How to start a childcare business: a step-by-step guide

Last updated 2026-07-09

What do you need to start a childcare business?

You need five things: a license from your state child care licensing agency, a physical space that passes inspection, background checks for every adult in the building, liability insurance, and a legal business entity. That list looks short. Each item has layers underneath it.

Every state regulates child care. The rules come from your state's health and human services department or a dedicated licensing office, and they set minimums for staff-to-child ratios, square footage per child, emergency procedures, and nutrition. There is no federal child care license. Federal money does flow through the Child Care and Development Fund (CCDF), which sets a floor for what states must require ^[1].

Home-based family daycares and center-based programs follow different rules in almost every state. Most states let you care for a small number of related children with no license at all. The moment you take in unrelated children, licensing kicks in. The threshold is commonly 3 to 6 unrelated children, though it swings widely. Texas requires a license at 4 or more unrelated children; California triggers licensing at 1 or more unrelated children in a family day care home ^[2].

So before you rent a space or buy a single crib, find your state licensing office and read its minimum standards. That document controls everything else you do. The National Center on Early Childhood Quality Assurance and Child Care Aware of America both keep directories of state licensing contacts ^[11].

Should you open a home daycare or a childcare center?

This is the biggest early decision, and it comes down to capital and capacity. A home daycare costs a fraction of a center to start and gets you licensed faster. A center serves more children and can reach real profit at scale, but it takes far more money and time to open.

A licensed family child care home serves roughly 6 to 12 children depending on your state and runs out of your own residence. Startup costs generally land between $5,000 and $50,000, covering renovations to meet licensing standards, equipment, supplies, and first-year insurance. A licensed center operates in leased or commercial space, can serve dozens or hundreds of children, and usually costs $150,000 to $500,000 or more once you add lease deposits, build-out, furniture, staffing, and working capital ^[4].

The margin math splits the two apart. Home daycares are lean: low overhead, but a hard ceiling on revenue. Centers carry high fixed costs and only turn profitable once enrollment fills. Child Care Aware of America's 2023 report found center-based care is the largest market segment, while family child care homes still outnumber centers across most rural and suburban counties.

No capital and no investors? Start with a home daycare. It's the lower-risk way in, and you can open a center later once you know the business. Have a loan or investors lined up and want something larger? Go straight to the center model.

Just know the center timeline is longer, usually 6 to 12 months, because the building itself has to be inspected and approved before you open. See our full breakdown of how to open a childcare business for the center-specific path.

How do you write a business plan for a childcare business?

Write a business plan before you spend a dollar. Not to check a box. It forces you to face the numbers before they face you, and every lender and most grant programs will demand one anyway.

A childcare business plan covers your program model (ages served, hours, curriculum approach), a market analysis (how many children under 5 live within a reasonable drive, what competitors charge, what gaps exist), a staffing plan with projected ratios, a financial model running at least three years out, and a startup cost budget.

The financial model is where people freeze. Your revenue driver is enrollment times tuition. Child Care Aware's 2023 data puts the average annual cost of center-based infant care from roughly $5,760 in Mississippi to over $25,000 in Massachusetts. Your local rate sits somewhere in that spread. Build projections at 60%, 75%, and 90% enrollment so you can see where you break even.

You won't be full on day one. Most new programs take 6 to 18 months to fill, and your working capital has to cover that gap. Underfund it and you close before word of mouth ever catches up.

We have a template and walkthrough in our business plan for a childcare center guide. For funding, start with childcare business grants and childcare business loans.

What legal structure and registrations do you need?

Most small childcare operators pick a sole proprietorship, an LLC, or a nonprofit corporation. The right choice depends on your goals and your state. For most for-profit home daycares and small centers, an LLC is the answer.

A sole proprietorship is what you get by default if you do nothing, and it offers zero liability protection. An LLC separates your personal assets from the business and costs $50 to $500 to form depending on the state. A nonprofit (501(c)(3)) fits if you plan to chase charitable grants and can live with governance rules, including a board of directors.

Beyond the entity, you'll need:

• An Employer Identification Number (EIN) from the IRS, free at irs.gov ^[5]
• A business license or general operating permit from your city or county
• A DBA (doing business as) registration if you operate under a name different from your legal entity
• A state childcare license (separate from a business license; see the next section)
• Sales tax registration in states that tax childcare services (most exempt it, but check)

Planning to take child care subsidy payments through your state's CCDF program? You'll also enroll as an approved provider with your state agency. That application is separate from your license ^[1].

