Running a daycare can be a very rewarding business. There are at least 635,000 childcare businesses in the United States, ranging from small, home-based businesses to childcare centers serving 100 or more children.
That adds up to a lot of activity: in 2022, the U.S. child daycare industry was worth more than $54 billion.
But with every great opportunity comes startup costs. If you're considering starting your own daycare business, here's what you should know about the expenses involved.
How children’s age affects your daycare costs
One of the biggest factors that will impact the cost of running a daycare is the age of children you'll be caring for. Each state has requirements for the ratios of adults to children at different ages. Generally, the younger the children, the more adult caregivers are required, which means higher payroll costs.
For example, if you're operating a daycare in California, you may have no more than four babies per adult caregiver, or just three babies if your daycare is receiving state subsidies. But you can have as many as fifteen children per adult caregiver if the children are over the age of six.
Typical payroll costs to run a daycare businesses
If you're starting a home-based childcare business on your own, you may not have to pay salaries right away. But as you grow, you will probably need to hire assistant child care providers and substitute teachers.
So how much should daycare salaries and payroll be?
According to the U.S. Bureau of Labor Statistics, childcare workers had a median pay in 2021 of $27,490 per year, or $13.22 per hour.
Data from the most recent U.S. economic census reported that the 28,180 child daycare businesses with less than five employees had an average payroll of just under $40,000. For the 14,903 childcare businesses with five to nine employees, payrolls averaged around $124,000.
Additional daycare expenses to budget for
Salaries and wages are just one factor in the costs of running a daycare center. You also have fixed and variable expenses.
Fixed expenses include things like your physical space and daycare insurance costs.
There are variable costs, like your utilities, transportation, food, cleaning supplies and activity materials.
Then there are one-time costs like furniture, cribs, highchairs and other baby accessories. You'll also need to budget for child-sized drawing tables, small stools, chairs, toys and other kid-friendly equipment.
Even with a home daycare business, you'll need to buy safety equipment and "childproof" interior and exterior spaces. Safety gates, childproof locks, first aid kits, and fire extinguishers are all must-haves.
In addition to the usual toys and art supplies, daycares are investing in technology for both kids and parents. They have sturdy childhood tablets for early childhood education activities and Bluetooth speakers for music. Similarly, some operators have daycare cameras for parents to tune in or smartphones so caregivers can text and send photos.
Here is an average budget for daycare provider expenses for a home-based childcare business serving four to six children:
- Furnishings: $ 2,500
- Equipment: $ 2,500
- Supplies: ($50 per child per month): $2,400 to $3,600
- Water and trash: $1,800
- Phone and electric: $4,000
- Business licenses and fees: $1,200
- Food and beverages: $4,800
- Transportation: $3,600
- Part-time aides/substitutes: $10,000
- Advertising and marketing: $4,000
- Total: $36,800 to $38,000
There will also be costs as your business grows. You'll want to spend a bit of money on marketing. And it's a good idea to set aside money for repairing or upgrading your space.
Costs of running a daycare center in a commercial space
If you're not operating your daycare business out of your home, you'll need to add rental or leasing costs to your fixed costs.
As a small business, you'll be asked to sign a lease for at least 12 months. You'll find that most commercial leases are a little more complex than residential home or apartment leases. Most commercial spaces will require you to have business insurance.
Center-based daycare businesses can accommodate far more children than home-based businesses. Many daycare centers have at least two to three classes of different ages, with eight to 12 children in each.
For a small center-based daycare with 16 children, you’ll want to factor in at least $2,000 a month for your leasing costs — more if you’re in an expensive city.
Don’t forget to factor in extra costs if you want to upgrade your daycare center space with leasehold improvements like child-safe bathrooms, water fountains or kitchen areas.
Claiming daycare expenses on your taxes
If your business is incorporated, you should ask an accountant or registered tax agent to prepare your taxes. Your operating expenses, including salaries and wages, are deductible as business costs. You will pay corporate tax based on your business's profit at the end of each tax year.
If you're a sole proprietor, you can deduct your expenses on Schedule C of your individual income tax return. State laws regarding what you can deduct will vary, but the IRS guides home-based business expense deductions.
For example, say one portion of your home is used exclusively for your daycare business. In that case, you may be able to deduct the cost of that part of your home, including a portion of your mortgage or rent payment.
Protecting your daycare business
There are many challenges in running a daycare, and one of the biggest is that children are unpredictable. If an accident occurs and a child, a worker or someone else gets hurt, you and your business could be named in a lawsuit.
That’s why daycare insurance is so important. Daycare business owners typically purchase a combination of coverage in their insurance package, including:
- General liability. Coverage that helps provide financial protection if you're held responsible for some of the most common accidents that can occur at a business, including property damage and injuries to others besides employees.
- Workers’ compensation. This coverage can help protect you if your employee has a workplace injury or work-related illness.
- Commercial property. This helps protect you if you own your own building, lease property or work from home.
Costs vary depending on the kind of care you provide, the number of children, your location and more. Learn more about the cost and coverage of daycare insurance.
How NEXT protects your daycare business
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