As more parents enter the workforce, it’s no surprise that the U.S. daycare market reached a whopping $60.4 billion in 2022. The industry is continuing to grow, with an estimated CAGR of 4.18% from 2023 to 2030.
For aspiring entrepreneurs, few businesses offer the low startup costs and convenient work-life balance of home daycares. By converting a spare room or basement into a kid-friendly space, you can capitalize on this demand and start a rewarding small business caring for local families.
This guide will walk you through how to start a daycare at home. Topics include market research, competitive analysis, registering an EIN, forming a legal business entity, obtaining business insurance, and more.
1. Conduct Daycare at Home Market Research
Market research is essential to employment in early childhood education. It offers insight into your target market, potential business expenses, trends in health and human services, and more.
Some details you’ll learn through market research as you obtain your family child care license include:
- The target demographic for home daycares is children under age 6.
- With over 70% of children under 6 potentially needing care while parents work, there is a huge demand to be met.
- The rise of dual-income households over the last few decades underlies this increasing market need.
- Home daycares have lower costs than traditional center daycares, making them an appealing option for cost-conscious parents. T
- With more affordable rates, home daycares can attract clients even in economic downturns as parents seek budget childcare options.
- Competition from existing home daycares varies greatly by region but tends to be minimal.
- Most competitors are other small home operations with a capacity for under a dozen children.
- Larger daycare franchises can provide stiffer competition in some areas but may have higher tuition rates that deter some parents.
- Market research should examine local competitors’ enrollment levels, tuition rates, services, and offerings to strategize competitive differentiation.
- Many home daycares break even within their first year of opening.
- Ongoing expenses tend to be quite low, focused mainly on food, supplies, and modest marketing spending to maintain full enrollment.
- Many home childcare business workers choose to work from home to continue caring for their own children.
Use this market research as you open your own child care business to formulate a thorough business plan.
2. Analyze the Competition
When starting a home daycare business, conducting a thorough competitive analysis is key to strategizing your positioning and rates. Assess other early childhood professionals within a 5-10 mile radius to analyze in-person offerings local families may consider.
For brick-and-mortar daycares, research center sizes, staff-to-child ratios, tuition rates, curriculums, and program offerings. Visit their sites to get a feel for environments and caregiver engagement. Look at their online presence including websites, social media, and directory listings.
Analyze competitors’ enrollment levels, whether they have waitlists, parent reviews, and word-of-mouth referrals. Higher enrollments and waitlists indicate satisfied families and a strong community reputation. You can leverage such insights to emulate popular curriculums or program offerings in your own business.
Research nanny and babysitter options to examine competition from independent childcare workers as well. Compare their hourly rates, services provided, credentials, and liability coverage against your home daycare offerings.
3. Costs to Start a Daycare at Home Business
As a business owner, you’ll encounter a variety of expenses through your child care center. From your business loan interest to meeting licensing requirements, and beyond. Here are some of the startup and ongoing expenses daycare centers encounter:
Startup Costs
Starting a home daycare requires various upfront investments to handle licensing, materials, renovations, insurance, marketing, and initial operating costs before opening for business. Total startup costs often fall between $10,000-$25,000, including:
- Acquiring state licensing and permits can cost $150-$500 depending on your region.
- Some states may require extra director credentials (CPR/First Aid training, etc.) adding $100-$300 to costs.
- Zoning permits range from $25-$150+.
- Fingerprinting and background checks add $50-100 per caregiver.
- In total budget is $500-$1200 for administrative licensing.
- Business insurance (general liability & accident) ranges from $300-$1000 annually.
- Separate child care licensing insurance can cost $300-$600 depending on policy liability caps.
- Budget at least $1000 for any renovations like child gates, safety rails, or converting a spare room into a dedicated classroom space.
- $2000-$5000 ensures high-quality materials and developmental appropriateness across all age groups under care.
- Budget $1500-$3000 for robust multi-channel outreach to local parent networks and directories.
The first 1-3 months could see lower enrollments as your center ramps up. Have at least 3 months of working capital for rent/mortgage, food, caregiver salaries (if applicable), supplies, and other operating expenses before profitability.
Ongoing Costs
Once open for business, monthly costs often include:
- Rent/Mortgage: $0 (existing residence) to $2000
- Food Supplies: $250-$600
- Learning Materials/Toys: $100-$300
- Insurance: $100-$250
- Marketing: $100-$500
- Accounting Software: $50-$150
Variable costs tied to enrollment levels include caregiver payroll, associates’ credentials/training, and activity/event programming. Reinvesting profits into quality improvements demonstrates a commitment to families while fueling referrals.
