The complete guide on how to run a daycare successfully

A lot goes into running a successful daycare. Beyond the obvious caring and nurturing of young minds, there’s also the administrative side of running a small business. If you’re wondering how to run a daycare—and how to run it well—you’ve come to the right place.

Whether you’ve already started down the path of opening your daycare or you’re just beginning to explore the option, we’re covering everything you’ll need to know. 

In this guide, you’ll learn:

• The #1 reason the US needs more daycare centers
• The average start-up costs for a daycare
• How the daycare licensing process works
• The essential steps to take to open a daycare center
• Five fool-proof tips to help you manage your daycare like a successful business

Let’s get started on learning how to run a daycare.

Why open a daycare in your community?

A daycare business is an essential service that many families need across America. In 2019, 59% of children under five spent at least one day per week in a childcare setting. And the pandemic only increased the need for childcare. 

Since March 2020, the need for childcare spaces has continued to rise as the US experienced a nationwide shortage. During the pandemic, the childcare industry lost 9.7% of its workforce and has yet to bounce back.

One in three working families still struggle to find a daycare for their children. And as more dual-parent homes need two salaries to meet the rising cost of living, and the number of single-parent homes increases, the need for childcare increases too. 

This is where you can fill an essential need and open your own business.

Opening a daycare center can help add more needed daycare spaces in your local area. But it takes more than just knowing a need to run a successful business.

You need to wear a lot of hats and be in it for more than just the promise of a lucrative business and short hours. Read on if you’re wondering how to run a successful daycare business. We’re breaking down the ins and outs of how to run a daycare—from licenses to staffing, we’re covering it all. 

What’s the difference between an in-home daycare and a childcare center?

The difference between a childcare center or daycare center and an in-home daycare is about location and, in some cases, licensing. You need to know and understand these differences if you’re researching how to run a daycare.

An in-home or home daycare is a daycare that operates out of residential space. They often take very few children and have the homeowner working as the sole employee. You may need a license to run an in-home daycare, depending on your state. 

A daycare or childcare center operates out of a commercial care space. They often have more space to accommodate more children and employ childcare workers. These larger operations are required to have up-to-date licensing in place to be able to operate legally.

How much does it cost to start a daycare?

As with any business, there are start-up costs to consider when opening a daycare. From location to type of daycare to how many children you accommodate, many different factors impact how much it costs to start a daycare. 

When looking at initial start-up costs, you can expect to spend between $10,000 and $50,000 to get your home-based daycare up and running. If you plan to launch a full daycare center, you’ll need anywhere from $60,000 to $3 million to get started.

Let’s unpack some factors that affect how much it costs to start a daycare.

Nail down your fixed and variable expenses

When planning monthly running costs for your daycare, you need to understand your fixed costs versus your variable expenses. 

A fixed cost is a business expense that isn’t dependent on the amount of services or goods your business produces. They’re usually recurring monthly or yearly costs, like rent, interest, or licensing fees. 

A variable cost is the opposite. They’re business expenses that change as the amount of services or goods your business produces changes. They include things like water and electricity, supplies, and food. 

Some of the fixed and variable costs you’ll need to consider when determining your daycare’s running costs include:

Fixed costs

• Daycare licenses and fees
• Rent or lease payment
• Insurance
• Phone
• Payroll 
• Internet
• Computer software subscriptions

Variable costs

• Marketing and advertising
• Equipment
• Furniture
• Office supplies
• Electric
• Water and trash
• Transportation
• Food and beverages
• Toys, games, and art supplies
• Aides and substitutes

Payroll will likely be your biggest expense

You need to understand the recurring cost of payroll to run your daycare. This will depend on how many children you have in your care and their age. The more kids and the younger they are, the more adult workers you’ll need. 

Consider the industry averages for wages and payroll to give you an idea of what you can plan to spend on payroll. In 2021, childcare workers had a median pay of $27,490 per year, or $13.22 per hour. The average payroll for daycares with less than five employees was just under $40,000 per month. Childcare centers with five to nine employees had an average payroll of $124,000 per month. 

Are you planning to rent a commercial space?

While you can run a smaller daycare out of your home, a larger daycare will require you to lease a commercial space. Rent will be a fixed monthly cost, but how much you’ll spend will depend on your location.

