How to Open a Child Care Business

Co-authored by Denise Stern

Last Updated: February 25, 2023 Approved

Operating a child-care business is a great way to earn a living if you enjoy working with children. Generally speaking, there are two main ways to run a child-care business. If you want to care for a large amount of children, your best option is to start a center-based business. Those with children of their own—or who want to work from home—may want to consider a home-based, or family, child-care center. Whichever form you choose, you will want to understand how to properly set up your business.

Part 1

Part 1 of 3:

Developing a Business Plan

1
Assess the need for child care in your community. Before you decide to open a business that provides child-care services, your first step should be to research the market for that service in your community. There are several ways you can obtain this information, but perhaps the best way to do this is to talk directly to local parents to determine the specific child-care needs of the community in which you want to do business. Try some of the following:
- Interview several families and ask the parents what type of child care they could benefit from, and the extent to which this type of service is already provided by local businesses.
- Look at census data for your community, including the number of working families with children of an appropriate age, the number of recent marriages, and the income distribution of those families. You can find this information from a number of sources, including the U.S. Census Bureau or your local municipal government office.
2
Identify existing child-care businesses. Your next step should be to determine who your potential competitors might be. If there are a number of businesses in your area offering a certain type of child care, it would be best for you to distinguish yourself by serving a need yet unmet in your community. Consider some of the following when evaluating your potential competitors:
- What age groups are already being served?
- What are the hours of the other businesses?
- What types of child-care services are already on offer in your community?
- How many of these types of businesses already exist in your community?
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3
Decide whether you will operate a home-based or center-based child-care business. While the specific types of child care you may decide to offer are numerous, there are basically two forms of child-care businesses: (1) a business run out of your home or (2) a business run at an independent location. Which type of child-care business you would like to run will determine what you will need to account for in your budget and what legal requirements with which you will have to comply.
- When making this decision, consider that home-based child-care businesses generally have fewer expenses and lower overhead, have more flexible hours, and are more convenient for you and, likely, the parents whose needs you will be serving. The legal requirements to operate a home-based child-care business are also generally less strict than those for a center-based child-care business.^{[1]
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- That said, it is still heavy work and taking care of everything by yourself at home can be a burden if you're not ready.
- On the other hand, a center-based business—while probably more expensive to establish and operate—will provide greater space so you can expand your business and earn greater revenue.
- Childcare businesses are heavily regulated federally and at the state level as well. It's extremely important to do your research to be sure you have all of your licenses and insurances.
4
Decide what kind of child-care business you want to operate. After deciding whether you wish to operate your child-care business at home or in an independent facility, the next step is to decide what type of child care you would like to offer. Perhaps the best way to start making this decision is to examine your motivations for going into the child-care business. By considering why you want to get into this type of business in the first place, you can better understand what exactly you want to offer your community.
- Do you want to offer care based around a particular faith?
- Do you want to offer a learning environment focused on building or reinforcing skills?
- Do you want to offer a space for children to come and play?
- Deciding what type of service you will offer up front will not only allow you to build the business you want, but it will also allow you to budget for the things you might need to run such a center effectively (educational materials, toys, etc.).
5
Make a budget. One of the most important things you can do when preparing to start a business is to make a budget. Doing so will help you plan for the future of your business, and ensure that it has the opportunity to succeed based on the funding you have available to you. You should consider start-up expenses, annual expenses, and monthly operating expenses. When making your budget, consider the following types of expenditures:
- Licensing, inspection, and insurance fees.
- Medical testing and clearance.
- Safety devices (e.g., smoke alarms, fire extinguishers, carbon-monoxide detectors, first-aid kits, child-proofing supplies, etc.).
- Food, toys, and equipment for your planned activities.
- Wages for prospective employees.
- Advertising/legal/professional-service fees.
- Rent, mortgage, and utility fees.
6
Choose a name for your business. One of the more important steps in the process is choosing a name for your business, because that is what will represent your services to the outside world. Your name should be catchy, easy to remember, and should indicate the type of service you will be providing.
- You will need to check with the secretary of state's office for your state to ensure that your proposed name does not conflict with any other name currently on record with the secretary of state.
7
Choose a type of business entity. There are several different types of legal structures for your potential business, each with its own benefits and drawbacks. For instance, if you operate as a sole proprietor, you will likely have an easier time filing your taxes. However, if you operate as a corporation or a limited-liability company, you will be able to limit your liability for anything that happens while you operate your business to the funds that you placed in your business (i.e., you will not be personally liable).^{[2]
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- You should strongly consider speaking with a local attorney experienced in business formation/structure in order to get a good understanding of the different types of structures available to you before you choose one.

