How to start a daycare business: a complete step-by-step guide

Last updated 2026-07-09

What does it actually take to start a daycare business?

The honest answer: more paperwork than most people expect, less money than most people fear, and a longer timeline than almost everyone plans for.

Child care is regulated at the federal level through the Child Care and Development Fund (CCDF), which sets the baseline states must meet to receive block grant money. The rules that decide whether you open, your ratios, training hours, inspection schedule, are set state by state. There is no single national playbook. You work with your state licensing agency from day one.

Before you spend a dollar, get your state's licensing handbook. Every state publishes one. Search "[your state] child care licensing regulations" and find the .gov result. Download the PDF and read all of it. It tells you the maximum number of children you can serve at each age, the square footage required per child, the health and safety checks your space must pass, and the training you need before you open. Nothing in this article replaces that document.

The universal steps are the same everywhere. Decide on a program type. Write a business plan. Form a legal entity. Secure your space. Get licensed. Get insured. Hire staff if you need them. Enroll children. Each step is below.

Home daycare or childcare center: which is right for you?

This is the first real decision, and it shapes everything after it. A family child care home runs out of a residence, usually one provider who may have an assistant. A child care center is a commercial or dedicated facility with multiple classrooms, a director, and a larger staff.

The National Database of Child Care Licensing Regulations, maintained by Child Care Aware of America, shows most states cap family child care homes at six to eight children total when one provider works alone, and up to twelve when an assistant is present ^[1]. Centers have no state enrollment cap, but they must meet ratios in every room.

Home programs cost less to open (often $1,500 to $10,000 for licensing fees, safety upgrades, and supplies) and move faster. Centers cost far more. A 2023 Child Care Aware analysis found opening a new center runs anywhere from $50,000 to over $500,000 depending on whether you lease, build out, or buy ^[2]. If you are working from home and want to stay small, start with the home route. You can expand to a center later.

Planning a home daycare? Read the home daycare insurance guide early. Most standard homeowner's policies exclude business activity outright, so you will need a separate rider or a commercial policy before licensing wraps up.

One clarification: a dog-focused operation is a completely different license category. See doggy daycare if that is your actual plan.

How do you write a business plan for a daycare?

Write a business plan before you apply for a license or a loan. Banks and the Small Business Administration both require one. Your state licensing agency does not, but the drafting forces you to answer every hard question while you can still change course.

A daycare business plan covers six areas:

1. Executive summary: your program type, target age groups, location, and mission in one page. 2. Market analysis: how many children under five live within three miles, what competitors charge, and whether local subsidized slots are underserved (check your state's CCDF waitlist data). 3. Services and capacity: the ages you will serve, your hours, and the maximum licensed capacity you are targeting. 4. Financial projections: startup costs, monthly operating costs (rent or mortgage share, food, supplies, insurance, staff wages), tuition revenue at 50%, 75%, and 100% capacity, and your break-even month. 5. Staffing plan: your own qualifications, any added staff, and how ratios get met at every capacity level. 6. Marketing plan: how families find you (referrals, your state's child care resource and referral agency, Google Business Profile, social media).

For revenue, the daycare cost article has current market rate data by state and age group, useful when you set tuition and project income. Child Care Aware of America's annual "Demanding Change" report is the best single source for regional cost benchmarks ^[2].

The SCORE nonprofit, an SBA partner, publishes a free daycare business plan template at score.org, and its mentors will review your draft at no charge. Use both.

What legal structure should a daycare use?

Most solo home providers start as a sole proprietor. Zero state filing, zero cost. That is fine to open with, but it leaves your personal assets exposed if a child is injured and a lawsuit follows. A single-member LLC costs $50 to $500 in state filing fees (varies by state) and puts a liability wall between the business and your personal finances. For most home daycares, the LLC is worth it.

Center owners should talk to a lawyer. An LLC still works, but depending on how many partners or investors are in the picture, an S-corp structure can have tax advantages once your net income clears roughly $50,000 to $60,000 a year.

Every structure needs a federal Employer Identification Number (EIN) from the IRS. It is free and takes about five minutes at irs.gov/businesses ^[3]. You use your EIN on tax forms, your business bank account, and your state subsidy enrollment paperwork. Open a dedicated business checking account the moment you have your EIN. Mixing personal and business money makes tax time miserable and muddies your IRS Schedule C or corporate return.

Register your business name with your state's Secretary of State office. Check that the name is not already taken in your state's trademark database. Grab a matching domain and a Google Business Profile at the same time.

What does daycare licensing actually require, step by step?

Licensing is not one step. It is a sequence that usually takes four to twelve months. Here is what most states require, in rough order ^[1].

