Starting a daycare center can be complicated, but by learning the process from the very first step, you can ensure your dream will be a resounding success! I literally ‘wrote the book’ on daycare business plans, so you can rest assured, I’ve been through this and I know what I’m doing. Let’s dive right in.
First off: 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. 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 know your market well and identify a local need for childcare in the community. 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 …
In a highly-populated city like Chicago I was blessed to know there’s a lot of opportunity out there. But let’s take a typical daycare center that might have a capacity of say 50 kids. That means that even if you’re in a neighborhood with only about 2,000 kids, that still leaves room for a few daycare centers to run successfully at capacity assuming you estimate about 20-30% of kids will use daycare in your target 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 parking is plentiful and nearby (where possible). Consult with local authorities about possible requirements for creating an official drop-off zone with flashing lights in front of your center. Not only is a main street location easier to get to, it’s much easier for prospective customers to notice and get interested in. If it comes to a split between a better deal or a better location, choose location. Honestly, you should be willing to pay a little bit more for a prime location. It will pay off one thousandfold in the end!
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.
Price-per-square-foot: the key to unlocking your daycare empire …
When looking at real estate you’ll often be quoted a price per square foot by an agent. Here’s how this 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. So 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. A net lease means that in addition to $20 per square-foot, you have to pay your share of property taxes. For example: If there were four storefronts in the whole building you would pay 25% property taxes. You’d also be responsible for water bills, utilities, landlord’s insurance, common area maintenance.
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 per month, now let’s turn a profit, keep in mind that a net lease type may add an average of $1 per square-foot for taxes, $1 for insurance, $1 for common area maintenance and so on. Now you have $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 …
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 at 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 only have room for one fully sized classroom.
There’s always going to be square footage you have to use for bathrooms, hallways, office space, and so on. That said, you should aim for the higher the classroom to overall space ratio the better. You want to use 60 to 80% of your store front square-footage for classroom space. In my above example, if you’re 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 20% non-classroom space.
More square-footage surprises
Other things you might not have considered can eat up square-footage. Watch out for sinks, water fountains, cot stacks and baby changing tables in classrooms (which are often required, especially for younger kids). These can take off big time square-footage. 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 under 5-years-old and one daycare within a mile of that. That’s not a ton! This means you can have a good shot at running a successful childcare center.
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? Your gut instinct can tell you a lot.
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 where you can be confident parents will be able to afford payments that you are basing your business model on. 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 it’s all about starting a daycare center that you are fully invested in the business, the community and in building healthy relationships with parents.
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.), insurance, taxes and so on. You’re also paying the mortgage in addition to that flat fee you had to put down. I would wait until you have a great feel for the property and suggest leasing first and try to include an option to buy in your lease.
Pay close attention to licensing standards …
Always remember to consult your state regulations. Here, for example, is 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 for you when you’re starting a daycare center such as where to find daycare funding… Next >>
Here’s a free financial budget and startup expense Google Sheet for your daycare to help you plan for income, expenses and profits!
How to start a daycare center table of contents
1: Location and Square-Footage
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 daycare centers earn more when children are absent.
To contact him or for media inquiries email firstname.lastname@example.org