If you enjoy hanging out with kids and want to make a positive impact on their lives, starting a daycare center can be your thing!
But before you get into this rewarding niche, you must figure out how much does it cost to start a daycare.
So how much? Don’t worry; we’ll get there.
This in-depth guide provides all the information you need about daycare startup costs and will help you calculate costs in no time flat.
Sounds interesting? Let’s dive right in.
What is the cost of starting up a daycare?
Starting a daycare center in the United States generally costs somewhere between $11,100 to $22,000. These costs depend on location, local licensing requirements, equipment requirements, and facility and renovation costs. Furthermore, starting an in-home daycare center can help you reduce the initial start costs.
Regarding profit margins, they can be around 15% for daycare centers in the US which is higher than the average for most other industries—making it an attractive and profitable business venture.
Average costs for starting a daycare
Before we dive into details, check out this daycare startup cost checklist. It will help you plan your startup budget and know how much financing you need to get started.
| Item | Costs |
|---|---|
| One-time Expenses | |
| Facility space deposit | $500 to $1500 |
| Play area equipment and supplies | $2,000 to $4,000 |
| Facility renovation expenses | $3,000 to $6,000 |
| Website and social media setup | $200 to $500 |
| Safety and security equipment | $1,500 to $2,500 |
| Business license and permits | $100 to $500 |
| Total one-time expenses | $7,300 to $15,000 |
| Recurring Expenses (Per Month) | |
| Monthly rent or mortgage | $800 to $1,000 |
| Business Insurance | $100 to $200 |
| Marketing and advertising | $500 to $1,000 |
| Miscellaneous expenses | $200 to $500 |
| Professional expenses | $200 to $300 |
| Payroll | $2,000 to $4,000 |
| Total recurring expenses | $4,800 to $8,000 |
| Total | $11,100 to $22,000 |
Use this checklist as a rough estimate to create your startup costs checklist depending on your location, equipment needs, and other requirements.
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Let’s move ahead and understand how you can calculate the daycare startup costs.
How to calculate the cost of starting a daycare business
You now have a list of potential expenses and a rough estimate of your startup costs. Let’s estimate your actual startup costs using these two proven methods.
The first, traditional method involves using a startup costs calculator to estimate the startup costs. However, the second, the Upmetrics method, is an innovative method that uses Upmetrics financial forecasting tool.
Let’s understand both methods so that you can choose one that suits your requirements the best.
The traditional method—startup costs calculator
The calculator includes categories such as pre-trading, website setup, marketing, operations, and people. You can enter the estimated costs in each field and let the calculator estimate the costs for you.
Remember that many startup costs fall under recurring expenses, so cover those costs monthly, quarterly, or annually.
Calculate your startup costs using this calculator.
The Upmetrics method—financial forecasting tool
It is an intuitive and efficient method of calculating startup costs. Using Upmetrics will not just help you estimate startup costs but also help with financial forecasting.
All you need to do is enter your sales, costs, and other financial assumptions and let the tool calculate monthly/quarterly/ and yearly projections for you.
Pro-tip
Check out the financial forecasting tool for accurate financial forecasting. Once you have an accurate estimate of startup costs, you can easily identify funding requirements for your daycare business.
Raising funds for a new startup is certainly a nerve-wracking and time-consuming process, but having a solid daycare business plan can make things a lot easier.
Let’s move ahead and discuss the factors that affect your daycare startup costs.
Factors that affect daycare startup costs
A daycare center isn’t just about renting a facility and starting to enroll children.
The initial cost of starting a daycare facility depends on several critical factors—let’s quickly discuss these factors and how they affect your startup costs.
1. Location
No matter what the business is—location remains the first and most crucial factor affecting the startup costs. Whatsoever.
Whether rent, lease terms, licensing, permits, or employee salaries, almost every expense heavily relies on your business location.
Let’s take an example of employee salaries in two different cities; New York (NY) and Brownsville (TX).
A typical employee in New York earns $86K per year, while one in Brownsville makes just $43K—almost half the amount.
Can you see the difference?
The same goes for licensing and permitting requirements and all the other startup expenses like—facility rent, equipment costs, and professional expenses.
2. Facility costs [purchase or lease]
The space you rent or purchase for your daycare center is definitely going to be your primary business investment.
If you don’t have enough capital to invest, you can start from home—by turning your home into an in-home daycare center. We’ll discuss this later on in the article, so relax.
But, if you plan to lease a property, you must put a reasonable budget aside. The rent for office spaces can vary depending on the size and location of the property.
Looking at the average price per square foot for offices and retail spaces, was around $18.09 in the United States in 2020.
Remember, it’s an average price—the lease price in metro cities like Boston and California can go way beyond the average rates.
You also have the option to purchase office space. However, it requires some serious budget to invest in. So leasing or renting a space would be a fair call.
3. Furniture and renovation
Whether you start an in-home daycare facility or rent a dedicated space—you must invest in furnishing to prepare it for operation.
You need to furnish and renovate the place in a way that appeals to children and reflects their interests. After all, it’s for them only.
Of course, you may not need to spend much on interior design and furniture if you take over an existing daycare center or rent a place with a similar business model.
But If furnishing it from scratch, you must consider adding all the necessary furniture to your facility, like child-sized tables and chairs, nap mats, and shelving units.
Your renovation costs will depend on your budget and the present-day condition of the place. But you can expect around $3,000 to $6,000 to spend on renovating the facility.
