Your Step-by-Step Guide to Opening a Daycare

photo of young kids playing at a daycare

You’ve been caring for kids since you can remember. Healthy snacks, educational games and nap time routines — you've got ‘em all down. But now you're ready to take the next step. You want to open a daycare business and the timing finally feels right.

If you search “how to start a daycare,” you’ll probably get an avalanche of information about licensing requirements and growing concerns about the childcare crisis in the U.S.1

Starting a daycare business could well be considered an act of goodwill in your community—that’s how short most areas are on good childcare providers. There are lots of hurdles to jump when you want to open your own business, but people will always need safe and nurturing places for their kids.

Why we need more childcare providers

Childcare businesses are an essential service.

There’s reason to think the need will only increase. In 2019, about 40% of the infants in the U.S. had at least one weekly childcare arrangement, according to the National Center for Education Statistics (NCES).2 That figure jumped to 55% for toddlers and up to 74% for preschoolers.

Since the pandemic began, steady need for childcare has collided with a nationwide shortage. 1 in 3 working families struggle to find the childcare they need.3

The number of single-parent homes continues to rise, and more dual-parent homes require dual salaries. These families need childcare providers who are caring, confident and competent—which is where you come in.

Opening up a daycare business in your area can help meet these needs while giving you a chance to impact the lives of young ones. But you already know starting a profitable daycare business takes more than good intentions and a big box of animal crackers.

“You have to be prepared to be an entrepreneur,” Lindner says. “If you decide to go into childcare, do not go because of the possibility of making lots of money and working short hours.” Opening your own daycare takes effort and investment. But for the right person, this work can be the perfect fit. 

To find out if that’s you—read on! We connected with early childhood education experts and gathered the research on everything from daycare licensing requirements to financial planning to give you a map forward.

How to start a daycare business in 11 steps

Danielle Lindner, founder and CEO of The London Day School used to teach kindergarten. When she realized how bored her kids were getting at daycare, she had a revelation: “Hey, I'm a teacher, I could create something better for them!”

She says research, preparation and adherence to state regulation are the biggest differences between a profitable daycare business and one that closes its doors. Follow these steps to ensure you don't fall into that second category.

Step 1: Get educated in early childhood education (ECE)

Demonstrating your credibility is huge in the daycare business. Even families who are desperate for childcare will make careful choices about who to trust with their treasured children. An early childhood education degree is a great place to start.

A degree is more than a piece of paper. It's about gaining knowledge and experience from professionals, building a network and learning from peers.

It's about learning how to make decisions that will benefit your business down the road and attract those who are looking for your services. As you start your journey to opening a daycare, don't overlook this first step.

Step 2: Look into daycare licensing requirements

Maybe you started small—occasionally watching neighborhood kids. Maybe you are looking for a way to work while caring for your own children. But opening a daycare involves some important legal steps. Before you do anything else, look into the laws and regulations for a childcare business.

Lindner says her first move was contacting her state's Department of Children and Family Services (DCFS) to learn the regulations for childcare providers. “Do whatever they need you to do and don't cut corners,” she says. “You might think you're saving money up front, but it will cost you in the long run.”

To obtain a license, you may need a current CPR certification, an unblemished driving record and other documents that demonstrate your commitment to children. Call the DCFS in your area before you start investing in remodels, equipment or insurance.

“I used my licensors as resources,” says Alise McGregor, owner of Little Newtons Early Childhood Education Centers. Ask as many questions as you can when you take a step like licensing or looking into child care regulations. The people on the other end of the line can be a huge help.

For more details on what getting a child care license involves, check out "Child Care Licensing: Does Obtaining a License Really Matter?"

Step 3: Research other daycare centers in your area

Spend at least a few days looking into other daycare centers or in home daycare businesses in your county. Look into things like:

  • What do they charge?
  • What type of schedule do they offer?
  • What policies do they have around extreme weather, emergencies or late pick-ups?
  • Where are they marketing their services?
  • What are they doing to appeal to families?

If you are comfortable with spontaneous conversation, you could also reach out to another child care business other daycare centers or in-home daycare businesses and ask their owners for tips. (This could also help you navigate local license requirements.) Early childhood educators tend to be kind people who might be willing to share and network with you—especially if you are located far enough away to avoid competing for the same clientele.

Networking like this can benefit your business in many ways. If other local daycare businesses have reached their full capacity, they could refer potential clients your way.

Step 4: Create a daycare business plan

Plans are a must for anyone looking to own a small business. It's important to remember you're not being paid in hiccups and hugs.

“Create a budget and a business plan,” Lindner says. She recommends relying on the expertise of friends whenever possible, and at least downloading a free template to fill out what you can.

