How to start a daycare business from the ground up

Starting a daycare business is a rewarding venture that combines a passion for child development with smart business sense. The child care industry is a multi-billion dollar market, fueled by a steady demand from working families and parents who seek early education for their children.

This guide will take you through the practical steps of creating a business plan, securing funding, obtaining necessary licenses, and selecting the right location to help you launch a successful daycare business in the U.S.

Step 1: Create your business plan and validate your idea

Your first move is to research your local market. Contact your state's Child Care Resource & Referral (CCR&R) agency. They offer free data on child care demand, average rates, and provider shortages in your specific area, which helps confirm your idea is viable.

Analyze your competition

Next, identify 3-5 local daycares. Review their websites and social media to understand their programs and pricing. You might also call them to ask about enrollment availability. This shows you what parents currently pay and where service gaps exist.

Many new owners underestimate the licensing timeline, which can take 3-6 months. This delay impacts your budget, so investigate your state's specific process early. It is a detail that can make or break your launch plan.

Estimate your startup costs

Initial costs depend on whether you open at home or in a commercial space. A small home-based daycare can start with around $8,000, while a separate center often requires over $50,000. Your main expenses will fall into a few key categories.

• Licensing and application fees: $100 - $500
• Furniture, toys, and supplies: $5,000 - $15,000
• Insurance (first year premium): $1,000 - $3,000
• Rent and security deposit (for centers): $2,000 - $8,000

Here are 4 immediate steps to take:

• Contact your state's CCR&R agency for a local needs assessment.
• List 3-5 competitors and document their rates and services.
• Create a preliminary budget based on the cost ranges above.
• Find your state's child care licensing agency and review its timeline.

Step 2: Secure your licenses and choose a legal structure

Your next move is to formalize your business. You might want to consider forming a Limited Liability Company (LLC). This structure separates your personal assets from business debts, which is a safeguard a sole proprietorship does not offer. An LLC can also elect S Corp tax status later to reduce self-employment taxes.

Obtain the necessary licenses and permits

The main regulatory body you will work with is your state's child care licensing agency, often part of the Department of Health or Human Services. Securing a state Child Care License is mandatory. The application process can take 3-6 months and typically costs between $100 and $250.

In addition, you will need local permits. Contact your city or county offices for a Health Department Permit, a Fire Department Permit, and a Zoning Permit to ensure your location is compliant. These inspections and permits can cost $50 to $200 each.

You also need a federal Employer Identification Number (EIN) from the IRS. This is required to hire employees and open a business bank account. You can apply for an EIN for free directly on the IRS website.

Here are 4 immediate steps to take:

• Register your business as an LLC with your state's Secretary of State office.
• Apply for a free Employer Identification Number (EIN) on the IRS website.
• Find your state's child care licensing agency and download its application packet.
• Contact your local fire and health departments to schedule initial inspections.

Step 3: Secure your insurance and manage risk

Protecting your business starts with the right insurance. General Liability covers accidents like slips and falls. You should aim for a policy with at least $1 million in coverage. This is your first line of defense for common incidents that can happen in a busy daycare environment.

Professional Liability is just as important. It covers claims of negligence related to your care, including abuse allegations. Some new owners mistakenly assume their general policy covers this. Always confirm you have specific abuse and molestation coverage included.

Key policies and costs

A combined general and professional liability policy typically costs between $1,000 and $3,000 annually. If you hire staff, you will also need Workers’ Compensation insurance. Should you plan to transport children, a Commercial Auto policy is also required by law.

You might want to work with an agent who specializes in child care. They understand the unique risks better than a general agent. Consider providers like Markel, Philadelphia Insurance Companies, or Hiscox, as they build policies specifically for daycares.

Here are 4 immediate steps to take:

• Request a quote for a $1 million General Liability policy.
• Confirm your Professional Liability quote includes abuse and molestation coverage.
• Contact a specialist provider like Markel to discuss a child care policy.
• Check your state's requirements for Workers’ Compensation insurance.

Step 4: Find your location and buy equipment

Select and prepare your space

State regulations often dictate your space needs. Plan for at least 35 square feet of indoor space and 75 square feet of outdoor play area per child. Before you sign a lease, confirm the property’s zoning with your local planning department allows for a child care business.

