How to Start a Daycare Business: Discover the 7 Big Mistakes Most New Daycare Owners Make & How to Avoid Them

When you decide to start your own child care business, what does it take to be successful?

Obviously, you should have a deep & passionate desire to take care of children, a huge amount of patience, and the ability to juggle several tasks at once (such as warming a bottle while helping toddlers with an art project).

But as if that isn’t enough, there are many things that a successful daycare business owner needs to be good at besides caring for children. Honestly, it can be quite daunting for someone new to the business.
Things like getting paid on time from parents, writing solid policies & contracts, marketing your business to new potential clients, obtaining the right insurance policy, understanding record-keeping and how it affects your taxes, and overall, just getting started in a manner that will optimize success.

To help you open a daycare with the greatest chance for success, here are the basic steps of how to start a daycare, by avoiding the 7 biggest, costliest mistakes many people make when starting out.

BIG MISTAKE #1: Not doing the proper research on the child care market in your town or city.

This is a crucial step that many new child care business owners miss, usually because they’re not sure how to go about it. Or they may think that it’s not really necessary to do the research, because they don’t understand how it could impact them.

If you’re thinking about opening a child care center, you may understand that this is a necessary step, but you’re just not sure how to go about it. And if you’re opening a family daycare in your home, do you really need to do all that extra work up-front?

The answer is yes. But don’t worry, the goal here is not to spend weeks or months completing some huge market research project that you’re not ever going to use.

I’m talking about spending a few hours over the next few days, calling around (or maybe visiting some other child care businesses) and asking key questions.

Let me give you an example of what I’m talking about. My neighbor Mary, who runs a child care business in her home, discovered a couple things about our local market that helped her create a more profitable business. The first thing was, our town has ½-day Kindergarten, not full-day. By talking to other Moms in our town, Mary found there was a need in our town for before-and-after care, that is someone who could watch Kindergarteners & older kids before and after school. She structured her daycare to fill this need. All she had to do was make sure the buses were able to pick up & drop off these kids at her home, and she was able to start taking kids.

So what you want to uncover, when you do your upfront research, is a “pocket of unfulfilled need” in terms of child care. You don’t need it to be a huge pocket, but something unique about your business that will bring you customers who have that need.

Other examples of this are:

• offering second or third shift care if you have large companies in your town who employ people on evening or overnight shifts
• offering bilingual care or special languages, such as sign language for babies
• offering special meals (such as organic or vegetarian) if you live in a town where that would be considered desirable (like Boulder, Colorado or a similar college town)

Again, you are asking key questions and trying to uncover an unfulfilled need in your town or city. You can begin by calling your local Child Care Resource & Referral Agency (CCR&R), your local elementary schools, talking to neighbors and friends, and visiting other child care businesses in your town. You can even call other child care businesses and talk to these women about what they are seeing in the market. Usually, women in child care help each other out by forming friendships and partnerships, so don’t be intimidated.

By taking the time to do the research, you will gain a huge advantage by understanding your market and how you can be successful within that market.

BIG MISTAKE #2: Not getting the right liability protection for you and your business.

If you want to be able to sleep easy at night and not worry about getting sued, you’ll need to be properly covered. You need the real scoop on what type of insurance to buy, and how much it should cost, so you don’t overpay.

Many new child care business owners make the mistake of thinking that their homeowner’s policy is enough to cover them if there’s a problem. But the truth is, that policy usually doesn’t provide enough protection, nor the right kind of protection you need for special situations that a daycare owner can face.

An example of this situation would be if your house had a power outage, and you had to close temporarily due to the loss of electricity. If you had a business liability policy with coverage for “business income interruption”, you would be covered by your policy and you would still get that income.

Likewise, if you were sued by a parent for some situation, your policy would cover you in most cases.

Surprisingly, a business liability policy for a home daycare is not that expensive, and is well worth the investment (in my opinion). These type of policies usually cost $30 to $40 per month. Is that worth a good night’s sleep?

BIG MISTAKE #3: Not charging the right fees.

Do you know how to find out what other child care homes and centers are charging? Most new daycare owners literally leave money on the table by not setting their rates properly. You’ll get short-changed by charging too little, and if you charge too much, you won’t get any clients!

So how do you go about figuring out what to charge? This is a similar process as doing the upfront research in your town, it’s simply a matter of making some phone calls or visits to other child care businesses and setting you prices appropriately.

Many new family daycare owners charge the same weekly rate for each child, regardless of the child’s age. However, if you talk to centers in your town, most of them charge the highest rate for infants, and the lowest rate for older kids (pre-K and older). Many parents are used to this type of pricing structure.

So depending on the ages of kids that you can accept, if you charge a bit more for infants and young toddlers, you may find that your income will be a bit higher than a flat-rate for all ages. You’ll have to look at your individual scenario and choose what’s best for you.

For example, let’s say that according to your state, and the ages of your own children, you can accept 1 infant, 3 young toddlers (15-24 months), and 2 older toddlers (3-4 year olds). If you charge $120 per week as a flat rate, you would have a weekly income of $720.

If, however, you charged a bit more for infants ($135/week), and young toddlers ($125/week) and less for older toddlers ($115/week), your weekly income with this scenario would be $740. That amounts to an extra $80 per month, or an extra $1,040 per year.