Part 2

Part 2 of 3:

Setting Up Your Child-Care Business

1
Contact your local country municipality. Once you have a business plan in place and are ready to actually start setting up your business, your first step should be to contact your local government to determine what legal requirements with which you must comply in order to properly run a child-care business in your county.^{[3]
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- What sort of business license you need to operate your business, and how to obtain this license.
- What sort of building codes you must meet.
- What sort of occupancy laws are in effect in your county (i.e., how many children will you be able to take care of legally?).
- You can also contact your local child-care agency (an arm of state government) by typing in your zip code on this website and clicking "search for your local agency."
2
Select a location. If you plan to operate your child-care business out of your home, then this step is already complete. If you plan to open a separate facility, however, you will need to choose one that is in a good location that you can afford based on your budget. You will also need to consider, depending on your available funding, whether you will buy or rent this space. If you are looking for a location outside of your home, consider the following factors when making your selection:
- Is the location convenient for parents?
- Does public transportation serve your proposed location?
- Is the area safe?
- Is the space adequate for the business you intend to run there?
- Does it have adequate kitchen/bathroom facilities/fixtures?
3
Contact your county's zoning office. You will have to make sure that your proposed location complies with local zoning laws. To do this, contact your county's zoning office and inquire as to whether your proposed location is properly zoned for child care.^{[4]
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4
Prepare your facility for inspection. This should consist of tasks like installing cabinet locks, setting up changing tables if you are servicing infants and/or toddlers, putting up smoke detectors, and inserting electrical outlet covers. You may also need to post an emergency evacuation plan.
- If you do not pass the first time, you will likely be given an opportunity to correct the errors and arrange to be inspected again.
5
Schedule necessary inspections. Depending on your jurisdiction, you will likely have to obtain a series of inspections to ensure that your proposed location complies with local health and safety laws.^{[5]
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- A fire-safety inspection.
- A health inspection.
- An environmental health inspection.
6
Obtain necessary licenses. In the vast majority of cases, you will have to apply for and be granted the proper licensing in order to care for children. The type of licensing you will need will depend on your jurisdiction. Your local municipal government office should be able to tell you what licenses you will need to obtain in order to run your child-care business. Your state's licensing office should also be able to provide you with an overview of the licensing requirements applicable to you, which you should read carefully. This process will likely involve some or all of the following:
- Attending an orientation session where you will learn about state and local requirements for operating your business and complying with applicable state law.
- Filling out a licensing application.
- Paying a licensing fee.
- Working with the licensing agency as it reviews your business plan, inspects your facility, and completes the licensing process.
- Taking classes focused on CPR, first-aid, and the like.
- Undergoing a background check (and fingerprinting) for you and any prospective employees.
- Undergoing medical testing/immunizations for you and any prospective employees. Since babies aged six months or younger cannot get vaccinated, it's ethical that the professionals taking care of them are vaccinated.
- In some cases there's no license for caring for four or fewer children at a time.
7
Obtain necessary insurance. Generally speaking, you will also have to obtain liability insurance for your child-care business.^{[6]
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- Your local municipal government office should be able to tell you which types of insurance are required based on the type of child-care business you intend to start.
8
Comply with appropriate tax laws. Depending on the type of legal structure you selected for your business, you will have to contend with differing tax obligations, including the forms you will use and the types of taxes you must pay.
- As with choosing a legal structure for your business, tax law is quite complex and you should strongly consider enlisting a tax specialist to ensure you are paying taxes properly and complying with applicable law.
9
Purchase necessary equipment. The type of child-care business you want to operate will largely dictate what kinds of equipment and/or materials you will need to obtain in order to run your business successfully. Children of different ages have different needs and interests, and the type of activities you will offer will obviously require different equipment and supplies to operate effectively. You will likely need to acquire some or all of the following:
- Child-sized furniture (tables, chairs, desks, etc.).
- Arts and crafts materials (pencils, crayons, paper, safety scissors, etc.).
- Toys (games, puzzles, dolls, action figures, Legos, building blocks, etc.).
- Children's books.
- Healthy, nutritious snacks/meals.
- Storage containers for personal belongings, hangers for coats, etc.
10
Hire employees. Depending on the size of the child-care business you wish to operate, you may need to hire additional staff to help you with the daily operation of your facility. Be careful when selecting your staff, as they will be working in close contact with the children in your care and, as the employer, you will be responsible for their conduct on the job. When evaluating a potential candidate, keep the following in mind:^{[7]
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- Try to find candidates that have previous employment experience working with children (e.g., babysitters, teachers, camp counselors, etc.).
- Educational credentials are important as well. Look for potential hires who have received academic training in child care, child education, child development, or a similar field.
- While not necessarily a legal requirement in all jurisdictions, you should also consider if a potential hire has any relevant certifications, like CPR or first-aid training.
- Depending on the laws of your particular state, you will also likely need to ensure your employees have passed certain background checks, such as state and federal criminal-record-history checks or child-abuse checks.

