This blog was originally published on Feb. 26, 2021, and updated on Nov. 17, 2023, with new information.
Demand is high for child care, but daycare start-up costs can be daunting. How much does it cost to start a daycare? And once it’s up and running, how much does it cost to run a daycare monthly?
Let’s take a look at the seven main costs you’ll need to account for when starting your own child care business.
The Costs of Opening a Daycare Center
There are A LOT of variables when it comes to daycare center expenses. But we’ve done our best to cover the main costs you’ll incur and explain how they might apply to your situation.
Where will your child care center be located? You have two options in this regard: a rented/owned space or your home. Each has its own advantages and disadvantages.
Costs for starting a home-based daycare range from $10,000 to $50,000. Daycare center franchise startups range from $59,000 to $3 million. A non-franchise center’s cost depends greatly on the building you choose, but a typical example of a daycare center for 76 children in a building that needs renovation is $95,000.
For example, a commercial space will require you to make lease or loan payments. These can be expensive depending on real estate costs in your area. But a large commercial space will also allow you to care for more children, which will boost your income.
All in all, expect to pay somewhere between 60 cents and $2.50 a square foot to lease a commercial space for your child care business.
Running your daycare out of your home, on the other hand, will save you money on rent. But don’t forget to budget for an increased utilities bill. And realize that state laws might not allow you to care for as many children in your home as in a commercial space.
To become a legal daycare center in the U.S., you need a business license and tax identification number. Some states also require a daycare license, CPR certification and medical clearance. These things cost money.
Check the laws in your area to learn what licenses you need, how much the licenses cost and how often they need to be renewed.
While these expenses should be factored into your business budget, they don’t often amount to a significant sum of money. Plan to pay a few hundred dollars a year.
For information on licensing, contact the Department of Children and Family Services in your state. Or get in touch with a local child care licensing agency. Both entities will be able to provide you with the details you need to make your new child care business legal.
Every child care business should invest in insurance. We can’t stress this enough!
There are two main policies you’ll need: a liability policy and a property policy. Note: you’ll need property insurance even if you plan to run your daycare center from home. Most homeowners policies won’t cover claims related to your business.
If you plan to hire employees, consider investing in workers’ compensation insurance as well. Get in touch with the child care provider licensing office in your area for more information.
Like all the daycare center expenses outlined here, the cost of your insurance policies will vary. But most child care providers should expect to pay several hundred to several thousand dollars depending on their size.
4. Supplies and Equipment
Now that you have a location for your business and you’re properly licensed, you can invest in supplies and equipment.
Of course, you’ll need the obvious things like cribs (if you plan to care for babies), cots (if you plan to care for toddlers), changing tables, high chairs and child-proofing. But don’t forget about consumables like cleaning supplies, diapers and wipes and food.
Budget $600 per child for large pieces of equipment like cribs and high chairs. Then plan to spend about $100 a week per child for consumable supplies. (Note: these expenses should decrease as your daycare center becomes more established; plus you should be charging tuition that offsets these costs and helps you turn a profit).
Check out this average budget for daycare provider expenses from NEXT Insurance for a home-based child care business serving four to six children:
- Furnishings: $ 2,500
- Equipment: $ 2,500
- Supplies: ($50 per child per month): $2,400 to $3,600
- Water and trash: $1,800
- Phone and electric: $4,000
- Business licenses and fees: $1,200
- Food and beverages: $4,800
- Transportation: $3,600
- Part-time aides/substitutes: $10,000
- Advertising and marketing: $4,000
- Total: $36,800 to $38,000
5. Children’s Entertainment
You may have noticed that we didn’t include toys in the Supplies and Equipment section above. That’s not because you don’t need them — you definitely do!
A quality selection of age-appropriate entertainment will ensure your kids enjoy coming to your daycare center. Happy kids make happy parents. And happy parents keep paying child care providers like you to care for their children. So it makes sense to invest in toys.
The entertainment options you choose will depend on the kids you care for, the amount of room you have and your current budget.
For example, if you have access to a yard and a few hundred dollars, an outdoor playset might be a good idea. But only if you plan to watch children who are old enough to take advantage of it. If not, choose something else.
Other children’s entertainment ideas include:
- Art supplies
- Musical instruments
- Educational curricula
- Dolls and action figures
- Balls and sports equipment
- Tablets, TVs and DVD players
Many child care providers start as one-person operations. But as your business expands, you may need to hire employees to help take care of children enrolled in your preschool or child care center. This means your daycare center expenses list will get longer and more costly.
Recent federal data shows that the average child care worker earns $28,520 per year, or $13.71 per hour. But many centers are paying well above that to attract good job candidates and to stay competitive with other occupations offering a higher wage.
You’ll need to pay employees a regular salary plus their Social Security and Medicaid taxes.
Not all child care centers will need to invest in advertising. You may be able to get customers by reaching out to your network and posting on social media. But if you’re looking to start your new business with a bang, advertising can help.
If you’re on a budget, print flyers and distribute them throughout your community. If you’re feeling ambitious, create a Facebook ad or Google Adwords campaign.
We should mention that we view a website as a business necessity, not an advertising cost. That said, a well-thought out SEO strategy will allow you to advertise your business for free. Though the time investment required shouldn’t be overlooked.
Are Daycare Centers Profitable?
The profitability of your daycare center will depend on how you run your business. Here are a few things you can do to keep yourself in the black:
- Create a Positive Environment: When kids enjoy your daycare center and parents appreciate the learning and socialization opportunities you provide, repeat and referral business will become standard. Both of these things lead to higher profits.
- Establish Parent Expectations: Late pick-ups, drop-offs and payments eat into profits. Take the time to establish expectations with parents and caregivers. Consistency in this regard is foundational to profitability.
- Train Your Staff: If you hire employees, make sure they’re well-trained and certified. This will allow your business to offer quality care, cut back on inefficiencies and minimize customer turnover.
Don’t forget, there are plenty of grants available to new child care providers – search for your state’s resources to see what you might be eligible for. These will help you offset the costs of starting your new business. The less money you have to invest up front, the faster you can build a profitable daycare center!
Get Help Starting Your Child Care Business!
Whether you are looking to start a child care program or are a seasoned owner, there are many resources available to help fund your programs!
Check out this state-by-state list of agencies and services available to help you provide sustainable child care. You’ll find links to shared services organizations, affiliates of the National Association for the Education of Young Children, licensing requirements and the average cost of child care in each state!
And visit our page devoted to development and child care funding, which includes links to online teacher groups, professional development opportunities as well as funding resources!