When you negotiate a lease for a commercial space, you might want to ask for a longer term, like 5-7 years. This gives you stability. Also, ensure the lease permits physical changes, such as installing child-safe outlets or a fence for the playground.

Purchase furniture and supplies

With your location in mind, you can focus on equipment. Your needs will depend on the age groups you serve. Budgeting for these items is a key part of your financial plan. You can find many items from specialized suppliers.

Here are some typical items and their price ranges:

• Cribs and cots: $200 - $400 each
• Changing tables: $150 - $300
• High chairs: $70 - $150 each
• Age-appropriate toys and books: $1,000 - $3,000
• Safety gates and childproofing supplies: $200 - $500

You can source these from child care suppliers like Lakeshore Learning or Kaplan Early Learning Company. They offer classroom design services and sell items in bulk, which can be more cost-effective than retail. Request their catalogs to see your options.

Here are 4 immediate steps to take:

• Calculate your total square footage needs based on your target enrollment.
• Contact your local zoning office to verify a potential property is approved for child care.
• Request catalogs from suppliers like Lakeshore Learning and Kaplan.
• Create an itemized equipment list with a detailed budget.

Step 5: Set up your payment processing

Most daycares bill weekly or bi-weekly, with payment due on the first day of service for that period. This schedule helps maintain consistent cash flow. You might want to require a one-week deposit upfront to secure a child’s spot.

Some new owners make the mistake of absorbing credit card fees. Your payment policy should state that parents cover the processing fee. This is a standard practice, as average commission rates from processors can be 2.5% to 3.5%.

For payments on-site, JIM offers a streamlined solution. You can accept debit, credit, and digital wallets directly on your smartphone. Just tap and it is done. At just 1.99% per transaction with no hidden costs or extra hardware, it is a great value.

This is particularly useful for collecting one-time payments like registration fees or late pickup charges on the spot. Getting started is simple.

• Get Started: Download the JIM app for iOS.
• Make a Sale: Type the sales amount, hit sell, and ask your customer to tap their card or device on your phone.
• Access Funds: Your money is available right on your JIM card as soon as the sale is done, no waiting for bank transfers.

Here are 4 immediate steps to take:

• Draft your payment policy, including due dates and deposit rules.
• Decide if you will accept checks, ACH, or credit cards.
• Clarify in your policy that parents will cover any card processing fees.
• Download the JIM app to handle on-the-spot payments.

Step 6: Secure your funding and manage finances

With your plans in place, you can focus on funding. The Small Business Administration (SBA) is a good starting point. An SBA Microloan can provide up to $50,000 for equipment or deposits, with interest rates often between 8% and 13%.

For larger needs, you might look at an SBA 7(a) loan. You could also explore Community Development Financial Institutions (CDFIs). They often have programs specifically to support new child care businesses in their local areas.

Find grants and manage your cash flow

Grants offer another funding path. The federal Child Care and Development Block Grant (CCDBG) gives money to states to support local providers. Check your state’s Department of Health or Human Services website for information on how to apply.

Many new owners focus on startup costs but forget about day-to-day expenses. You will want to have at least six months of operating costs saved as working capital. This covers rent and payroll while you build enrollment, which can prevent an early cash crunch.

Here are 4 immediate steps to take:

• Research local SBA Microloan lenders and their requirements.
• Find your state agency that administers CCDBG funds.
• Calculate six months of operating expenses to set your working capital goal.
• Open a separate business bank account to keep finances clean from the start.

Step 7: Hire your staff and set up operations

Build your team

Your staff is the heart of your daycare. You will likely need a Lead Teacher, who plans activities and communicates with parents, and an Assistant Teacher to support them. Salaries vary by location, but you can expect to budget $30,000-$45,000 for a lead and $25,000-$35,000 for an assistant.

All staff must have CPR and First Aid certifications. Many states also require a Child Development Associate (CDA) credential for lead roles. Some owners rush the hiring process; you must run a comprehensive background check, including fingerprinting, on every potential employee before they start.

Manage daily operations

State licensing sets strict staff-to-child ratios, like one adult for every four infants. These rules are non-negotiable and directly impact your hiring needs and payroll. Speaking of payroll, it will likely be your largest expense, often consuming 50% of your revenue.

