Starting a daycare center can be complicated but with the right moves, your dream will be a resounding success. Take it from a daycare owner with a lot of experience under his belt (from business plans to earning extra revenue) – if I could do it, so can you. Let’s dive right in!
Know who’s in charge of daycare regulation
The very first thing to do now that you’re ready to get going (even before finding a location) is to figure out who’s in charge. Your licensing representatives at the town/city and state level are the ones who will help and guide your process in starting a daycare center and sign off on it.
You can also see everything you need to know about starting a daycare in our YouTube video:
Before you start anything on your journey you should find out who those people are and get in touch. Call your city or town government and your state government and find out which levels of licensing you need and verify any and all requirements with them.
Location is a big, (BIG) deal!
You should identify a local need for childcare in the community to know where your daycare is needed. You’re not always going to know everything, even after a lot of research, but there are steps you can take, from word-of-mouth to real estate analysis.
For example …
Let’s take a typical daycare center that might have a capacity 50 kids. If it’s in a neighborhood with only 2,000 kids, that still leaves room for a few daycare centers to run successfully (assuming you estimate about 20-30% of kids will use daycare in your neighborhood).
The truth is there’s a high demand for high-quality daycare centers in many places, from urban to rural.
Tips for choosing your new daycare center location
Pick somewhere close to a main street that’s easy to find. Make sure there’s parking – if required by licensing.You should also consult with licensing if their are requirements for creating a drop-off zone in front of your center.
Another perk of being near a main street isn’t just that it’s easier to get to – it’s also easier for new clients to notice you. If it comes to a split between a better deal or a better location, choose location. Starting a daycare center in a good location pays off, especially when it means less money spent on marketing.
But even if you’re unable to find a great location that will ensure a stream of parents and kids to your daycare, don’t worry. Look into other options for fully booking your daycare such as Hopping In, which allows you to display vacant spots so parents can book drop-in daycare when you need them most.
Let the light in
Another thing that you need to consider is natural light. Check with your daycare licensing representatives about the natural light requirement. If you’re sandwiched between buildings, ask about skylights.
Consider your options
Don’t just look at one location or building and make an offer. Consider a few, even some you’re only mildly interested in. Weigh options and consider important things like the price-per-square-foot and always have an architect who is familiar with daycare requirements review the space prior to signing a lease or a purchase.
Price-per-square-foot: the key to unlocking your daycare empire
When looking at leasing commercial real estate you’ll often be quoted a price per square foot by an agent. That’s all good and well for the agents, but what does that mean for you?
Here’s how it actually works:
Let’s say you get a price of $20 per square-foot. You multiply $20 by the size. So let’s say it’s 5,000 square-feet, that’s $100,000. Then you divide $100,000 by 12. That’s the starting point for the monthly rent.
In this case, your monthly rent starts at $8,333.33. Keep in mind, though, that there’s also a net or gross rate. Gross means the monthly rate in our example includes everything such as the property taxes, building insurance and common area maintenance. A net lease means that in addition to $20 per square-foot, you have to pay your share of the landlords property taxes, insurance and common area maintenance (also referred to as CAM) based on how much of the building you occupy.
For example: If there were 4 equally sized storefronts in the whole building and you leased one space, you would pay 25% of the property taxes, etc… in a net lease.
Granted, sometimes you may pay separately metered utilities or other items privately even under a gross lease, but net leases are still something you should watch out for. While you may think: great I’m at $8,333.33 rent per month, now let’s turn a profit, keep in mind that a net lease type may add an average of $3 per square-foot for taxes, $1 for insurance, $1 for common area maintenance and so on. Now you could be at $25 per square foot and your monthly rate just took a hike to $10,416.
Always be sure when the price is being quoted to ask what it includes!
Square-footage details: an extra twist you might not have thought of that could hurt your business model
Maybe you’re not in the construction business, but starting a daycare center will make you learn the basics.
Let’s do an example of the square-footage requirement: If you can have up to 20 kids in a room each requiring 35-square-feet, that’s 20 times 35. That means you need a classroom of 700-square-feet. Here, the preschool requirement is 35-square-feet per kid and max group size is 20 kids, so that’s why I’m using it as an example. So if you had a 1,000-square-foot storefront you would essentially only have room for one fully sized classroom.
