How to Start a Daycare Business

Do you love caring for children? Does spending your day finger painting, reading picture books, and playing outside sound like something you'd enjoy doing every day? Then opening a daycare might be the right move — and the timing is decent. The U.S. child care market was valued at roughly $59.87 billion in 2023 and is projected to grow to $88.22 billion by 2033, a 4.3% annual growth rate, according to Towards Healthcare. Demand is real: working parents will always need somewhere safe for their kids during the day, and that need doesn't disappear when the economy wobbles.

But this guide won't sugarcoat the hard parts. Childcare is a low-margin, labor-intensive business with real regulatory teeth, and the insurance market for it has gotten noticeably tighter in the past two years. This post walks through what it actually costs to start, what regulators require, what catches first-time owners off guard, and the concrete steps to get from idea to open doors.

Is Daycare Ownership Right for You?

If you're weighing whether to actually do this, these are the questions worth sitting with before you sign a lease or file paperwork.

How much does the schedule really demand?

A home-based daycare usually means an early start (many open by 6:30 or 7 a.m.) and a day that doesn't end when the last child leaves, since cleaning, prep for tomorrow, and parent communication happen after hours. If you have your own kids, you'll be balancing their needs with a room full of other people's children for 9-10 hours a day, five days a week.

Can your home (or space) actually meet licensing standards?

Every state sets minimum square footage per child, both indoor and outdoor, along with fire safety and evacuation requirements. If you belong to a Homeowners' Association, check your CC&Rs before you plan around a specific enrollment number — HOA rules can cap how many children you're allowed to care for regardless of what your state license would otherwise permit.

Are you prepared for the margin structure?

Labor typically represents 60-80% of a childcare provider's total operating costs, and that's not really something you can optimize away — it's a direct function of state-mandated staff-to-child ratios. Most for-profit childcare facilities operate on margins of less than 1%, according to the U.S. Department of the Treasury. If your business plan assumes fat margins, revisit your assumptions.

Can you handle being the “administrative everything”?

Between licensing paperwork, parent contracts, billing, and food program compliance (more on that below), the paperwork load is heavier than most first-time owners expect. Many home daycare owners outsource what they can — a bookkeeper, an assistant for newsletters and enrollment communication — rather than trying to do it all themselves.

Are you okay with thin, insurance-exposed margins?

Liability coverage for childcare has become harder to find and more expensive to keep. If a claim, a licensing citation, or a carrier's decision to stop writing childcare policies could sink your plans, you need a cash cushion and a real conversation with an insurance broker before you open — not after.

How Much Does It Cost to Start a Daycare?

A licensed, home-based daycare caring for eight children can launch on roughly $10,600 in one-time startup costs, according to an itemized cost worksheet from Self-Help Credit Union, a nonprofit community development lender that finances childcare businesses. That figure includes a 15% contingency and three months of working capital — real budget items first-time owners often forget to plan for. A commercial center costs dramatically more once you add a lease, staffing, and build-out.

For a home-based daycare specifically, that Self-Help example breaks down to roughly:

• Educational supplies and equipment (toys, books): around $575
• Furniture, fixtures, and improvements — fencing, indoor furniture, outdoor play equipment: around $4,830
• Administrative expenses — licensing, insurance, legal/accounting fees, professional development (CPR, etc.): around $475
• Working capital (3 months, to cover costs before enrollment ramps up): around $2,790
• Contingency (15% buffer): around $1,390

For financing, the SBA's microloan program — sized for small businesses and even nonprofit childcare centers — lends up to $50,000, with the average microloan running about $13,000, which lines up well with a home-based daycare's actual needs. If you're building a commercial center instead, the SBA's larger 7(a) and 504 loan programs can finance equipment, leasehold improvements, and real estate up to $5 million or more — but licensing, staffing, and insurance costs scale up dramatically along with the size of the facility.

Whichever path you choose, budget for several months of operating costs before you count on enrollment revenue to cover your bills. Licensing alone commonly takes six to 12 months from application to approval (more on that below), and enrollment rarely starts at full capacity on day one.

What Startup Costs Catch People Off Guard?

These are the line items that tend to blow past what first-time owners expect:

Liability insurance premiums are rising fast, and coverage is getting harder to find. In a 2024 NAEYC survey, 80% of childcare providers reported their liability insurance costs increased over the past year, and 13% of center-based programs saw increases of $10,000 or more. One Louisiana provider told the Bipartisan Policy Center that “from January 2024 to January 2025, all of our insurance premiums increased, and our liability increased by 64%.” Some insurers are declining to write new childcare policies at all, or capping the number of locations they'll cover.

A licensing citation can quietly raise your insurance costs later. Providers report that underwriters are pulling state licensing inspection reports when deciding whether to renew or how much to charge — so a minor deficiency noted during a routine inspection can follow you into your next insurance renewal.

The licensing timeline is longer than people plan for. Between application review, background checks, and facility inspection, licensing can take six to 12 months depending on your state and how quickly you supply documentation — a delay that pushes back your first tuition dollar while your other costs (rent, insurance, initial supplies) are already running.

Food program paperwork and reimbursement timing. If you plan to provide meals, the Child and Adult Care Food Program (CACFP) reimburses eligible providers for meals and snacks — but reimbursement isn't instant, so you'll be covering food costs out of pocket before that revenue comes back.

Substitute coverage and staff turnover. Meeting your state's ratio requirement isn't optional when a staff member is sick — you need a plan (and often a real budget line) for substitute coverage, since a single absence can force you to turn away children for the day if you can't legally maintain ratio.

What Licenses and Permits Do You Need?

