How to Start a Daycare Business from Home
Do Business the Right Way
If you have a background in early childhood education and enjoy working with kids, then starting a daycare business from home might be a great career option for you. With many schools and large daycares closed and businesses reopening, many families are in need of quality childcare. With the right business plan and necessary licenses, you can run a successful daycare from your home.
Below, we’ve done the legwork for you to provide a free guide to starting a home-based daycare business today.
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What Does a Home Daycare Business Do?
A home-based daycare provides childcare for infants, toddlers, preschool kids, and/or elementary students. Typically, daycare is offered during normal school or work hours; however, some will provide extended and weekend hours for parents/guardians that work non-traditional schedules.
Although it will vary, most facilities will focus on providing daily socialization, a structured routine, and opportunities for learning. In addition, many programs include meals/snacks throughout the day, summer camps, and even field trips to nearby parks or play areas.
Steps to Starting a Daycare Business
Create a Business Plan for Your Daycare Business
Before you get started, you’ll need an idea of what resources you’ll need—and how to monetize your business in a practical way. We’ve answered the biggest questions about clients, costs, and profits below.
Who is the target audience?
Anyone with children. One of the biggest challenges parents/guardians face is caring for their kids while balancing work life—so there will be no shortage of people looking for your services. It’s important that you communicate how your daycare will provide quality care for kiddos while parents/guardians go to work or fulfill other responsibilities.
How do I get clients?
Word of mouth will be key for getting your daycare up and running. Parents need to know their kids will be in a safe environment and properly cared for. Here are a few things you can do to help build a trustworthy reputation and grow a thriving daycare business:
- Advertise on social media: Create Facebook, LinkedIn, and Instagram pages listing your credentials, rates, location, and hours. Join local parent groups and enlist your friends/family members to share your information with others!
- Have an open house: Encourage families to visit your home and meet you. You can provide tours, kid-friendly snacks, and promotional materials for parents to take home. It’s also a perfect way for clients to see that their kids will be in a safe environment.
- Advertise on service boards: Websites such as Care.com or Angie’s list, will connect you with local families. Satisfied customers can also leave reviews to help you network.
How does a daycare business make money?
Daycare businesses accept children based on the total number of kids they’re physically and legally able to care for—most states require a 1:4 ratio. Clients typically pay a flat monthly rate based on the number of days/hours per week they request services. For example, a client might pay $650/month for after school care, five times a week.
How much money will it take to get started?
The start up costs for a home-based daycare will vary greatly—depending on what toys and safety equipment you already own. For example, you may need to purchase a gate, locks for drawers and cabinets, or a playground set for the backyard. In addition, you might consider purchasing software specially designed for daycare management. Programs such as Procare, SmartCare, and EZCare will help you organize each child’s personal information such as food allergies and frequency of visits. These software programs will cost a minimum of $25 per month.
Most states require home-based daycare businesses to obtain licenses, permits, and/or other certifications such as medical/CPR training. In addition, you may be required to complete a background check, medical exam, and courses on child abuse. Child care license fees will vary from state to state, but you can expect to pay between $100 and $200 each year. The licensing and certification processes can also be time-consuming, sometimes taking months.
Another common state requirement is daycare insurance. By adding home daycare coverage to your homeowners policy, you’re extending the same liability limits and coverage of your personal home to your small business—meaning, if a client were to sue your daycare, you wouldn’t have to pay legal fees out of your personal money. The average cost for daycare insurance is $54 per month.
How much do daycare businesses make each year?
According to Salary.com, the average salary for daycare owners is $30,246 per year. Alaska, California, and Connecticut are the highest paying states—between $35,000 and $37,000. Montana, Idaho, and Kentucky sit at the lower end at just above $29,000.
How much should I charge?
On average, daycare centers charge $1000/month for infant/toddler care and $800/month for preschool/K-6 kids—depending on the total number of days/hours per week a client requests service. For example, if a student only needs daycare three times a week after school, you may want to consider charging a half-day rate.