You can expect to pay $2,000 monthly for a commercial space that accommodates 16 children. One thing to watch out for if you’re living in a city though, is that your rent will  will easily be higher if you’re in a city with a high cost of living. 

Depending on your lease, you’ll also need to factor in utilities like water, electricity, and sometimes property taxes.

Daycare management software is essential

While finding reliable team management software for daycares is an additional fixed expense, it’ll save you time and money in the long run. Look for an option to help you manage your schedule, stay compliant with time tracking, and make payroll seamless. 

Make you and your employees’ lives even easier by using an option where all this information is in one place. Homebase was explicitly designed for hourly workers and is used nationwide by daycare and childcare centers to manage their teams effectively.

Everything you need to know about daycare licenses

Getting your daycare license in order is one of the first—and most important—steps to take when opening a daycare center. 

A daycare license verifies that you’ve met the minimum requirements of your state or local government. It shows that you’ve passed the compliance programs, background checks, fingerprinting, and other mandatory requisites to operate a daycare center legally. 

Some states don’t require a license for certain types of daycare operations. But having one is a good business decision. A daycare license assures the families who work with you that you’re meeting your state’s minimum duty of care. 

The licensing process for a daycare takes an average of six months. This timeframe can be even longer depending on what qualifications you do or don’t have when you start. That’s why it’s important to have it on your radar early. 

Daycare qualifications

In the US, some of the qualifications you’ll need to have include:

• You’ve completed a GED, have a high school diploma or a college degree. This is where the time frame can get a little tricky. You’re all set if you already have the educational component in place. Otherwise, you’ll want to start here to kickstart your licensing process.
• Go through your state or local government daycare licensing process. Each state has specific requirements to complete the licensing process. Head to the National Database of Child Care Licensing Regulations to review your state’s regulations. 
• Pass an inspection of your home or daycare center. To make sure your center is operating under the standards set out by your state licensing board, you need to pass an inspection. Every state has a different process, but you must prove you’re operating according to human services, social services, and the Department of Health.
• Complete first aid and CPR training. You need to be prepared for anything to happen when looking after little ones. Training in lifesaving and emergency preparedness skills is essential to getting your daycare license. 

Every state has licensing processes in place. But most states operate under the same basic requirements for licensing. Most daycare centers are licensed based on three factors:

• The age of the children
• The number of children
• The type of center (home-based versus childcare center)

Understanding the basic requirements will help you determine how to staff your daycare facility. 

Understanding how to staff your daycare legally 

It should come as no surprise that caring for some of our most vulnerable citizens—children—requires you to jump through a few hoops. From class sizes to how you pay your employees, understanding the legal details of how to run a daycare is essential to your success. 

The must-know facts about ratios and group sizes

Federal law requires all states to establish their own standards for child group sizes based on the age of the children and the childcare setting. They also need to create a staff-to-child ratio for each age group.

These sizes ensure your employees can provide proper care and supervision. It also helps you to know exactly how many employees you need to hire and have on each shift to stay compliant. 

Childcare.gov has set out recommended ratios and group sizes, but you’ll need to double-check your state’s regulations. 

Recommended ratios and group sizes for a daycare center

Source: Childcare.gov 

Recommended ratios and group sizes for a large home daycare

Source: Childcare.gov 

Daycare workers and labor laws

In 1972, the Fair Labor Standards Act was amended to include daycare workers as long as the center has employees in addition to the individual owner. All daycare workers you employ are covered under the FLSA labor laws.

So what does this mean for your daycare workers?

• Pay the federal minimum wage of no less than $7.25 per hour or the state minimum wage if it’s higher to all nonexempt employees. 
• Track and pay overtime at one-and-one-half times the employee’s regular pay rate for all hours worked over 40 each week.
• Maintain complete and accurate records of employees’ daily and weekly hours worked. Using a time tracking system can help streamline this process and reduce errors. 
• Ensure all “rest periods” or breaks of 20 minutes or less are paid time.
• Ensure workers aren’t working during their “meal periods” of 30 minutes or more. This means they shouldn’t be supervising any children. If this is the case, workers should clock out for “meal periods.”

8 steps to open your daycare

Now that we’ve looked at some of the essential elements of how to run a daycare––including opening regulations––, let’s dig into the steps of how to open your daycare. These eight steps will help you go from an idea to a fully operational daycare facility. 