How do you get a childcare license in your state?

The process differs in every state and takes longer than almost everyone expects. In broad strokes: contact your licensing office for the application packet and standards, attend orientation if required, submit your application, pass inspection, finish pre-service training, clear background checks, and receive your license.

Here is the general order:

1. Contact your state licensing office and request the application packet and minimum standards document. 2. Attend a pre-licensing orientation if your state requires one (many do). 3. Submit your application with attachments: proof of entity registration, a site or floor plan, written policies (discipline, illness, emergency evacuation), and the fee. 4. Pass a pre-licensing inspection of your space. 5. Complete pre-service training hours (varies by state, commonly 6 to 40 hours). 6. Clear background checks for yourself and all household members or staff. 7. Receive your license.

Timeline from application to license runs 3 to 6 months for a home daycare and 6 to 12 months for a center. California's process for family child care homes can take 30 to 90 days once the application is complete, but getting the application complete often eats months on its own ^[2].

Background checks are non-negotiable. Most states require FBI fingerprint checks and a state criminal history check for every adult who works in or lives at the facility. Some also check the child abuse and neglect registry. These run $30 to $100 per person and take 2 to 8 weeks to come back ^[6].

You cannot legally operate before your license is issued. Opening early is a violation and can get your application denied outright.

What space and facility requirements do you need to meet?

Space rules are some of the most specific standards you'll hit, and you want to read them before you sign a lease or start a renovation. Get this wrong and you're paying to redo work.

Indoor square footage requirements vary by state but commonly fall between 35 and 50 square feet per child in the primary play and activity area. A group room for 20 children needs at least 700 to 1,000 square feet of usable floor space, not counting bathrooms, kitchens, or storage ^[6].

Outdoor play space varies too. Many states require 75 to 100 square feet of outdoor play area per child, though some grant waivers when a public park sits nearby. The play area has to be fenced, free of hazards, and age-appropriate.

Beyond square footage, your facility typically needs:

• A hand-washing sink at child height near the bathroom and near food prep
• A separate diapering area if you serve infants or toddlers
• Sleeping equipment that meets current safe sleep standards (firm, flat surfaces for infants; no soft bedding)
• Smoke detectors, carbon monoxide detectors, and fire extinguishers
• A first aid kit that meets your state's specs
• Emergency exit routes posted in every room

Opening a center in a commercial building means the space also has to pass local building code, fire marshal, and in many states health department inspections, all before you open. Budget time and money for these separately from the licensing inspection.

For infant-specific space and ratio rules, see our guide on infant daycare: costs, ratios, and what to look for.

What are the staff-to-child ratio requirements?

Ratios drive your staffing cost more than any other rule, and staff is almost always your largest operating expense. Lower ratio, more staff, higher payroll. They vary by age group and by state, and some states run stricter than the table below.

Age Group	Typical State Minimum Ratio	NAEYC Recommended Ratio
Infants (0 to 12 months)	1:4	1:3
Toddlers (12 to 24 months)	1:5	1:4
2-year-olds	1:8	1:6
3-year-olds	1:10	1:8
4-5-year-olds	1:12	1:10

These are legal minimums, not quality targets. Many strong programs run one or two children below what the state allows. The National Association for the Education of Young Children (NAEYC) publishes ratio guidelines tighter than most state laws, recommending 1:3 for infants and 1:4 for young toddlers ^[7].

You hold ratio the entire operating day, including nap time and outdoor play. A licensor who walks in during nap and finds one staff member with four infants when the limit is 1:4 is fine; add a fifth sleeping child and you're cited, asleep or not.

Staff qualifications matter too. Most states require lead teachers to hold at least a Child Development Associate (CDA) credential or an associate's degree in early childhood education. Some require a bachelor's for center directors. Those rules raise your labor costs and shrink your hiring pool, so plan for it early.

How much does it cost to start a childcare business?

It depends heavily on home versus center, and on your local real estate market. A home daycare realistically runs $5,000 to $50,000. A center runs $150,000 to $500,000, sometimes past $1 million.