Pre-application training. Most states want the provider to finish a set number of training hours before they accept an application. Texas requires 24 hours of pre-service training for home providers. California requires a Child Development Associate (CDA) credential or equivalent coursework for center directors. Check this early, because training can take months.

Application and background checks. You, every household member in a home daycare, and every employee in a center must pass a criminal background check. Most states require a state check and an FBI fingerprint check. Expect $25 to $70 per person and a two to eight week wait for clearance.

Health and safety inspection. A licensing specialist visits your space. They check square footage per child, fire exits, smoke and carbon monoxide detector placement, water temperature (most states require it below 120°F to prevent scalding), outlet covers, toxic material storage, and outdoor play space. Fail anything and you get a deficiency list, then correct it and re-inspect before your license issues.

Capacity determination. Based on your physical space and your ratios, the inspector sets your licensed capacity. You cannot exceed this number, ever. Going over it is a violation that can bring fines or revocation.

First aid and CPR. Nearly every state requires the provider and at least one adult present at all times to hold current pediatric first aid and CPR certification. The American Red Cross and the American Heart Association both run in-person and blended courses. Renew every two years.

Issuance. Once you meet every requirement, your license issues, usually for one or two years before renewal.

For how inspections work and what common violations look like, the Daycare costs, licensing, and rules: the complete 2026 guide covers the full compliance picture.

What are the child-to-staff ratio requirements you need to meet?

Ratios are the single most operationally important number in your business. They set how many staff you need at every enrollment level, which drives your labor cost, which is typically 60 to 80% of a center's operating budget.

The National Resource Center for Health and Safety in Child Care and Early Education (NRC) publishes the "Caring for Our Children" national standards. NRC recommends a 1:3 ratio for infants under 12 months and a 1:7 ratio for preschoolers ^[4]. Most states set ratios at or near these numbers. Some run more permissive.

Here is how ratios vary by age group in a typical state licensing framework:

Age group	Recommended ratio (NRC)	Typical state range
Infants (0 to 12 mo)	1:3	1:3 to 1:4
Toddlers (12 to 24 mo)	1:3	1:3 to 1:5
2-year-olds	1:4	1:4 to 1:6
Preschool (3 to 5 yr)	1:7	1:7 to 1:10
School-age (5+)	1:10	1:10 to 1:15

The practical read: serving eight infants means two, and often three, qualified adults on the floor at all times. Hire for your licensed capacity and your peak hours, not for your current enrollment.

How much does it cost to start a daycare?

Real numbers vary this widely because space costs dominate, and space costs swing by market. Here is a grounded breakdown.

A home daycare's startup costs usually include licensing fees ($25 to $500 by state), background checks for all household members ($50 to $300 total), safety upgrades like outlet covers, fire extinguishers, and smoke detectors ($200 to $600), a pediatric first aid and CPR course ($50 to $150 per person), liability insurance ($400 to $1,500 a year for a home policy, see daycare liability insurance), supplies and curriculum materials ($500 to $2,000), and a business bank account and accounting software ($0 to $200 to set up). Total: roughly $1,500 to $5,000 to open, more if your home needs real modifications.

A center plays in a different league. Leasehold improvements alone (commercial kitchen, child-scaled bathrooms, fire suppression, HVAC zoning) often run $50 to $150 per square foot. A 3,000-square-foot center could cost $150,000 to $450,000 in buildout before you buy a single cot. Add furniture, equipment, pre-opening payroll and training ($30,000 to $80,000), licensing fees, and marketing, and a medium-sized center in a mid-cost market lands around $200,000 to $700,000 ^[2].

Child Care Aware of America's 2023 data put the average annual cost of center-based infant care at $15,600 nationally, a rough ceiling on what parents in your market will pay per slot per year ^[2]. Build your revenue model around that.

One underused funding source: CCDF grants and state startup or quality grants distributed through your Child Care Resource and Referral (CCR&R) agency. The COVID-era federal Child Care Stabilization program has wound down, but replacement state programs exist in many places. Your CCR&R can tell you what is open now ^[5].

What insurance does a daycare business need?

You need several layers, not one policy. Here is what most providers actually carry.

General liability insurance covers bodily injury and property damage claims when a child is hurt on your premises. Recommended minimum: $1 million per occurrence and $3 million aggregate. Cost: roughly $400 to $1,500 a year for a home program, $1,500 to $5,000 for a center.

Professional liability (errors and omissions) covers claims that your care decisions caused harm even without physical injury. Some licensing agencies require it.

Commercial property insurance covers your equipment, furniture, and supplies after a fire or theft. Your homeowner's policy almost certainly excludes business property.