4. Form a Legal Business Entity
When starting a home daycare business, the legal structure you operate under impacts taxes, liability coverage, and ease of expansion over time. Weighing the pros and cons of each framework ensures you make the best decision when establishing your company.
Sole Proprietorship
Operating as a sole proprietor means no formal business registration is required beyond standard licensing. This simplifies logistics and paperwork for fledgling owners. It offers no personal asset protection if sued – creditors can seize personal bank accounts, properties, etc to settle company debts.
Partnership
Enlisting a co-owner shares startup costs and management duties. However, partners are subject to unlimited personal liability same as sole proprietors. Income pass-through hits all partners harder at tax time as well compared to limited entities. Disagreements between partners also introduce legal complexities.
Limited Liability Company (LLC)
Registering as an LLC offers liability protection missing from proprietorships or partnerships. Only business assets are impacted by debts, lawsuits, or claims – personal assets remain shielded even if the company folds. This coverage incentivizes small business growth through hiring once capacity expands.
Corporation
Incorporating brings the strongest business liability protections but also the highest maintenance costs. Double taxation applies on both corporate and personal returns too – expect an extra tax burden of $1,000+ from income passing through. Corporations have strict record keeping, public bylaws, and annual shareholders meetings.
5. Register Your Business For Taxes
To operate legally and open business bank accounts, home daycares need both a federal Employer Identification Number (EIN) and state sales tax registration. The EIN essentially functions as the business’s Social Security Number for tax purposes.
Apply for an EIN online. Registering for an EIN is free and simple through the IRS website. The online application takes less than 15 minutes to ask for basic entity information, owner names, and mailing addresses. No filing requirements or extensive paperwork is involved like incorporating.
Most states also require sales tax registration for childcare services. The application process varies slightly but resembles the Streamlined Sales Tax System. This unified form allows businesses in member states to register once rather than needing individual state forms.
Costs are generally low – $10 or less. Non-streamlined states may charge $50-$150. Once approved, you can collect and remit sales tax on tuition revenue to state departments of revenue. Ensure tax-exemption rules are followed though.
Check state government websites for specifics on sales tax waivers along with business license/zoning obligations, employment policies, and daycare regulations. Statutes differ across state lines regarding safety standards, caregiver duties, record keeping, and more.
6. Setup Your Accounting
Robust recordkeeping is crucial for home daycares to track revenues, expenses, and payroll and prove regulatory compliance. There are many ways to use accounting to benefit child care businesses, including:
Accounting Software
Using accounting software simplifies these tracking efforts greatly compared to manual ledgers. QuickBooks handles customer billing, invoices, expense coding, and cash flow reports and can deliver key data to your accountant come tax season.
Hire an Accountant
Having an accountant advise your home daycare locks in expert guidance on revenue/expense classification, deductions, and financial strategy from the start. They establish foolproof processes for bookkeeping, payroll processing, bank reconciliation, and fiscal year-end preparation.
Open a Business Bank Account
Separating business and personal finances prevents confusion. Open a dedicated business checking account for transparent tracking of daycare revenues, caregiver payroll draws, vendor payments, and eligible purchases. Reconcile statements monthly before reporting details to your accountant.
Apply for a Business Credit Card
Applying for a small business credit card also builds helpful lines of credit for larger purchases or operating shortfalls from enrollment ebbs/flows. Put all daycare-related expenditures on the card, pay the balance monthly, and request gradual limit increases over time
7. Obtain Licenses and Permits
Being approved for state childcare licensing is the foremost permit needed before opening doors to little ones. Find federal license information through the U.S. Small Business Administration. The SBA also offers a local search tool for state and city requirements.
In California, daycares under the care of 14 children require a family childcare home license. This involves extensive background checks, yearly tuberculosis testing, and 15 hours of initial health/safety curriculum completion for all adult members residing within the home.
Extensive childproofing precautions must also be completed covering anything posing fall, drowning, burn, or poisoning dangers across indoor/outdoor spaces. Monthly site visits verify standards compliance.
Florida mandates licensed homes carry special commercial liability insurance covering up to $100,000 per occurrence. Caregiver certifications in first aid, infant/child CPR, and development training clock at least 40 hours. Yearly safety inspections also apply with records submitted monthly.
In Texas, the Department of Family and Protective Services likewise facilitates background screenings, monitoring, and training requirements for legal home registration. Any adults present with known criminal convictions or child abuse history are immediately disqualified from eligibility.