Home-based family daycare startup costs:

• Licensing application fee: $25 to $200
• Background checks (you plus household members): $100 to $400
• Safety upgrades (outlet covers, cabinet locks, door alarms, fencing): $500 to $5,000
• Equipment and furnishings: $2,000 to $10,000
• First aid and safety supplies: $200 to $500
• Business registration and first-year insurance: $500 to $2,000
• Pre-service training: $0 to $500
• Marketing (basic website, flyers, social): $200 to $1,000

That totals roughly $5,000 to $20,000 in most markets, climbing toward $50,000 if your home needs real renovation.

Licensed childcare center startup costs:

• Lease deposit and first months' rent: $10,000 to $50,000+
• Build-out and renovation: $50,000 to $200,000+
• Furniture, equipment, and supplies: $30,000 to $100,000
• Licensing, permits, and inspections: $1,000 to $5,000
• Initial staffing before revenue: $20,000 to $60,000
• Insurance: $3,000 to $10,000 annually
• Marketing and signage: $2,000 to $10,000

That totals $150,000 to $500,000, with large centers passing $1 million. Nobody has clean national data on average startup costs. The closest proxies are SBA lending data and state feasibility studies, and both show wide variation, so treat any single average with suspicion.

For financing, see childcare business loans and childcare business grants. It's also worth checking whether buying an existing program beats building from scratch.

What insurance does a childcare business need?

Insurance is not optional, and the minimum most people default to is often too little. Start with general liability written specifically for child care. A standard homeowner's policy excludes business activity and will deny any daycare claim, even if you operate in your home.

A child care-specific general liability policy typically starts around $400 to $1,200 per year for a home daycare and $2,000 to $6,000 per year for a center, depending on enrollment and location ^[8].

Beyond general liability, look at:

• Professional liability (errors and omissions): covers claims that your supervision or care decisions caused harm
• Commercial auto: if you transport children
• Workers' compensation: required by law in most states the moment you hire one employee
• Property coverage: for equipment and furnishings
• Abuse and molestation coverage: increasingly required by licensing, and something you want regardless

Many states demand proof of liability insurance before they'll issue your license. Check your state's minimum coverage amounts and confirm your policy meets them. Some states require $1 million per occurrence; others require $2 million or more.

See our full guide on childcare business insurance for coverage comparisons and how to shop a policy.

How do you set tuition rates and get paid?

Most programs charge weekly or monthly tuition, billed in advance. Setting rates is more art than science, and it starts with research. Call three to five comparable programs and ask their rates for each age group directly.

Check the CCDF market rate survey for your county, which most states publish annually. It tells you what the state will reimburse if you accept subsidy families, and it anchors your private-pay rates too ^[1].

The common mistake is pricing too low to fill spots faster. Underpriced programs can't cover labor, quality slips, and the whole market races to the bottom. If your area supports $350 a week for a toddler slot, charging $275 won't win you loyal families. It wins you families who leave the day a spot opens at the nicer program down the street.

Set up payment before you open. Options:

• Childcare management software (Procare, Brightwheel, HiMama) that handles invoicing and tracks payments
• A simple ACH or bank-draft authorization form
• Square, Stripe, or another processor for credit cards

Decide your late-payment policy and what happens when a family doesn't pay. Get a written tuition agreement signed before the child's first day. Chasing tuition after the fact is one of the most draining parts of this job, and a clear signed contract heads off most disputes.

How do you market a new childcare business and fill enrollment?

Word of mouth is still the strongest channel in child care. Parents trust other parents, and one happy family refers three more. Your first-year job is simple: get those first families in the door and serve them so well they become your marketing department.

You still need to be findable online before word of mouth has time to work. At minimum:

• Claim and complete your Google Business Profile. It's free and puts you on the map for "daycare near me" searches. Fill every field, add photos, and collect reviews the day you open.
• Build a simple website with your rates, ages served, hours, location, and a contact form. A $12/month Squarespace or Wix site is plenty to start.
• List your program on ChildCare.gov's provider locator and your state's childcare resource and referral database ^[9].
• Post in local Facebook parenting groups and neighborhood apps.

For centers, Facebook and Instagram ads targeted by zip code and parenting demographics can pay off. Budget $200 to $500 a month for paid social in your first 6 months and track cost per inquiry so you know what's working.

Stay current on licensing, ratios, and inspection prep, because compliance feeds your reputation. Parents talk. A cited violation or a license suspension will wreck enrollment faster than any marketing win will build it.