Part 3

Part 3 of 3:

Running Your Child-Care Business

1
Develop a marketing strategy. Any successful business depends on a sound marketing strategy that makes the community aware of the great services you will offer. Before you begin advertising, try taking some time and thinking about the information you want to convey. Consider the following:
- Think about how you will describe the particular service you plan to offer. How is it different/better than what is already out there? What ages do you serve? What will your hours be?
- Think about the price you will charge, based on your previous market research, so that you can be competitive with other child-care businesses in the area.
- Think about the advantages your location offers (great parking, safe, convenient, etc.).
- If you have staff, think about how to market them as well. What qualifications/certifications/specialities do they bring to your business?
2
Advertise. You should begin advertising about three months before your child-care business is set to open. If you have the funds, newspaper, radio, and television ads will probably give you the greatest exposure, but these advertising formats do not come cheaply. Consider some of the following, less expensive options as well, even if you can afford more conventional advertising:
- Word of mouth.
- Posting fliers/posters in public spaces in your community (be sure to get permission from the owner of the property/building you plan to put your fliers on first, though!).
- Distributing brochures/business cards at libraries, church meetings, PTA meetings, neighborhood get-togethers, etc.
- Placing an ad in the classified section of a local paper.
3
Develop a daily schedule. You will also need to decide what, if any, your daily activities will be. Some child-care businesses offer little structure—they provide supervision and make toys/games/food available for the children to use, but have no set routine or schedule. Others take a more planned approach, with time set aside for playing, learning, napping, etc., based on the ages of the children being cared for. Take some time and think about what you will offer the children for whom you will be caring, and what sort of schedule you will offer.
- If you are unsure of how to begin, try asking parents in your area what they would like a child-care facility to offer or perhaps how they structure their child's time at home.

Community Q&A

Question

What type of degree do I need to obtain to start a day care?

Community Answer

You don't need a degree. Just follow the guidelines in the article. If you want to get a degree, a degree in something like early childhood education or psychology/child development could be a bonus.
Question

Do I need to write a business plan to open a daycare?

Community Answer

Yes, a business plan will be necessary prior to the opening of your daycare.
Question

Do I need a license to run a day care?

Community Answer

Yes, you need a license to run a daycare business.