Licensing requirements vary significantly by state, so the first concrete step is contacting your state's child care licensing agency directly rather than assuming your neighbor's state rules apply to you.

In California, family child care homes are regulated by the Department of Social Services' Community Care Licensing Division. You'll attend a mandatory (nonrefundable-fee) orientation, submit a full application packet, and pass a pre-licensing home inspection before you're approved. Annual licensing fees for a small family day care (1-8 children) run $73, while a large family day care (9-14 children) runs $140, according to CDSS's official fee schedule — modest compared to the six-figure insurance and build-out costs above, but the application and orientation fees are non-refundable, so don't sign up before confirming you meet the qualifications.

In Texas, child care operations are regulated by the Health and Human Services Commission's Child Care Regulation division, which sets minimum standards covering staff-to-child ratios, background checks, training hours, and facility requirements, and investigates complaints against existing operations.

Across most states, expect licensing to touch on the same handful of categories:

• Physical space — minimum square footage per child, indoors and outdoors, by age group
• Health and safety — staff health screenings, immunization records, posted evacuation plans, and documented fire/emergency drills
• Staff qualifications — background checks, CPR/first aid certification, and often a set number of annual training hours
• Staff-to-child ratios — typically stricter for infants (often around 1 caregiver per 4 infants) and looser as children get older, though the exact numbers vary by state
• Insurance — general liability at minimum, with many states requiring or strongly recommending abuse/molestation coverage specifically, since standard general liability policies commonly exclude it

Also check your Homeowners' Association bylaws if you're planning a home-based daycare — an HOA can cap your enrollment below what your state license would otherwise allow, and that limit isn't something a state license can override.

Once you've read your state's requirements, make an appointment with a licensing specialist to walk through the application before you commit to a location or a target enrollment number.

How Do You Actually Start a Daycare Business?

1. Research your state's licensing requirements

Contact your state's daycare licensing agency first, before you make any other decisions. Not all states require a license for very small operations (many only trigger licensing requirements once you're caring for five or more children), but almost every state requires at least a registration. Knowing your state's thresholds will shape everything else — your target enrollment, your space needs, and your budget.

2. Map the competition and the gap in your market

Compile a list of daycares in your area — their enrollment numbers, ages served, hours, and tuition. Ask where the gap is: is there a glut of full-time care for ages two to five during standard weekday hours, but nothing for infants, overnight care, or weekend shifts? Identifying an underserved niche makes your daycare more resilient than competing head-on for the same families everyone else is chasing.

3. Validate your concept and build your business plan

Turn your idea into a real plan: how many children, what age range, what hours, what philosophy (Montessori, play-based, Reggio Emilia, or your own approach). LivePlan's business plan builder can help you organize this into a document you'd actually hand to a lender or an insurance broker, rather than keeping it in your head. Our sample daycare business plan is a useful starting template if you're not sure how to structure it.

4. Build a realistic financial forecast

Given how much labor and insurance eat into margin in this industry — 60-80% of operating costs and razor-thin (often sub-1%) profit margins industry-wide, per the U.S. Treasury — don't guess at your numbers. Build a forecast with a real runway to break-even, insurance costs that may rise year over year, and enrollment that starts well below full capacity. LivePlan's financial forecasting tools let you model different enrollment and staffing scenarios side by side, so you know your break-even point before you're relying on it to make payroll.

5. Secure licensing, insurance, and any required permits

Submit your license application, complete your background checks and required training, and pass your facility inspection. In parallel, talk to an insurance broker who specializes in childcare — given how fast premiums have moved recently, get quotes early and build the actual number into your forecast rather than an estimate from a few years ago.

6. Set up your space and source equipment

Whether that's home modifications or a full commercial build-out, this is where the bulk of your one-time costs land: cribs, child-sized furniture, safety equipment, outdoor play structures, and (if you're serving meals) kitchen equipment that meets your state's food safety requirements.

7. Set your tuition and enrollment policies

Look at what comparable daycares in your area charge, then build in your own numbers: the average weekly cost of daycare nationally is around $332, though toddler care runs somewhat less and rates vary significantly by region, according to Care.com's 2026 Cost of Care Report. Decide on your payment schedule, late fees, and whether you'll charge a one-time enrollment fee to cover paperwork for each new family.

8. Draw up parent contracts and health/safety policies

Create a signed agreement covering payment terms, late pickup fees, and your sickness and inclement weather policy, along with intake forms for allergies, medical conditions, emergency contacts, and pickup authorization.

9. Market your daycare and open enrollment

Word of mouth fills a lot of home daycare waitlists without much marketing spend at all, but don't count on that alone. Put up flyers locally, set up simple social pages, and lean on testimonials from any families you've already cared for informally — referrals are the strongest channel in this business.

Ready to put real numbers behind these steps? Start your financial forecast before you sign a lease or submit your license application.

Sources and Helpful Resources

• Towards Healthcare — U.S. Child Care Market Size
• U.S. Department of the Treasury — The Economics of Childcare Supply
• Self-Help Credit Union — Start-Up Costs for In-Home Child Care Worksheet
• U.S. Small Business Administration — Microloans
• U.S. Small Business Administration — Child Care Business Development Support
• Bipartisan Policy Center — Child Care Providers' Challenges in Accessing and Affording Liability Insurance
• California Department of Social Services — Licensing Fees
• California Department of Social Services — Family Child Care Home Licensing Information
• Texas Health and Human Services — Child Care Regulation
• Care.com — 2026 Cost of Care Report
• USDA Food and Nutrition Administration — CACFP Family Day Care Homes