1. Get your licensing requirements sorted

As mentioned above, a daycare license is essential to running a successful daycare. Before you go too far in your planning, be sure to find out what the licensing requirements are in your state. This may impact your timeline and budget, so starting your planning process here is best.

2. Do some competitor research on other daycare providers

Take some time to look into other local daycare providers. Look at both in-home and facility daycares and try to find out:

• What they charge
• What kinds of schedules they offer
• What are their policies for extreme weather, late pick-ups, and emergencies?
• Where and how they market their business
• What they do to stand out to get noticed by parents

The great thing about the daycare industry is that most daycare centers aren’t in competition with each other. There are so many families needing child care that you can contact other childcare centers to ask their owners for advice. 

This kind of networking can help you get new clients when you open. If other local daycares are at capacity, they can refer clients to you.

3. Create your business plan

To start a daycare, you need a solid business plan. Your business plan will set out how you plan to open your business and grow it over the next five years. This is where you can explain your business goals and outline your plan for reaching them.

If you’re looking for funding or grants, you’ll most likely need a business plan to bring to banks and investors.

Your business plan should include:

• An executive summary. This section summarizes your plan and is used to grab the reader’s attention quickly.
• A company analysis. This section describes the type of daycare you’re opening, why you’re opening a daycare, and your legal structure (i.e., S-Corp, LLC, sole prop, etc.). 
• An industry analysis. This section gives an overview of the daycare industry.
• A customer analysis. This section explores your local community and, more specifically, the segment of that community you plan to serve.
• A competitive analysis. This section analyzes the other daycares in your local area that are your direct and indirect competitors.
• A marketing plan. This section is where you show how you’ll attract customers to your daycare. 
• An operational plan. This section will outline how you’ll meet the goals of your daycare and should include your day-to-day operations and your long-term goals.
• A financial plan. In this section, you’ll share your financial projections for the next five years.

4. Set your budget for your finances 

As mentioned above, daycare start-up costs can range from $10,000 to $3 million. So you need to set a budget for both your start-up costs as well as your monthly running costs. Both of these budgets should be planned before you start your business.

Here are a few questions you should ask yourself when you’re thinking about costs and budgeting:

• Will you hire employees?
• Do you need to rent space in a building?
• Do you need to renovate your space?
• What will you spend on insurance, inspections, and legal advice?
• What kind of furniture will you need to buy? And for how many children?

Do you have your estimate for your costs? Perfect. Now you can start to set financial goals and understand how many clients you need to remain stable. 

5. Apply for early childhood education funding and grants

Thankfully, some significant grants and funding options are available for people opening daycare centers. The US Office of Child Care reports they’ve supported 80% of licensed childcare centers in the country. 

You can also look at the state level by contacting your state’s Child Care and Development Fund Administrators. These organizations are there to help new daycare centers flourish by offering resources, advice, and even potential funding options.  

6. Determine your unique value proposition

You spent hours and hours doing all that competitive research; now’s the time to put it to good use. What will make you stand out from all the other daycare providers in your area? 

You may have noticed a particular gap that you can fill in the industry, or you have a passion you want to lean into.

Maybe you offer night-time daycare once a month for date nights or build your schedule to support parents who work shift work. Or, you could provide vegan, halal, or kosher menus or offer music classes. If you can provide something that makes you stand out, do it. And be sure to promote it as well.

7. Create a childcare contract

The last step before looking for clients is creating your childcare contract. This contract outlines what you will and won’t provide to your clients. It should also outline your expectations for your clients and will serve as a legally binding contract between you and your clients.

You can write your contract yourself—some great online templates can help you get started. Alternatively, you can work with a childcare attorney to make sure you have all the needed elements in your contract. Or, you can do a combination of the two.  

You need to have a contract that all your clients sign before you open the doors to your daycare.

8. Start looking for families to attend

Now you’re ready to start marketing your daycare and enrolling your clients. Think of low or no-cost marketing methods to get the word out about your business. 

• Start a Facebook page for your daycare
• Make an engaging website with all important information included
• Put up flyers in local parenting spots—your local rec center, toy store, library, and coffee shop are great places to start
• Get word-of-mouth going by sharing the news with your friends and family and reaching out to your new daycare contacts from your earlier networking

How to manage your daycare as a business

Once you’re open, you need to keep employees, parents, and kids happy with how your daycare center is running. A lot goes into managing all the moving pieces of a daycare. Here are five tips to help you streamline your daycare business.