You will use your business plan through the years to stay true to your mission, according to Lindner. “When we first started our business, we thought that it would be great to offer pre-cooked meals to parents at pick up,” she recalls. But they soon realized they would spread themselves too thin trying to be a restaurant as well as a child care provider.

“You have to remember who you are and stay true your mission and aspirations. Don’t try to be too many things to too many people.”

Step 5: Establish a budget for your business finances

Like any other entrepreneur, you need to have a financial plan. Start by considering costs:

  • Do you plan to hire an employee?
  • Do you need to expand a room in your home?
  • Are you renting space in a building?
  • How much will you set aside for insurance, inspections or legal advice?
  • Do you need to purchase bedding? Additional toys? Safety equipment?

If you are converting an existing building into a space for children, reach out to your local government to ask for direction on the regulations. “The challenges we faced converting our building to child care focused mainly on making sure that all of the many rules and regulations around buildings, rooms and areas used for young children were properly approved and certified by the state and town government,” Lindner says.

When you have an estimate for your costs, create financial goals. How long might it take you to become financially solvent? How many clients do you need to remain stable? It's worth doing some research on small business finances to help you set your expectations.

Also, don’t underestimate the cost of licensing, inspection and zoning. Linder suggests adding an extra 20 to 30 percent to your overall budget as a buffer, just to be safe. That can come in handy when you discover you need to put up a gate or add a fire extinguisher. Getting a grip on your business expenses can help you make plans around what to charge for your services.

“There isn't a part of the business that I don't understand,” Mcgregor says. “That is crucial to running any business.”

Step 6: Research childcare tax credits

If you're planning to start an in-home daycare, you may be able to claim a tax deduction on spaces used for businesses purposes. This can be the case even if the space doubles as your family room when your tiny clients go home for the night. This is a simple yet wonderful way to help cut costs.

Accountants who have experience serving small businesses can also be a lifesaver here. Consider paying a professional to handle your taxes and advise you on things like a business bank account and qualified deductions.

Step 7: Seek out early childhood education funding and grants

Even if you start small, opening your own daycare will involve start-up costs. But there are grants available to help you with those expenses. The U.S. Office of Child Care reports that they've supported 8 out of every 10 licensed child care programs in the country!4 It's well worth looking into for the chance of some supportive funding.

Look into your state's Child Care and Development Fund Administrators as well.5 These official state organizations exist to help budding child care centers, early childhood education providers and young children. They can guide you toward resources and potential funding options.

Besides being a boost to your business, a child care grant is another way you can reassure prospective families that you know your stuff. (This kind of grant is also a great reason to get licensed, even if your area allows exceptions.)

Step 8: Decide what will make your budding daycare business special

What do you think children in daycare need? What will set you apart from other child care providers in your area? If you did your research from step 4, you'll already have a good idea of what other local providers are offering. This can help you brainstorm your own daycare angle.

“Just because kids need to be watched for seven hours a day, doesn’t mean it’s babysitting,” Lindner says. “That mentality is bad for kids and providers. Offer more than just keeping them alive.”

If your area has lots of healthcare professionals, for example, maybe offering care at unusual hours would give you an edge. Would a vegan, halal or kosher menu for the kids be appreciated? Do you have a great outdoor space you could promote to families?

You could also consider your own passions here—maybe you love music or astronomy and want to theme your daycare around that. Put your idea in your business plan. Have fun with it!

For Lindner, it all came down to curriculum. “I really wanted an educational environment, and I couldn't find a place like that in my area. I decided to focus on STEM.” Do your research and be sure that something — location, business hours, menu or services provided — sets you apart.

Step 9: Create a childcare contract

Once you determine the details, write up a contract that clearly outlines what you will (and won't) provide and your expectations for your clients. Here are some important questions to get you started:

  • What ages do children need to be to attend?
  • What time do parents need to pick up their children?
  • Are there consequences for being late?
  • What services will you provide and what items are parents responsible for? (e.g., you'll provide formula, but they provide diapers.)
  • What is your policy for sick children?
  • How many days off will you take? Are those days paid?
  • How will you handle late payments?

You can find several online resources to help you write your own child care contracts as well as childcare contract templates. Alternatively, a childcare attorney can advise you on the elements of your contract.  Whether you seek legal advice or write it yourself, complete the contract before seeking clients.

Step 10: Market your child care business

Imagine you are a parent in your area looking into daycare or early childhood education. Where would you go? Would you look for yard signs? Would you go to Google maps or search for daycare businesses in your city? Are there local bulletin boards, social media groups or business registries to post on?