To streamline your day, you might want to use a daycare management app like Brightwheel or Procare Solutions. These platforms handle attendance tracking, parent communication, and even billing, which frees you up to focus on the children.

Here are 4 immediate steps to take:

• Check your state’s required staff-to-child ratios for different age groups.
• Draft job descriptions for a Lead Teacher and an Assistant Teacher.
• Research state-approved vendors for employee background checks.
• Schedule a demo with a management software like Brightwheel or Procare Solutions.

Step 8: Market your business and find families

Build your online storefront

Your first families will likely find you online. Create a simple website and a Facebook Business Page. Include clear photos of your space, your program details, tuition rates, and a "Schedule a Tour" button. This gives parents all the information they need in one place.

A mistake some owners make is setting up a page and then letting it go silent. You might want to post photos of activities or crafts once a week. This shows you run an active, engaging center and helps build trust before a parent ever calls you.

Connect with your community

With your online presence established, you can focus on local outreach. Join local parent groups on Facebook and introduce your new daycare. You can also host an open house. It is the single best way for parents to meet you and see your space in person.

A targeted Facebook ad campaign within a 5-mile radius can generate tour requests for under $50 per lead. Your total Customer Acquisition Cost (CAC) for a fully enrolled family will likely land between $100 and $300, which is a standard industry benchmark.

Here are 4 immediate steps to take:

• Create a Facebook Business Page with photos and program details.
• Join two local parent groups online and write an introductory post.
• Draft a plan for an open house event, including a date and time.
• Set a small budget ($50-$100) for a targeted Facebook ad campaign.

Step 9: Set your pricing and profit margins

Your pricing strategy directly impacts your profitability. Start by calling the 3-5 competitors you identified earlier and ask for their rate sheets. This gives you a clear picture of the market rates for different age groups in your specific neighborhood.

Choose your pricing model

Most daycares use a flat-rate weekly or monthly tuition model. For example, you might charge $350 per week for infants and $300 per week for toddlers. This structure provides predictable revenue. You can also offer a small discount, perhaps 5%, for families who pay monthly.

Another approach is to create tiers. You could have a base rate for standard hours (e.g., 8 a.m. to 5 p.m.) and charge extra for extended care. Additional fees for things like special meal plans or enrichment activities can also create new revenue streams.

Some owners make the mistake of matching competitor prices without first calculating their own costs. You should aim for a net profit margin of 10-15%. With payroll often taking up 50% of revenue, you must price to cover all your expenses plus this margin.

Here are 4 immediate steps to take:

• Calculate your total monthly operating costs to find your break-even point.
• Call 3-5 local competitors to request their official rate sheets.
• Draft a rate sheet with tiered pricing for different age groups.
• List potential add-on services like extended hours and set their prices.

Step 10: Maintain quality and scale your business

Establish your quality standards

You might want to pursue accreditation from the National Association for the Education of Young Children (NAEYC). It is the industry’s mark of high quality. The process is rigorous, but it signals to parents that your program meets the highest professional standards.

To measure quality day-to-day, track two key metrics. First, send simple parent satisfaction surveys twice a year. Second, monitor your staff turnover rate. A rate below 15% annually suggests you have a healthy and stable work environment, which directly impacts child care quality.

Know when to grow

With your quality systems in place, you can plan for growth. A common mistake is to expand too quickly. A good benchmark is to wait until you operate at 85-90% capacity for at least six months. This confirms you have consistent demand before you invest in a second location.

When you do scale, your management software like Brightwheel or Procare Solutions becomes even more valuable. Use their features for multi-site reporting and centralized billing to keep operations smooth as you expand your business footprint.

Here are 4 immediate steps to take:

• Research the NAEYC accreditation standards on its website.
• Create a simple parent satisfaction survey to send out.
• Calculate your current enrollment as a percentage of your total capacity.
• Review your management software for features that support multi-location reporting.

You are not just starting a business, you are building a community for families. The most successful daycares thrive on trust and personal connection. With this plan, you are ready to lay the foundation for a place where children can flourish.

And when it comes to payments, keep things simple. JIM lets you accept cards right on your smartphone for a flat 1.99% fee, no extra hardware needed. This makes collecting fees for registration or late pickups straightforward. Download JIM and get set up.