For operational guidance past opening day, see how to run a childcare business.

What ongoing compliance requirements do you need to maintain?

Getting licensed is not a one-time event. You'll face annual renewals, periodic inspections (some announced, some not), ongoing staff training, and policy updates every time your state changes its standards.

Most states run at least one unannounced monitoring visit per year for licensed programs. Depending on your state's quality rating system and your violation history, you may get more. The Child Care and Development Block Grant Act of 2014 requires states to conduct at least one unannounced inspection per year for all licensed providers receiving CCDF funds ^[1].

Ongoing compliance usually includes:

• Annual license renewal application and fee
• Continuing education for you and staff (commonly 10 to 24 hours per year)
• Current CPR and first aid certification for all staff
• Current children's files (enrollment forms, immunization records, emergency contacts, physician statements)
• Documented fire and emergency drills (usually monthly or quarterly)
• Ratios held at all times, including staff breaks and unexpected absences
• Reporting any serious incident (injury, illness, abuse allegation) to your licensing office within the required window, often 24 to 48 hours

The paperwork side of compliance is a real time commitment, and most operators underestimate it. Build a filing system and a compliance calendar before you open. That one habit saves you from scrambling ahead of every inspection and renewal deadline.

Frequently asked questions

How long does it take to start a childcare business?

Budget 6 to 12 months from decision to first day. Home daycares often get licensed in 3 to 6 months; centers take 6 to 12 months or longer because the building must pass multiple inspections. Background checks alone can take 4 to 8 weeks. States with mandatory pre-licensing orientation or training add time. Starting the licensing process before you finalize your space is one of the few ways to save weeks.

Do I need a degree to open a childcare business?

Most states do not require a degree to run a licensed family child care home. Center directors typically need at least a Child Development Associate (CDA) credential, and many states require an associate's or bachelor's degree in early childhood education for directors. Lead teacher rules vary. Check your state's minimum standards document, because requirements differ a lot and several states are raising theirs.

How many children can I watch without a license?

It depends on your state. Most states let you care for a small number of related children without a license, but licensing applies the moment you take in unrelated children. The trigger is commonly 3 to 6 unrelated children. A few states require a license for even one unrelated child. Never assume you're exempt; look up your state's specific threshold before you take on any paying families.

Can I start a daycare with no money?

Not really, but you can start small. A home daycare has much lower startup costs ($5,000 to $20,000 in most cases) than a center. Some costs, like background checks and licensing fees, are unavoidable. Grants from the Child Care and Development Fund, local foundations, and USDA Child and Adult Care Food Program reimbursements can offset ongoing costs. A loan or personal savings is almost always needed at the start.

Is owning a childcare business profitable?

It can be, but margins are thin in most markets. Labor typically eats 60 to 80% of revenue. Home daycares with 6 to 10 children can net $20,000 to $50,000 a year depending on local rates. Centers can earn stronger income at scale but carry higher fixed costs and more regulatory overhead. Programs that do well tend to stay fully enrolled, keep staff turnover low, and serve a mix of private-pay and subsidy families.

What is the NAICS code for a childcare business?

The primary NAICS code for child care is 624410, covering child day care services. It applies to both home-based and center-based programs. You'll use it when registering your business, applying for loans, and filing taxes. Some lenders and grant programs use the code to verify your industry. See our guide on the childcare business code for more on how and when it matters.

Do I need a separate space for my home daycare, or can I use my living area?

Most states allow home daycares to operate in shared living spaces, but you must be able to separate and secure off-limits areas like garages, basements without egress, or rooms with hazards. Your usable child care square footage has to meet state minimums. Some states require a dedicated children's bathroom. Review your state's family day care home licensing standards before committing to a layout.

What background checks are required to open a childcare business?

Almost universally: an FBI fingerprint-based check and a state criminal history check for every adult who works in or lives at the facility. Many states also check the state child abuse and neglect registry. Costs run $30 to $100 per person, and turnaround is typically 2 to 8 weeks. Some states require re-checks every 1 to 3 years. Certain convictions, particularly any history of violence or crimes against children, disqualify applicants automatically.

Should I accept childcare subsidy (CCDF) payments?