Workers' compensation is legally required in most states the moment you hire your first employee. Penalties for skipping it are severe.

Commercial auto is required if you transport children in any vehicle, including your personal car.

For a home daycare, the cleanest fix is often a home daycare rider or endorsement on your homeowner's policy paired with a separate liability policy. The home daycare insurance article walks through how to compare quotes.

Do not skip professional liability. Insurers classify child care as a "habitational" risk, and underwriters have seen a lot of claims. Get covered before your first child walks through the door.

How do you set up your space to pass inspection?

The physical space checklist your inspector uses comes straight from your state licensing agency. Get it early and walk your space with it before you schedule the visit. The common failures are predictable.

Indoor space: most states require 35 square feet of usable indoor space per child, excluding bathrooms, closets, and areas used for adult work. Measure carefully. If your playroom is 600 square feet and 100 square feet is eaten by furniture that cannot move, you have 500 usable feet, which allows roughly 14 children at 35 square feet each.

Outdoor space: most states require 75 square feet of outdoor play space per child. A fenced yard is almost always required. The fence has to hit a minimum height, often 4 feet for preschoolers, 6 feet for certain programs.

Kitchen and food: if you serve food (and you almost certainly will), your kitchen has to pass a health inspection separate from the childcare inspection in many states. Meals have to meet USDA Child and Adult Care Food Program (CACFP) meal pattern requirements if you want reimbursement ^[6].

Sanitation: diaper changing surfaces get sanitized between each use with an EPA-registered disinfectant. A bleach solution (1 tablespoon of unscented liquid chlorine bleach per quart of water) is the standard low-cost option cited by the CDC ^[7]. The daycare cleaning article has a room-by-room checklist you can post in your program.

Sleep safety: if you care for infants, all cribs must meet current Consumer Product Safety Commission (CPSC) standards. Drop-side cribs have been banned since 2011. Every infant goes down on their back on a firm, flat surface with no soft bedding ^[8].

How do you enroll children and get paid?

Enrollment starts with a contract. Your enrollment contract should spell out tuition rates, the payment schedule (weekly, biweekly, monthly), your late fee policy, your deposit, your sick-day and vacation policies, your termination notice requirements, and your photo and video release terms. Have a lawyer review your template once. It is worth the few hundred dollars.

Set tuition at or slightly above your break-even rate. The most common mistake new providers make is underpricing because they feel guilty charging market rates. You are providing a professional service. Use the daycare cost data to find your market, then price within 10 to 15% of the median.

Subsidy programs: CCDF funds child care subsidies for low-income families in every state ^[5]. Once you are licensed, you can usually enroll to accept subsidy payments, often called becoming a "subsidy-approved provider." Reimbursement rates vary by state and often sit below market rates, but they fill slots and pay reliably. Contact your state's CCR&R agency to enroll.

The Child and Adult Care Food Program (CACFP) reimburses you for meals and snacks served to eligible children. The reimbursement is not large (roughly $0.24 to $1.55 per snack or meal depending on tier and meal type as of 2025 rates), but it adds up across a month and offsets food costs ^[6].

Use childcare management software from day one. Procare, Brightwheel, and HiMama automate attendance, billing, and parent communication. The time savings are real, and the audit trail matters if you ever face a licensing complaint.

Want part-time enrollments, which many families need? The part time daycare article covers how to structure schedules and pricing without leaving slots empty and unpaid.

What staff do you need and what must they be qualified to do?

For a home daycare under your state's solo-provider cap, you may be the only staff member. But you still need a substitute or backup caregiver named for the days you are sick. Most licensing agencies ask who your substitute is during the inspection.

For a center, or a large family child care home with an assistant, every staff member has to meet your state's minimum qualifications. These usually include a minimum age (often 18 for lead teachers, sometimes 16 for aides), a background check clearance, a health screening or TB test, and a minimum number of training hours in child development.

Many states are moving toward requiring the Child Development Associate (CDA) credential for lead teachers in licensed centers. The CDA comes from the Council for Professional Recognition and requires 120 clock hours of formal child development education, 480 hours of experience, and a portfolio assessment ^[9]. Most candidates take six to twelve months to finish it.

Directors of licensed centers typically need more: an associate's or bachelor's degree in early childhood education or a related field, plus several years of verified experience. Some states require director credentials through their own professional development registry.

Pay matters more than most new operators admit. The Bureau of Labor Statistics put the median wage for childcare workers at $14.60 an hour as of May 2023, which is not competitive in most markets ^[10]. Want to recruit and keep qualified people? Budget for wages above the median. Turnover in child care is high, and it costs you real money every time you lose a trained employee.