Plus, there’s always going to be square footage you have to use for bathrooms, hallways, office space, and so on. The higher the classroom to overall space ratio the better. You want to use as much of your store front square-footage for classroom space as possible.
In my above example, if you’re planning on having two classrooms of 20 kids you’ll need 1,400-square-feet. If somebody says they’ll lease you a place that’s 1,400 square-feet that’s not going to be doable, because there’s always going to be bathrooms and at least 10-40% of non-classroom space such as hallways, kitchen, etc…
More square-footage surprises
Other things you might not have considered can eat up square-footage within the classroom include the space taken by sinks, water fountains, cot stacks and baby changing tables (which are often required, especially for younger kids). These can take off big time square-footage because they are not considered usable floor space in by some licensors. Check with your local authorities for any room items that may decrease square footage. It’s happened to me and it’s not a great experience, trust me!
The point is this: you need extra breathing room. I recommend at least 10% breathing room (extra space in each room).
Know your demographics, folks
A great place to look up demographic data is on real estate websites, places like Loopnet. These agencies provide super insightful demographic data, such as the number of kids in the area.
Commercial properties generally have the most in-depth info, but residential also can include stacks of useful data. Let’s say there’s 3,000 kids who are younger than 5 and only one daycare within a mile of that. That’s not a ton, and that means that the odds for demand are in your favor.
Additionally, don’t underestimate the worth of your “feel” for a neighborhood. Does it feel like it’s a growing, young community that’s safe, exciting, full of families? Trust your gut.
Consider your pay model when deciding location
Some providers want to accept only private pay, some are fine with accepting subsidies and some accept both.
If you want only private pay, usually a higher-income area is best as that is where you can be confident parents will be able to afford payments.
Middle income areas will usually be a mix of both private tuition and subsidy.
Lower-income areas will be more likely to attract parents to your daycare center who take part in a state subsidy program for childcare.
At the end of the day, the choice is yours so trust your gut again. The important thing is being invested in the business, the community and the relationships you’ll build with parents.
For everything else, consult other options that let you fill your daycare center, offer drop-in care and turn absences into new bookings.
To buy or not to buy…
Deciding whether to buy or lease is up to you. For the purposes of my examples I like to refer to leasing. If you’re buying it obviously can increase the upfront cost but save you a lot on rent.
Let’s say you’re buying a $100,000 building. You’re planning on putting down $20,000. You still have to pay things the renter would have to pay like common area maintenance (landscaping, snow removal, upkeep of any shared bathrooms, lobby areas, elevators, etc.), building insurance, taxes and so on. You’re also paying the mortgage in addition to that flat fee you had to put down.
That’s a lot of commitment to sign up for so it may be best to wait until you have a great feel for the property, and lease until then. You can also look into an option to buy in your lease.
Pay close attention to licensing standards
Always remember to consult your state regulations when starting a daycare center. Here, for example, are my state’s licensing standards for daycares.
These regulations cover just about every detail you’ll need to know for your state licensure. When municipal (city) daycare licensing standards in your town or city are even stricter or more limiting than state standards you should always stick to the side of caution and follow the stricter rules!
There’s more ahead…
Now that we’ve dipped our foot into the water there’s lots more ahead. Read on to Part 2 where I will get into some of the next steps when starting a daycare center, such as finding funding… Next >>
Free daycare income and expense planning tool!
Here’s a free financial budget and startup expense Google Sheet for your daycare to help you plan for income, expenses and profits! TO EDIT: You must select File > Make a copy so you can customize this for your daycare center.
How to start a daycare center table of contents
1: Location and Square-Footage
2: Finding Funding and Calculating Expenses
3: Learn Your Way Around Red Tape and Zoning
4: All About Daycare Center Construction
5: Classroom Signage and Daycare Center Setup Basics
6: Passing Daycare Center Inspection
7: Daycare Center Paperwork for Employees and Kids
Author: Hopping In Blog
Sholom Strick is an expert on the business of running daycare centers and founder of Hopping In, a tool that helps childcare centers and family daycare providers fill unused spots.
To contact him or for media inquiries email s.strick@daycareteam.com
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