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 large and lucrative market with the flexibility of setting your own work hours. There are more than 1 million paid in-home childcare providers in the U.S., along with around 133,000 commercial childcare centers in the United States with a combined annual revenue of $60+ billion.

Home-based daycares, like many at-home businesses, can have relatively low overhead costs since they often don’t require any extra rent or mortgage payments. 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 Child and Adult Care Food Program for childcare centers. In addition, ZenBusiness offers LLC formation service starting at $0 (+ state fee), making starting your new daycare business even more affordable.

How to Start a Daycare at Home Checklist

Business owners who start a daycare at home have to jump through a couple of legal hoops before they can get started. 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.

1. Create a business plan

Even if you’re starting a small business from home, a business plan is a must-have. It can help you 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 reference point 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
• Determine how you’ll measure progress
• Identify (and make 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

Incorporated businesses (like LLCs and corporations) must be registered with the IRS and their state government. In doing so, business owners have to choose a business structure, which serves as both a legal 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 liability protection.

Since parents are entrusting you with 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 the owners or shareholders. In addition, single-member LLCs are taxed similarly to sole proprietorships, anyway. It’s often considered the best of both worlds.

You can form an LLC online for free with ZenBusiness (just pay your state’s fee), but you’ll also need to get a general business license and the family child care license required in your state. Processing time is determined by the state, and each state charges different fees. If you’d like, learn more about which is the best legal structure entity for your new business.

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 startup 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 upfront and in the long term.

How to Fund Startup Costs

Not everyone has the capital to start a small business without financial assistance. The good news is that many small business owners can get started with just $10,000. This is a feasible goal for a home-based daycare center, and you can raise money in a number of ways, including:

• Government assistance: There are several government resources available to small business owners in general, and specifically for daycare centers as well. 
• 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 they’re 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 memorable 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 have already registered the web domain. Check with your Secretary of State’s office and perform an extensive online search to make sure that your name is brand new.

Need some help? Check out our guide on coming 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., an LLC or corporation). ZenBusiness can form your new business entity for free (+ state fee).
• Getting an Employee Identification Number (EIN). This is used to fill out tax forms, hire employees, open business bank accounts, and more. You can get an EIN from the IRS on its website.
• Obtaining a general liability insurance policy (you’re working with children, so this is extremely important).
• Acquiring daycare-specific insurance.
• Obtaining a general business license, which can be done through your state, your local municipality, or both, depending on the laws in your area.
• Acquiring 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 need to keep business assets separate from your personal assets in case of an audit or lawsuit.

Read our article about how to open your new business bank account.

6. Purchase equipment for your daycare business

At-home daycare equipment is generally basic and can often be purchased through Amazon or a big-box store like Walmart, OfficeMax, or 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

Need help? Check out our guide on how to buy assets and equipment for your business.

7. Market your daycare business

You won’t get any students if no one knows 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 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: A home-based daycare where children (typically younger than six years old) spend several hours per day.
• Preschool: These schools are independent of local authorities or government control and may offer pre-kindergarten education to children between the ages of 3 and 4.
• After-school care: This type of facility is for school-aged children and typically runs for a few hours after school, Monday through Friday. 
• Summer care: These facilities operate seasonally when school is not in session and greatly benefit working parents.