How do you market a daycare and fill your enrollment?

Word of mouth fills most small daycares once you have been open six months with happy families. Getting there takes some deliberate work.

Start with your state's child care resource and referral (CCR&R) agency. They run the referral databases parents search first. Getting listed costs nothing and often generates your earliest inquiries. The Child Care Aware of America network connects families to local CCR&Rs in every state ^[11].

Google Business Profile is mandatory. Claim your profile, add photos of your outdoor space and play areas (never photos of children without releases), fill in your hours, ages served, and tuition range. Ask your first families to leave reviews. A profile with five genuine reviews beats a competitor with zero nearly every time.

Facebook neighborhood groups and Nextdoor are where parents actually hunt for local childcare recommendations. Join as yourself, answer questions helpfully, and let your profile show you are a licensed provider.

School districts and pediatric offices are underused referral sources. Drop a stack of business cards or a one-page flyer at pediatricians' offices near you. Parents ask their pediatrician for childcare recommendations more often than providers realize.

ChildCareComp's compliance toolkit keeps you organized during enrollment season, especially if you are juggling subsidy paperwork alongside private-pay families and need to track which files are complete for licensing.

One thing to avoid: do not open with every slot filled by friends and family at a discount. It is tempting and feels supportive, but it makes shifting to market-rate pricing hard as you grow, and it leaves you underfunded in the early months when every dollar counts.

What are the most common reasons daycares fail or lose their license?

Nobody talks about this enough, so here it is plainly.

The most common reasons licensed daycares lose their license are exceeding licensed capacity, ratio violations (too few qualified adults in the room), failing to finish annual training, criminal convictions or background check failures for household members, and substantiated child abuse or neglect findings ^[1].

The most common reasons daycares fail financially are underpricing tuition, not enforcing the late payment policy (which wrecks cash flow), taking on too many subsidy clients at rates below cost, and opening without a three-month operating reserve.

Fraud is a separate and serious category. Billing subsidy programs for children who are not present, or for hours you did not provide, is a federal crime. Consequences include repayment demands, fines, and criminal prosecution. The minnesota daycare fraud article covers a well-documented pattern of this fraud that ended in multiple federal convictions. Read it as a plain example of what not to do.

The compliance failure that surprises new operators most is paperwork. Your state requires you to keep attendance records, medication logs, injury reports, fire drill logs, staff training records, and background check documentation. An inspector can show up unannounced in most states and ask to see any of these on the spot. Use a binder system or childcare management software and keep it current from day one.

ChildCareComp's compliance tracking tools are built for this documentation layer if you want a structured way to manage it.

Frequently asked questions

How long does it take to get a daycare license?

Most states take four to twelve months from application to license issuance, depending on how fast you finish pre-service training, pass background checks, and clear your space inspection. Some states have a provisional license process that lets you open with a small number of children while your full application is reviewed. Check your state licensing agency's website for current processing times.

How much money do you need to start a daycare at home?

A home daycare typically costs $1,500 to $5,000 to open, covering licensing fees, background checks, safety upgrades, first aid training, liability insurance, and basic supplies. You may need more if your home requires significant modifications to meet square footage or safety rules. Having three months of operating expenses saved before you open gives you a real cushion while enrollment builds.

Do you need a degree to open a daycare?

For a home daycare, most states do not require a college degree, but they do require pre-service training hours (often 15 to 40 hours) and current pediatric CPR and first aid certification. Center directors face higher bars: many states require an associate's or bachelor's degree in early childhood education plus documented experience. Check your state's specific requirements through your licensing agency.

How do I start my own daycare business at home specifically?

Start by downloading your state's family child care home licensing handbook. Then finish required pre-service training, submit your application with background check fees for all household members, schedule your home inspection, secure liability insurance, and get any required food handler permits. Most states let you care for one or two children while your full license is pending, but confirm this with your licensing specialist before accepting any children.

Can I run a daycare out of my house without a license?

Most states let you care for one or two unrelated children without a license, but the threshold varies: some require a license the moment you accept any unrelated child for pay. Operating above the license-exempt threshold without a license is illegal and can bring fines, forced closure, and child protective services involvement. Look up your state's exempt-care threshold before accepting families.

What is the CCDF and how does it help new daycare providers?

The Child Care and Development Fund (CCDF) is the federal block grant that funds child care subsidies for low-income families in every state. For providers, CCDF matters two ways: it funds the subsidized vouchers families use to pay your tuition, and it funds provider support like training grants, quality rating incentives, and startup assistance distributed through state and local CCR&R agencies.

What background checks are required to open a daycare?