4. Play area equipment and supplies
How can a daycare center be a daycare center without any toys or play equipment? These expenses can add up depending on the size and requirements of your center.
Here are a few must-have play area equipment and supplies for a daycare center:
- Climbing structure—jungle gyms, playhouses, climbing frames, etc.
- Soft play equipment—foam blocks, tunnels, balance beams, etc.
- Cooperative games—board games, puzzles, building blocks, etc.
- Outdoor play equipment—trampoline, swings, sports equipment, etc.
There is a lot you can spend on play area equipment and supplies, so make sure you know your budget, prioritize what you need, and make wise purchasing decisions to stay in your budget bracket.
As a small daycare facility, you can expect around $2,000 to $4,000 on play area equipment and supplies.
5. Safety and security equipment
The safety and security of their child is a top priority for every parent. So when you start a daycare center for their children, you must make it a top priority for you too.
Your daycare center may require a CCTV camera, door controls, a call station at the entrance, fire extinguishers, and intrusion alarms as safety and security equipment.
As you’re just starting up, you may not be able to invest in all this equipment. Still, you must invest around $1,500 to $2,500 on basic safety and security equipment like surveillance cameras and fire extinguishers.
6. Professional expenses
Additional expenses like professional service fees and licensing and permitting costs can add extra expenses to your startup costs.
But these are the essentials to ensure compliance with regulations, maintain accurate financial records, and keep up with legal developments.
Professional expenses for a daycare center usually include professional services fees, licensing and permitting costs, accounting and legal services, facility costs, and professional development expenses.
These expenses can vary significantly, with various factors affecting them.
For example, legal and business consultants usually offer their services hourly, and these consulting services typically cost between $45 and $150 per hour.
7. Employee salaries and benefits
Every successful business needs dedicated and hard-working employees. And your daycare center is no exception.
Determine the number of teachers, educators, and support staff you may need to hire, the benefits you will provide, and the training they require.
The federal minimum wage for employees in the US is $7.25 per hour, whereas the average salary for daycare staff is $14.31.
So make sure your payroll structure complies with federal and state government regulations and your budget allows you to spend on quality staff.
Conducting your own research can help you better estimate employee salaries and payroll expenses.
8. Marketing and advertising expenses
Spending on marketing and advertising may seem like an extra expense, but it’s well worth it because they help you get the word out about your business.
As these costs don’t influence your business operations, you may choose to spend depending on your budget—and of course, social media’s always there for free marketing.
If you plan to spend on marketing, you may expect to spend around $500 to $1000 a month through marketing channels like—social media, print marketing, networking and referrals, content marketing, pay-per-click advertising, etc.
9. Business Insurance
Financial consequences and potential mishappenings are inevitable for any business. An adequate business insurance policy can cover the costs associated with property damages and liability claims—and help you save your assets from wiping out.
Here are some of the must-have business insurance types for daycare:
- General liability insurance
- Professional liability insurance
- Cyber liability insurance
You can expect somewhere between $1000 to $2000 to spend on business insurance for your daycare.
Tips for reducing daycare startup costs
We learned about the factors that affect your startup costs. Now let’s explore some tips that can help you reduce these expenses.
1. Start an in-home daycare center
Let’s be realistic—renting or purchasing a place and renovating it can be expensive while starting on a limited budget. So starting an in-home daycare center can be a cost-effective alternative for you.
This way, you won’t have to rent a place, just purchase the necessary furniture and equipment, and you’re ready to go.
2. Partner with parents
It’s normal for daycare centers to partner with parents to get the necessary supplies for their children. These supplies may include diapers and wipes, extra clothes, personal care items, blankets, and toys.
Sourcing these supplies from parents can help you reduce your equipment and supplies costs.
3. Be a smart buyer
Being a smart buyer means understanding your budget and business needs and making informed purchasing decisions. You should compare prices from different sources before making a large purchase and negotiate the prices when necessary.
4. Connect with other daycare service providers
This may not sound like a cost-reducing tip, but it certainly is. Connecting with other service providers can help you learn more about how they efficiently operate their daycare and how they reduce initial costs.
It’s easier than ever to connect with new people; you can use Google search and social media platforms to find the local daycare communities.
5. Purchase used equipment and supplies
Purchasing used equipment and supplies is one of the easiest ways to reduce your initial investment. It’s best if you can find an existing daycare center planning to shut down its business operations, so you can simply procure all the necessary equipment and supplies.
The used equipment and supplies may include—child-sized furniture, storage units, and play area equipment.
6. Explore the National School Lunch Program
Social media marketing is the easiest way to get the word out about your business—for free. So, instead of spending a fortune on traditional marketing, you should consider embracing social media to reach your target audience.
That way, you’re not spending hundreds of dollars on printing pamphlets but also reaching your audience. And you can always use paid social media advertising to maximize your reach.
7. Embrace social media marketing
Social media marketing is the easiest way to get the word out about your business—for free. So, instead of spending a fortune on traditional marketing, you should consider embracing social media to reach your target audience.
That way, you’re not spending hundreds of dollars on printing pamphlets but also reaching your audience. And you can always use paid social media advertising to maximize your reach.
Conclusion
And it’s a wrap-up! Starting a daycare or any business requires thoroughly understanding your budget, primary costs, and financing requirements—and I hope this article helped you better understand that.
So what’s next? It’s time for some calculations.
It’s time to estimate the actual costs to start a daycare in your region and start budgeting. Happy budgeting.
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