other art supplies
- Computer software
- Food and beverages
7. Market Your Daycare Business
You won’t get any students if no one knows that about your daycare business. Marketing is an essential part of running your business, and social media has made it easier than ever. Consider creating a social media strategy across Twitter, Facebook, Instagram, and even YouTube. Running ads on these types of platforms is generally inexpensive and effective at targeting local markets. You can even promote yourself in local Facebook groups.
You’ll also want to register your business in online directories like Google, Yelp, LinkedIn, and other local business directories. As you get students, encourage parents to leave reviews. Online word of mouth goes a long way. You may also want to enact a small print campaign by taking out ads in the local papers or community bulletins.
Finally, it’s important that your website is appealing to parents. If your marketing efforts are successful, that’s where they’ll go to find out more. Consider printing your curriculum and enacting an SEO strategy that helps your business pop up in search engine results for local daycares.
Examples of Daycare at Home Businesses
There are a lot of different facets of early childhood education, and not every daycare center is the same. In order to create a business plan, the most important step is determining what type of childcare business you want to run. This covers everything from startup costs to government tax breaks and licenses.
- Childminding: an at-home daycare where children under age 8 spend more than two hours per day.
- Independent schools: These schools are independent from local authority or government control and may offer nursery education to children between the ages of 3 and 4. These types of schools can also claim nursery education funding from the local government.
- After-school care: This type of facility is for school-aged children and typically runs for four hours after school, Monday through Friday.
- Summer care: These facilities operate seasonally when school is not in session and greatly benefit working parents.
Bottom Line
Figuring out how to start a daycare at home isn’t terribly difficult. This is a business with very clear legal requirements, limited startup costs, and a massive market.
Start an LLC in Your State
When it comes to compliance, costs, and other factors, these are popular states for forming an LLC.