At minimum, most states require a state criminal history check and an FBI fingerprint-based check for the provider, household members (in a home daycare), and all employees. Some states also require a child abuse and neglect registry check and a sex offender registry check. Costs run $25 to $70 per person. Results usually arrive in two to eight weeks. Any disqualifying conviction stops your application.

How many children can you watch in a home daycare?

Most states cap a single home provider at six to eight children, including the provider's own children under a certain age. When a qualified assistant is present, the cap often rises to ten to twelve. The National Database of Child Care Licensing Regulations maintained by Child Care Aware of America documents each state's limits. Always verify the current number in your state's licensing handbook, since it changes.

What insurance does a home daycare need?

A home daycare needs general liability insurance (most licensing agencies require at least $300,000 to $1,000,000 in coverage), and your standard homeowner's policy does not cover business activity. You will need either a home daycare endorsement on your homeowner's policy or a separate commercial liability policy. Workers' compensation is required as soon as you hire any employee. Budget $400 to $1,500 a year for a basic home program package.

Can you make money running a home daycare?

Yes, but margins are tight in the early months. A home daycare serving six children at $250 a week each grosses $78,000 a year. After supplies, insurance, food, training, and taxes, net income for a solo provider often lands between $30,000 and $55,000. Accepting CACFP meal reimbursements, enforcing late fees, and holding your rate at market level are the three levers that most affect your bottom line.

Do home daycare providers have to pay taxes on their income?

Yes. Home daycare income is self-employment income reported on IRS Schedule C. You owe self-employment tax (15.3% on net earnings up to the Social Security wage base) plus income tax. The IRS allows home-use deductions under the exclusive-use or time-space percentage method for providers using part of their home. Tom Copeland's "Family Child Care Tax Workbook" (published annually by Redleaf Press) is the most practical guide to these deductions.

What is the Child and Adult Care Food Program and should I join?

CACFP is a USDA program that reimburses licensed child care providers for meals and snacks served to eligible children. Reimbursement rates as of 2025 range from roughly $0.24 for a snack to $1.55 for a meal at the highest tier. Enrollment is free and administered through your state agency or a sponsoring organization. If you serve any meals, joining CACFP is almost always worth the paperwork.

What records does a daycare have to keep for licensing?

At a minimum, most states require daily attendance records, signed enrollment agreements, emergency contacts and medical release forms for each child, medication administration logs, injury and incident reports, fire and emergency drill logs, staff training certificates, and background check documentation. Inspectors can request these records without advance notice. Keep them organized and current from your first day of operation.

Sources

1. Child Care Aware of America, National Database of Child Care Licensing Regulations: Most states cap family child care homes at six to eight children for a solo provider and up to twelve with an assistant; licensing requirements vary by state.
2. Child Care Aware of America, 'Demanding Change: Repairing Our Child Care System' annual report: Average annual center-based infant care cost was $15,600 nationally in 2023; new center startup costs range from $50,000 to over $500,000.
3. IRS, Apply for an Employer Identification Number (EIN) Online: Federal EIN application is free and available online through the IRS.
4. National Resource Center for Health and Safety in Child Care and Early Education (NRC), Caring for Our Children national standards, 3rd edition: NRC recommends a 1:3 infant ratio and a 1:7 preschool ratio as national standards.
5. U.S. Department of Health and Human Services, Office of Child Care, Child Care and Development Fund (CCDF) overview: CCDF provides block grant funds to states for child care subsidies and provider support programs.
6. USDA Food and Nutrition Service, Child and Adult Care Food Program (CACFP): CACFP reimburses licensed child care providers for meals and snacks served to eligible children; 2025 reimbursement rates range from approximately $0.24 per snack to $1.55 per meal at the highest tier.
7. CDC, Hygiene and Handwashing guidance: CDC recommends 1 tablespoon unscented liquid chlorine bleach per quart of water as a standard sanitizing solution for diaper changing surfaces.
8. Consumer Product Safety Commission (CPSC), Safe Sleep and crib safety standards: Drop-side cribs have been banned since 2011; infants must be placed on their back on a firm flat surface with no soft bedding.
9. Council for Professional Recognition, Child Development Associate (CDA) credential requirements: The CDA requires 120 clock hours of formal child development education, 480 hours of experience with children, and a portfolio assessment.
10. U.S. Bureau of Labor Statistics, Occupational Employment and Wage Statistics, Childcare Workers (SOC 39-9011), May 2023: Median hourly wage for childcare workers was $14.60 as of May 2023.
11. Child Care Aware of America, Find Child Care and Resources: Child Care Aware of America connects families and providers to local Child Care Resource and Referral (CCR&R) agencies in every state.