Home insurance carriers also often prohibit operating businesses within residential policies. Purchasing a Child Care Insurance Policy extends commercial general liability and abuse/molestation coverage vital given elevated interaction risks with multiple children simultaneously.
8. Get Business Insurance
Carrying adequate business insurance shields home daycares from financial ruin should injuries, accidents, or emergencies strike while children are in care. Out-of-pocket costs for medical bills, legal fees, and damages payouts easily reach six figures without protection.
Some potential risks include:
- If a house fire required emergency room transport for smoke inhalation treatment across eight kids, damages would run $150,000 without coverage.
- A visitor slips on a wet floor, sustaining back injuries requiring surgery and extended physical therapy.
- Accidentally serving meals causing allergic reactions summon ambulance callouts hitting $2000+.
Having general liability coverage defrays these wildcards. Additional abuse and molestation policies further shield claims tied to hire misconduct. Top carriers like State Farm offer specialized plans accommodating home daycares for $400-$1200 yearly. Expect options covering:
- $500,000 per occurrence
- $50,000+ property damage
- $250,000 molestation sublimit
- $2000 medical payments
- $1000 ambulance expense
Obtain quotes through independent brokers having existing relationships with family care carriers. Insure on facilitates expedited digital applications answering just basic questions without obligation. Expect requests like:
- Entity type + Ownership
- Location/building details
- Historical liability claims
- Current provider coverage status
- Desired quote customizations
Applying through multiple reputable agencies ensures the most competitive premiums for equal coverage suited for home daycare risks. Never operate uninsured – an accident lawsuit and settlement can bankrupt entire savings rapidly.
9. Create an Office Space
Having a dedicated office/classroom area for administrative needs lends daycares valuable versatility accommodating parent meetings, one-on-one consultations, or extracurricular planning sessions. This space supplements regular activity rooms keeping toys and children contained without distraction.
Home Office
Converting a spare bedroom or basement into a functional office typically costs $2,000+ factoring desk, file cabinet, and chair purchases alongside any renovations, painting, or lighting improvements. While convenient, mingling clients and kids risks overstimulation, privacy concerns, and injury incidents.
Coworking Space
Nearby WeWork locations offer professional environments for client meetings starting at $300 monthly. Custom WeWork office sizes suit small consultations, training sessions, or parent open houses conveniently. Military family events also benefit from roomier third-party venues over at-capacity houses.
Retail Space
Leasing retail spaces like storefronts proves overkill for most single-site providers outside hybrid daycare franchises with built-out amenity spaces. Property owners seldom rent units under 5 years either, a longer commitment than prudent for newly established businesses. Expect rental rates of $20 per square foot.
10. Source Your Equipment
Outfitting home daycares requires extensive toys, furniture, feeding supplies, safety gear, and specialty infant items to care for multiple age groups. Stocking up across these categories can be done by buying new, used, renting, or leasing options.
Buying New
Major retailers like Walmart, Target, and Amazon supply toys supporting cognitive, motor, and social skill development across all toddler stages. Purchase age-specific furniture like cribs, playpens, mats/gyms along with cabinets/cubbies for personalized storage. Feeding essentials include plates, cups, utensils, and bibs.
Buying Used
Secondhand batches of playsets, activity mats, costumes, books/puzzles, and outdoor equipment findable on Facebook Marketplace, Craigslist, or Offer Up often hold up through multiple daycare enrollments if inspected closely for safety. Create saved searches on these platforms for bulk deals.
Renting
Children’s consignment platforms like Kid to Kid lease infant/toddler inventory like bouncers, play mats, and high chairs for flexible 3-6 month terms. This suits changing enrollment needs as age distributions shift each year. Rental fees range from $25-$60 per item but save eating huge upfront spend.
11. Establish Your Brand Assets
Cultivating a distinctive brand identity helps home daycares stand out from competitors and attract enrollments through consistent visual recognition. Parents gravitate towards providers reflecting professionalism across touchpoints, from logos to web layouts showcasing nurturing environments.
Getting a Business Phone Number
Acquiring a unique business line using RingCentral lends legitimacy over listing personal cell numbers across outreach materials. Expect just $20 monthly for a dedicated mobile line, local caller ID, and basic answering features like voicemail transcriptions. Upgrade to toll-free lines once establishing steady demand.