Make the smart financial decision to find free or low-cost marketing options at first. Get the word out and stay on top of where your information lives online (make a spreadsheet) so you can make updates when you officially open or if you change hours or contact details.

“Set up a Facebook® page that says your business will be coming soon," Lindner says. "Tell everyone you know. Make a website and get some pictures on it.” She recommends keeping things local and targeted to your potential clients. She advertised her business in a local family magazine and wrote a press release for some of the local newspapers.

Post flyers for your business in local libraries, coffee shops and grocery stores. Utilize the inexpensive advantages that social media sites can offer. Then do what you can to make your business look professional and ready.

When people came to see Lindner’s space, they were welcomed by walls covered with children’s artwork. “I used everything my children ever made,” Lindner laughs. “But it worked. Clients could visualize it.”

Step 11: Get people in the door

Even though it may feel counter-intuitive, Lindner recommends giving a few months of free tuition to some parents you know. “No one wants their kid to be the first kid at a new daycare,” she explains. “Get people in the door, encourage clients to spread the word and thank people for every reference they give you.”

McGregor has learned from her three centers that word of mouth from happy clients is the real key to success. If you’ve cared for children in the past, ask for testimonials from parents and post them online. Highlight your experience and display your credentials and licenses. Do whatever you can to get those first clients through the door. Sacrificing some profit up front is worth it to build a lucrative business.

Take the first step towards opening a daycare

Opening a daycare can be scary. There's no easy blueprint for success, but following these straightforward steps will help get you off to a great start. The key is to stay motivated and remember why you're doing it.

“You really need to look inside yourself and see if this is a commitment you are willing to make,” Lindner says. “Do you have the background in teaching and early childhood education that lends itself to the serious business of educating the young child?” At the end of the day, this is a business for people who are passionate about children and families.

If that sounds like you, you might find this work extremely rewarding. “There are great ups and downs,” Lindner says. “But you're making your vision come alive!”

Now that you know what it takes to become a childcare business owner, look into early childhood education. These programs will not only cover important topics in early child development, they can also be a resource to help you through all these steps in opening a daycare.

Visit our Early Childhood Education degree page to learn how the curriculum can help set you up for success as a childcare provider.

1Leonhard, Megan. The childcare crisis poses a $122 billion economic threat to the U.S.—and the long-term consequences could be even more dire, Fortune (2023). https://fortune.com/2023/01/30/childcare-crisis-poses-a-122-billion-dollar-economic-threat/
2FAST FACTS: Child Care, National Center for Education Statistics (2021) https://nces.ed.gov/fastfacts/display.asp?id=4
3Kamenetz, Anya and Khurana, Mansee, 1 in 3 working families is struggling to find the child care they desperately need, National Public Radio (2021)
https://www.npr.org/2021/10/19/1047019536/families-are-struggling-to-find-the-child-care-they-desperately-need
4ARP Child Care Stabilization Funding State and Territory Fact Sheets, OFFICE OF CHILD CARE: An Office of the Administration for Children & Families (2022) https://www.acf.hhs.gov/occ/map/arp-act-stabilization-funding-state-territory-fact-sheets
5State and Territory Child Care and Development Fund Administrators, OFFICE OF CHILD CARE: An Office of the Administration for Children & Families (2023) https://www.acf.hhs.gov/occ/contact-information/state-and-territory-child-care-and-development-fund-administrators

Facebook is a registered trademark of Meta Corporation.

EDITOR’S NOTE: While the term “daycare” is commonly used, many early childhood educators prefer to use other terms to better reflect the professionalism of the field. Our article, “Childcare vs. Daycare: What’s the Difference? (And Why It Matters)” explains this in further detail.

This article was originally published in 2015. It has since been updated to include information relevant to 2023.

The Early Childhood Education programs at Rasmussen University are not designed to meet, and do not meet, the educational requirements for licensure to teach in public preschools, or kindergarten, elementary, or secondary schools in any state. A bachelor’s degree from a state-approved college or university and a state teaching license are typically required to work as a teacher in a public school, and in private school settings. The Rasmussen University Early Childhood Education programs are not approved by any state agency that licenses teachers. States, municipalities, districts, or individual schools may have more stringent licensure requirements and other standards. Childcare facilities and the states in which they are located establish qualifications for staff that work with children, and often implement guidelines regarding age, education, experience, background, and professional development. Before enrolling, it is important to understand all of the licensure eligibility standards for a desired career by consulting the appropriate state and school/facility requirements.

About the author

Brianna Flavin

Brianna is a senior content manager who writes student-focused articles for Rasmussen University. She holds an MFA in poetry and worked as an English Professor before diving into the world of online content. 

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