1. Manage your team’s schedule effectively

Managing your daycare team’s schedule can be a lot of work. Different workers have different availability, and you have very specific needs when it comes to how many employees you have working at any given time. 

Using a scheduling tool that gives you the freedom to manage your team’s schedule on the go can help make sure you’re adequately staffed for your clients. 

With Homebase, you can build and optimize schedules in one easy place. With a click of a button, you can notify your entire team instantly via text, email, and the mobile app. And our integrated messaging app lets you find coverage for open shifts in a pinch, so you’re never left understaffed. 

2. Have employees clock in and out with a digital time clock

Using a digital time clock can help make running payroll and staying compliant with labor laws a breeze. Having employees clock in and out of their shifts means you can track breaks, overtime, and paid time off in one place. 

Time tracking using a time clock will also help keep your labor costs under control and reduce time theft in your daycare. 

3. Make sure all policies are clear to your employees and clients

As a daycare provider, you’ll have a lot of policies in place to ensure the safety of the children in your care. It’s important that these policies are clearly communicated to both your employees and clients. Consider creating a parent handbook that both team members and parents receive when they start at the daycare that outlines everything from extreme weather policies to sick days.

You should also have a separate employee handbook covering policies like paid time off, overtime, workplace safety, a code of conduct, and any other policies that apply to your employees.

4. Have a plan for employee absences

Employee absences are a reality in any small business. But because daycares need a minimum amount of adult workers to children (staff:child ratio), being an employee short for a shift isn’t an option. Being short-staffed at a daycare facility means you must close or risk breaking state laws. 

You need to have an absence management plan in place to ensure you can always cover an emergency shift opening. This will look different for every daycare, but having an on-call employee or a floater team member who can step in when needed in a specific class are both great options. 

5. Improve your payroll processes

According to the National Federation of Independent Business, 70% of small businesses say payroll is a significant burden. The good news? It doesn’t have to be that way for you.

With Homebase, you can onboard employees, track their time, and pay them all in one place. Homebase instantly converts your timesheets into hours and wages and sends them to your payroll. 

Not only that, but Homebase calculates wages and taxes and sends the correct payments to employees, the state, and the IRS. We also automatically process your tax filings and issue 1099s and W-2s.

Opening a daycare is a big commitment. A lot goes into making it a success. But with the right tools and a lot of motivation, you can ensure you’re taking all the necessary steps to build a flourishing daycare.

Are you ready to run a successful daycare center?
Get Homebase to make scheduling your daycare employees easy, message your team, and ensure you’re paying your crew on time—all in one app. 

Get started for free

How to run a daycare FAQs 

Why is now a good time to open a daycare?

It’s a good time to open a daycare because the need for childcare spaces in the US continues to grow yearly. Paired with the fact that the childcare industry lost 9.7% of its workforce during the pandemic, there’s a childcare deficit in America. Families all over the country are looking for reliable childcare, and the best solution is to open more daycare facilities.

Do you need a license to run a daycare?

Yes, you need a license in most states to run and open a daycare. While the state governs these laws, and there are variations to consider, most states require in-home and commercial daycare facilities to have the appropriate licensing. Be sure to check with your state licensing board for specific guidelines.

How much does it cost monthly to run a daycare?

Some studies have estimated that the cost of running a daycare is approximately $3,000 per month. But the cost to run your daycare will depend on variables like rent, your number of employees, and your geographical location. 

When determining your monthly costs look at both your fixed and variable costs, which include:

Fixed costs

• Daycare licenses and fees
• Rent or lease payment
• Phone
• Payroll 
• Internet
• Computer software subscriptions

Variable costs

• Marketing and advertising
• Equipment
• Supplies
• Electric
• Water and trash
• Transportation
• Food and beverages
• Aides and substitutes

What tools can help you run a daycare business successfully?

Homebase can help you run a successful daycare business. This all-in-one team management software covers everything from scheduling and time tracking to payroll and team communication for your daycare. Homebase even offers HR support for small businesses to help you stay compliant with federal and state labor laws.