Small adjustments like these in your price, if it makes sense based on your local area, can make a difference in your take-home profits at the end of the day.

BIG MISTAKE #4: Not covering yourself with a proper daycare policy handbook and contract.

Okay, this is a really big one. When you start a daycare, you need to have a well-written contract for your parents, and you need a comprehensive policy handbook. If you use your contract and policy handbook properly, you can literally save yourself thousands of dollars of lost income (and countless hours of headaches!).

So what’s the difference between a contract and a policy?

A contract is a binding legal agreement between two people. If you agree to care for a child and the child’s parent agrees to pay you for that care, you’ve made a verbal contract. If you put the contract in writing, it becomes a written contract.

There are 5 key elements of a child care contract: the names of the parties, the hours of operation, the termination procedure (that is, how either party may terminate the agreement), terms of payment (including rates, due dates, and extra fees), and the signatures of the parties. Be specific and clear with your wording.

A policy handbook is longer and more detailed than a contract. It should contain all the rules that state how you will care for the children, how you’ll handle specific kinds of situations, and how you run your business. For example, you should include your vacation & sick day policies, how you handle behavior issues & discipline, and how the children will be fed.

It’s a good idea to require a signature page at the end of your policy handbook, where the parent agrees that he or she has read the entire handbook and agrees to abide by the policies you’ve laid out.

You need to have both documents in writing. (If you need actual examples that you can copy & edit to fit your business, they are provided in my Daycare Success System; more about that later).

BIG MISTAKE #5: Not using the best ways to market your business to future customers.

Let’s face it, you may not be a marketing and advertising whiz, but you need easy and low-cost ways to get the word out and bring in new customers.

We’ve all heard that the best advertising is word-of-mouth. That’s after you’ve gotten started and your clients recommend you to their friends and neighbors.

But what about when you first open your doors, and you have no proven track record?

Fortunately, there are lots of ways you can get the word out about your new child care business, and most of them won’t cost you much money. Here are 4 marketing ideas to get you started.

Remember, this is just the tip of the iceberg. When you learn these easy and inexpensive (or free) methods to bring in new leads, you’ll have a full and profitable daycare center and you’ll establish an ongoing relationship with your parent-clients that will have them raving about you to their friends and family!

Now let’s get back to the 7 Biggest Mistakes and how you can avoid them when you’re learning how to start a daycare.

BIG MISTAKE #6: Not utilizing the tons of free resources in your local area, including sources of grant money.

Many new daycare or preschool owners don’t know about the local resources available to them, and how to navigate the waters of state, regional, and local government agencies.

With so many organizations and websites out there, it can be really tough to figure out where to go and who to ask, if you don’t know where to begin.

The best place to start is with your state. Every state in the U.S. has an agency within their state government that sets the rules for family child care providers. This agency is usually called something like the Department of Child & Family Services (DCFS), or the Department of Job & Family Services (DJFS) and they all have websites.

(If you are in Canada or another country, you probably have a similar office in your government).
Simply go to your state’s website (such as http://www.Illinois.gov) and look for the appropriate department, or type “child care” in the search box.

The website should contain phone numbers for the Child Care contact person in your state. Call them on the phone and inquire about your state’s rules and what they recommend for people who are just getting started in family child care.

Most counties also have a child care office that helps people at the county level. Ask your state contact person how to find help for your specific county. Then, contact your county rep and ask the following questions (these are also good questions to ask your state rep):

• What do you need to know that’s specific rules or regulations for your county?
• What training are you required to take before you open your doors?
• What kind of ongoing training / learning is required?
• Do they have any recommendations on insurance providers for child care owners in your county?
• What resources do they have to help you learn how to start a daycare?
• Do they know about any sources for grants or low-interest start-up loans?
• Are there local or county support groups that meet to discuss child care issues?

There may be other questions you’ll think of, too. Don’t be intimidated. You have the right to get the best information to get started, and you owe it to yourself to start out as successfully and as knowledgeably as possible.

BIG MISTAKE #7: Not getting licensed or certified by your state.

Getting licensed or certified with your state can be a bit of work, but it’s probably easier than you think. Usually, to get licensed you are required to take a certain amount of training (often very low-cost or even free) and your home will be inspected once or twice a year by a state inspector to ensure that guidelines are being met.

There are lots of reasons why you should consider it – the top reason being that you can charge higher rates!

Here are some of the other benefits you will gain by being licensed or certified with your state:

• You will be proud to know you are providing the highest quality of care (and you can communicate this to others).
• Potential parents will be more likely to choose you, so you won’t have to spend as much on marketing and advertising
• Schools and other businesses will be more likely to recommend you.
• You may be eligible for grants or low-interest loans to expand your daycare or improve it with a new outdoor play area, etc.
• You will stand out from the crowd as a superior business.

Many states require that you are licensed or registered in order to accept a certain number of children. You’ll need to check with your state to get clear on the rules before you open your daycare. In fact, this is the first step anyone should take when thinking about starting a daycare business. To get the contact information for your state, go here:

http://nccic.acf.hhs.gov/statedata/statepro/index.html

By avoiding these seven big mistakes, you will have the highest chance for success as a child care business owner. Strive to be the best at what you do, and the journey will be more rewarding personally and professionally.