When determining your fees, you’ll need to consider overhead costs and specific services you’re going to offer—e.g. driving kids to school or night/weekend care. You can also check out other daycare providers to see what they charge and compare rates.
Select a Name for Your Daycare Business
Have a great name idea? Before you start marketing and branding your business, you’ll need to ensure your name is available. Most states prohibit or restrict businesses from adopting names that are already in use. Even if it’s legally allowed, a copycat name puts your business at risk of a lawsuit.
See if your business name is available in your state with our Free Business Name Search.
Trademarks and Domain Names
Plan to trademark your business name? You can see if the trademark is available on a website like Trademarkia. It’s also a good idea to see if the domain name is available, which you can do on websites like Network Solutions and GoDaddy. Even if you don’t plan on putting together a website right away, you can buy the domain name to make sure no one takes it in the meantime.
Choose a Business Structure
Should you form an LLC? A sole proprietorship? Your choice of business structure will affect many aspects of your business, from liability to taxes.
Sole Proprietorships & General Partnerships
If you don’t file any paperwork to legally form a different kind of business—you have a sole proprietorship or general partnership. Essentially, these are “default” business structures. A sole proprietorship has one owner, and a partnership has multiple owners.
These structures have a few initial benefits. They’re easy, fast and cheap to start and maintain. However, the limitations and risks of these business structures quickly become more apparent as your business grows. In both of these business types, you are your business, legally speaking. Your company’s legal business name is YOUR name—so you’ll need a DBA to operate under any other name. Any business debt is YOUR personal debt. If anyone sues your business, they are suing YOU personally.
LLCs & Corporations
Limited liability companies (LLCs) and corporations are business entities formed at the state level. The entity is legally separate from its owners, meaning the owners are not personally liable for the debts and obligations of the business. As a separate entity, the business also has multiple tax election options. For example, both LLCs and corporations can choose to be taxed as S-corps if they meet the requirements.
LLCs and corporations are not quite as simple and inexpensive as default structures. LLCs and corporations come with formal requirements like state reports. They also have more fees than default structures, such as formation and annual report fees. However, the benefits of an LLC or corporation—especially liability protection and tax flexibility—are significant.
Legally Form Your Daycare Business
If you opt for a sole proprietorship or general partnership, there’s no formal paperwork to file to legally create your entity—you just start selling your product or service. However, you will not have any liability protections or tax flexibility.
LLCs and corporations are formed by filing paperwork with a state agency, typically the Secretary of State. To start an LLC, you file articles of organization. To start a corporation, you file articles of incorporation. In most states, you can file these forms online or download a paper form from the state’s website.
Whether you’re forming an LLC or corporation, your articles will require certain basic information about your business, such as your company’s:
- business address
- registered agent and office
- business purpose
- members/managers or directors/officers’ names and addresses
- number and type of authorized shares (for stock corporations)
You’ll also need the signature of someone authorized to sign on behalf of the business, along with the state’s filing fee. Fees vary by state but are typically between $100 and $200. If you hire Northwest to form your LLC or corporation, we complete and submit your formation paperwork on your behalf for just $100 plus state fees.
Create Internal Policies and Procedures
It’s important to put your company’s internal policies and procedures in a written document, especially if you’re starting your business with others. Partnerships have partnership agreements. LLCs have operating agreements. Corporations have bylaws.
These documents look a bit different for each kind of business, but they serve the same general purpose. They ensure there’s a clear path forward for any major issue that may arise, from changes in ownership to closing the business. LLCs and corporations also typically need an operating agreement or bylaws in order to open a bank account.
Get an EIN and Register for Taxes
Nearly all LLCs and corporations will need to request a federal employer identification number (EIN) from the IRS. If you file corporate income taxes, have employees, or file certain franchise taxes, you must have an EIN. An EIN is also a common requirement for opening a business bank account. Most businesses can request an EIN by filling out the IRS’s online form.