Creating a Logo and Brand Assets
A thoughtful Looka logo visually encapsulates program values and personalities home providers radiate. Whether utilizing abstract shapes or kid-friendly illustrations, ensure palettes and fonts synchronize across business card templates, letterheads, website motifs, and signage backdrops.
Business Cards and Signage from Vistaprint
Business cards supply quick references for parents unable to snap photos of facility contact info during tours. Exchange at community tabling events or initial consultations so families have 24/7 access. Yard signage, window clings, and indoor displays ordered through Vistaprint make standalone homes identifiable as licensed daycares, not personal residences.
Purchasing a Domain Name
Secure matching domains from Namecheap for $15 annually. Opt for .com over .biz or .info which read unestablished. Make usernames/emails easy to recall to create memorable brand awareness and make it easy for clients to find you.
Building a Website
Employ DIY platforms like Wix for one-time $100s investments crafting pages showcasing caregiver bios, activity philosophies, menus, and enrollment information across responsive desktop/mobile layouts. Add photo galleries and parent review social proof later. Alternatively, hire web developers on Fiverr.
12. Join Associations and Groups
Joining local and national associations facilitates invaluable collaboration with fellow childcare professionals. Access member-exclusive training programs, checklist resources, and referral networks to accelerate getting up and running.
Local Associations
In Texas, the National Association for Family Child Care chapter lists accredited home providers meeting strict quality benchmarks. The Texas Professional Home Childcare Association connects over 500 area members for continuing education, substitute caregiver pools, and mentorship channels.
Local Meetups
Platforms like Meetup organize regional workshops and social mixers to unite area childcare pros. Poll fellow business owners on enrollment promotion tactics, favorite curriculums, and vendor recommendations within intimate meetup settings.
Facebook Groups
For round-the-clock advice from national peers, Daycare Owners and Home & Daycare Crafts And Helpful Ideas share endless program inspiration. Discuss everything from affordable outdoor playset brands to managing COVID-19 exposures and symptomatic students.
13. How to Market a Daycare at Home Business
Implementing marketing initiatives fuels steady enrollments and waitlists through consistent community outreach. Without promotion, openings risk going unfilled as local families remain unaware of new neighborhood offerings.
Personal Networking
Leveraging personal networks presents the most valuable starting point before investing in formal platforms. Reach out to parent groups, neighborhood listservs, and community centers to circulate flyers or offer open house events showcasing your facilities in person.
Digital Marketing
- Launch Google/Facebook ads geo-targeting nearby parental demographics with $15-50 daily budgets
- Create Instagram and TikTok accounts showcasing activities, meals, and campus facilities. Use relevant #hashtags to expand visibility.
- Claim online directory listings on Care.com for increased discoverability.
- Distribute monthly e-newsletters to enrolled families highlighting curriculum topics, staff spotlights, and seasonal reminders.
- Blog about parenthood challenges, kid development milestones, and balancing work-life routines to attract local readers.
Traditional Marketing
- Design eye-catching yard signs and distribute door hangers throughout surrounding neighborhoods.
- Sponsor booths at school fairs, fundraisers, and community events to meet area families.
- Place ads in neighborhood newspapers/magazines and pitch relevant lifestyle section stories.
- Partner with complementary businesses like pediatricians, tutors, or photographers for cross-promotions.
- Purchase promotional giveaway items like t-shirts, magnets, and stickers to boost brand familiarity.
Balancing digital and real-world marketing exposes home daycares to the widest possible audience of potential applicants. Measure response rates across initiatives to double down on the most effective channels based on actual enrollment conversions.
14. Focus on the Customer
Delivering exceptional caregiver support and family engagement accelerates enrollment growth for home daycares through word-of-mouth referrals. Prioritizing child development and nurturing environments over profits earns community trust and loyalty.
Take extra time getting to know student’ personalities, interests, and needs to personalize curriculums nurturing their unique gifts. Schedule regular show-and-tell sessions for children to share projects displaying their creativity growth over months in care.
Make parents feel heard regarding new policy changes, activity feedback, or child milestone concerns. Hold quarterly focus groups to collect suggestions, address worries, and highlight recent improvements implemented through their insights.
Share daily recaps through app platforms like Brightwheel detailing meal menus, lessons covered, and individual child progress across motor skills, vocabulary gains, and social realm. Attach photos capturing precious laughter and play moments families miss while working.
Exceeding expectations across communication channels and genuinely bonding with little ones manifests satisfied customers evangelizing your home daycare within neighborhood circles. This grassroots endorsement propels sustainable word-of-mouth referrals.