Accepting CCDF subsidy families widens your enrollment pool a lot, since millions of families qualify for assistance. The tradeoff is added paperwork, attendance tracking, and reimbursement rates that in many states fall below your private-pay rate. Subsidy payments are reliable and steady, though. Many strong programs run a mix: 40 to 60% subsidy and the rest private pay. You must be an approved provider to accept subsidy; enrollment goes through your state agency.

What taxes does a childcare business pay?

A for-profit childcare business pays federal and state income tax on net profits, self-employment tax (for sole proprietors and single-member LLCs), payroll taxes if you have employees, and possibly state and local business taxes. Many states exempt childcare services from sales tax, but not all. The IRS treats a home daycare as a home-based business, letting you deduct a portion of home expenses using Form 8829. Keep detailed records from day one.

Can I buy an existing childcare business instead of starting one from scratch?

Yes, and it's worth considering. Buying an established program gives you existing enrollment, trained staff, and a known cash flow history. The license usually does not transfer automatically; you'll apply for your own, which still takes time but is often faster than a new-site license. The risks include inheriting staff problems, facility issues, or a poor community reputation. See our guide on childcare businesses for sale for due diligence steps.

What curriculum or program model do I need to follow?

Most states do not mandate a specific curriculum, but they do require a written daily schedule and a developmentally appropriate program description in your licensing application. Common frameworks in licensed programs include Creative Curriculum, HighScope, and Reggio Emilia-inspired approaches. If you pursue NAEYC accreditation or join your state's Quality Rating and Improvement System (QRIS), curriculum documentation requirements get more demanding.

How do I handle the USDA Child and Adult Care Food Program (CACFP)?

CACFP reimburses licensed childcare providers for nutritious meals and snacks served to eligible children. Home daycares and centers can both take part. Reimbursement rates in 2024 ran from roughly $0.46 to $2.09 per meal depending on meal type and the child's income eligibility ^[10]. To join, apply through your state's CACFP administering agency. You'll track meal counts, serve meals that meet USDA meal pattern requirements, and keep food service records.

How much working capital do I need before I open?

Enough to cover 6 to 18 months of operating costs, because most new programs take that long to reach full enrollment. Rent, payroll, and insurance keep running while enrollment climbs slowly. For a home daycare, a few thousand dollars of cushion may do it. For a center, plan on $20,000 to $60,000 or more just to cover staffing before revenue catches up.

Sources

1. U.S. Department of Health and Human Services, Office of Child Care: Child Care and Development Fund (CCDF) Program: CCDF sets federal requirements that states must meet, including at least one unannounced inspection per year for licensed providers receiving CCDF funds, per the Child Care and Development Block Grant Act of 2014.
2. California Department of Social Services: Child Care Licensing Program: California requires a license for family child care homes serving one or more unrelated children.
3. U.S. Small Business Administration: Starting a Business: SBA guidance on startup costs and business registration steps applicable to childcare businesses.
4. Internal Revenue Service: Employer Identification Number (EIN): EINs are obtained free of charge from the IRS and are required for business entities that hire employees or file certain tax returns.
5. National Center on Early Childhood Quality Assurance (ECQA): Licensing and Background Checks: State licensing standards commonly require 35–50 square feet per child of indoor activity space and background checks including FBI fingerprinting and state criminal history for all adults in a facility.
6. National Association for the Education of Young Children (NAEYC): Ratio and Group Size Recommendations: NAEYC recommends staff-to-child ratios of 1:3 for infants, 1:4 for young toddlers, 1:6 for 2-year-olds, 1:8 for 3-year-olds, and 1:10 for 4-5-year-olds.
7. National Association for Family Child Care (NAFCC): Insurance Resources: Child care-specific general liability insurance for home daycares typically starts around $400–$1,200 per year; standard homeowner's policies exclude business childcare activity.
8. U.S. Department of Health and Human Services: Child Care Provider Locator (ChildCare.gov): ChildCare.gov maintains a provider locator database where licensed programs can list their services for families searching for care.
9. USDA Food and Nutrition Service: Child and Adult Care Food Program (CACFP) Reimbursement Rates: CACFP reimbursement rates in 2024 ranged from approximately $0.46 to $2.09 per meal depending on meal type and child income eligibility.
10. National Center on Early Childhood Quality Assurance: State Licensing Contacts Directory: Each state has a licensing office that sets and enforces minimum standards for childcare programs; Child Care Aware of America also maintains a directory of state licensing contacts.