Your EIN is for federal taxes—but you’ll likely have state and local tax obligations as well. You will most likely need to set up an account with the state’s Department of Revenue, and you may need to apply for a state tax ID or a sales tax license as well.
Learn more about how to Get an EIN for your business.
Open a Bank Account
A business bank account keeps your personal finances separate from your business finances. For LLCs and corporations, keeping separate finances is essential for maintaining liability protection. To open an account, LLCs and corporations typically need to bring to the bank a copy of their articles, their operating agreement or bylaws, and their EIN.
Obtain Required Licenses and Permits
Many businesses will need a business license to operate. Licensing information—as well as any zoning requirements or other permits—can usually be found on the city or county website.
If your home is part of a homeowner’s association, you’ll also be subject to any of their restrictions for home-based businesses. Some areas may also require home-based businesses to obtain a Certificate of Occupancy (a document certifying the property owner has given the business permission to operate).
Some states require daycare centers to get a childcare license that needs to be renewed each year. A childcare license demonstrates that you’ve met your state’s specific standards for operating a daycare program. These standards include safe and healthy practices, caregiver to child ratios, food preparation and serving, sanitation requirements, emergency plans, and criminal background checks.
How do I obtain a daycare license?
The process for obtaining a child care license will vary from state to state—so, you’ll need to check with your local Child Care Resource and Referral (CCR&R) agency to make sure you complete all necessary steps. At minimum, you will need to fill out an application, complete a background check, and schedule an inspection of your home. Some states may also require you to have a degree in early childhood education and/or meet other educational standards.
Do all daycare programs need a license?
No. Some states will exempt programs with religious affiliations and/or have a small number of kids (typically fewer than four).
Next Steps for Your Daycare Business
After your business is up and running, there are a few additional steps you may want to take as you grow:
- Get online: With your domain name, you can create a business website. You can hire a professional or use a website-builder like Wix or WordPress. You may also want to invest in online ads through a program like Google Ads.
- Hire employees: Hiring employees requires quite a few steps. You’ll need to collect W-4s and I-9s from employees, report the new hires to the state, set up withholding, pay for unemployment insurance, distribute any required documents and notices to employees, and display wage and safety info in the workplace. Employer.gov is a good place to start, followed by your state’s tax or labor office.
- Get business insurance: While LLCs and corporations protect you from personal liability, you don’t want your business to go bankrupt in the face of an accident, injury or other disaster. At minimum, it’s a good idea to look into general liability insurance. Home-based businesses can sometimes add insurance onto their homeowner’s policy.
- Get daycare insurance: These policies will protect your personal finances if a client were to sue your daycare for any reason.
How Do I Know if a Daycare Business is Right for Me?
What’s it really like to work in a daycare business?
The daily life of a daycare owner includes caring for young kids—making sure children are properly cared for, fed, and nurtured. In addition, your day may include preparing bottles/meals, reading books, walking kids to a nearby park, changing diapers, wiping dirty faces/hands, cleaning bodily fluids from your furniture, floors, or play area, and diffusing arguments. Unfortunately, not every parent will agree with your methods and not every kid will want to simply get along.
Running a daycare can be emotionally, physically, and mentally draining—BUT, it is also an incredibly rewarding and fulfilling profession. Parenting is the hardest job in the world—your daycare will help ease the everyday challenges that moms and dads face. You’ll be providing quality care for young children while helping them grow intellectually and emotionally.
What does it take to succeed in the world of daycare?
A lot of patience. You also need to be physically capable of running after kids, carrying babies/toddlers, and bending down at a moment’s notice. When you’re surrounded by four children with twenty different needs, you must be able to listen and react with kindness. Your ability to stay calm, focused, and organized will be the key to making your daycare a success.
Ready to Form an LLC or Corporation?
Northwest Registered Agent is here to help with all of your small business ideas and needs. Answer a few simple questions about your business, and we’ll prepare and submit your formation paperwork to the state. We also provide your new business registered agent service, free business forms and guides, and much more.