April 14, 2022
Starting a daycare business can be a daunting task. There are so many things to think about and plan for. You need to find the perfect location, get the right licenses and permits, hire qualified staff, and, most importantly, create a daycare business plan.
Creating a daycare business plan is one of the most important steps in starting your business. A well-thought-out business plan will help you get funding, attract investors, and operate your business effectively.
The bad news is that there is a lot of advice out there on writing a business plan. With so much information and tons of daycare business plan examples to choose from, it can be overwhelming to know where to start.
The good news is, we've got you covered. In this article, we'll give you a comprehensive guide on how to write a daycare business plan. We will also provide some examples and a daycare business plan template to get you started.
But First...Is a Daycare a Good Business to Start?
Before we talk about how to create a daycare business plan, let's first answer the question: is starting a daycare a good business to get into?
The answer is a resounding yes! The daycare industry is growing rapidly. It is one of the few businesses that are not only recession-proof but also thrives in uncertain economic times.
According to the National Association of Child Care Resource & Referral Agencies (NACCRRA), the demand for child care services has increased by 26% over the last decade. This demand is only expected to grow in the coming years.
When it comes to profitability, the daycare industry is very attractive. According to IBISWorld, the average profit margin for a daycare business is around 15%. That's higher than the average for most other industries!
If you're thinking about starting a daycare business, know that you are getting into a very profitable and in-demand industry. Now let's talk about how to write a daycare business plan that will help you start and grow your business successfully.
How to Create a Daycare Business Plan
A daycare business plan is as simple as a word document with the following sections:
- Business Description
- Market Analysis
- Business Model
- Location and Facility
- Marketing Plan
- Financial Plan
- Executive Summary
This article will provide context of what to include in each section of your daycare business plan. As you work on writing your business plan, you will want to grab our daycare financial projection template as well in order to complete the financial plan section.
Your daycare business plan should be an elevator pitch in itself. It should be attractive to potential partners and investors. Basically, it should give them a clear idea of your business, where it is located, what services you offer, who your target market is, and how you plan to make money.
Creating a daycare business plan doesn't have to be complicated. In fact, the cheapest and easiest approach is to simply start with a blank word document and work through each of the above sections, it can be pretty easy. Here is a step-by-step guide on how to create a daycare business plan:
Create a Compelling Business Description
Your daycare business's unique selling point (USP) should be the first thing you include in your business plan. What is it that makes your daycare center different from all the others?
This description should be the foundation of your marketing efforts as well.
There are a few questions you should answer in your company description. They include:
What's your Curriculum Based On?
Potential investors, partners, and even customers will be interested in knowing what your curriculum is based on. This will help them understand the environment children will be in a while under your care.
When describing your curriculum, make sure to include:
- What age ranges do you cater for?
- The type of care you offer (full-time, part-time, drop-in)
- Your educational philosophy
- The activities and programs you offer
For example, if your daycare is unique by offering a Montessori curriculum, you will want to highlight that. In fact, you can learn more about how to start a Montessori program here.
How Big is Your Facility?
The size of your facility will say a lot about the type of operation you're running. Are you a small, home-based daycare or a large center with multiple classrooms?
This section of your business plan may include:
- A floor plan of your facility
- The capacity of your facility
- The number of employees you have
- Type of equipment and furniture you have
Who Is Your Target Market?
You can't market to everyone, so you must identify your target market. This will help you focus your marketing efforts and ensure that you're reaching the right people.
Below is a daycare business plan example that shows how your business description should be:
“ABC Daycare is a small, home-based daycare located in San Francisco, CA. We cater to children aged 0-12 years old and offer full-time, part-time, and drop-in care.
Our curriculum is based on the Reggio Emilia approach, emphasizing hands-on learning and collaboration. Activities and programs include arts and crafts, music, and outdoor play.
Our facility can accommodate up to 12 children at a time. We have a staff of four employees who are all CPR and First Aid certified.
Our target market is working parents in the city who need quality child care but can't afford the rates of larger daycare centers. We've created an affordable subscription-based pricing model for our target market to fulfill the demand. We generate revenue through monthly subscriptions and have low operating costs due to our small size.
Our suppliers are local businesses that provide us with food, toys, and other supplies.”
Do a Thorough Market Analysis
After writing a compelling description of your business, you need to do a thorough marketing analysis. This analysis will help you determine your target market, what type of advertising and promotion will work best, and how to price your services.
You should also research the competition and see what they are doing right and wrong. This information will be invaluable as you create your daycare business plan.
Keep these things in mind when doing a market analysis:
The Size of Your Market
This is determined by the number of potential customers in your area who need or want your services.
For example, if you live in a small town with only a few thousand people, there may not be enough demand to support a large daycare facility.
On the other hand, if you live in a city with hundreds of thousands of people, there may be room for multiple daycare facilities.
Your target market is the segment of the population that is most likely to use your services. This includes factors like age, income, education, and location.
After you've identified your target market, you need to show how you plan on fulfilling the demand. This is where your business model comes in.
Your business model is a detailed description of how your daycare will operate daily. It should include:
- How do you plan on acquiring customers?
- What are your pricing strategies?
- How will you generate revenue?
- What are your operating costs?
- Who are your suppliers?
Your business model should be detailed and easy to understand. It should also be realistic and achievable.
Here is a daycare business plan example of a business model for a small daycare center:
“The daycare will be open Monday through Friday from six in the morning to six at night. We will offer care for children ages six weeks to twelve years old.
Our rates will be $50 per week for one child and $40 per week for each additional child from the same family. We will offer a discount of $20 per week for families who enroll their children for an entire year.
We will generate revenue by charging weekly rates for our services. Our operating costs will include rent, utilities, supplies, and salaries for our employees. Also, we will acquire customers through online advertising and word-of-mouth.”
As you can see, a business model is a detailed description of how your business will operate. It's essential to have one in place before promoting and selling your services.
One thing you should not forget to include in your daycare business plan is the location of your business and your rental agreement. If you are renting a space, including the terms of your agreement and how long you have the space. If you are purchasing a property, include information on the property, such as square footage and any special features that will help your business stand out.
This daycare business plan example shows you how to include this vital information:
“The daycare will be located at 123 Main Street in a commercial space currently leased by the owner. The lease agreement is for three years with an option to renew for an additional three years. The monthly rent is $2000, and the security deposit is $3000.
The daycare will have exclusive use of the main floor, including a large open play area, a small kitchen, two bathrooms, and four classrooms. The daycare will also have access to the outdoor playground.
80% of our space will be used for childcare, with the other 20% used for our administrative offices and staff lounge.
We have chosen this location because it is close to several residential neighborhoods and has easy access to public transportation. The space is also large enough to accommodate our future growth.”
There are many daycare business plan templates you can use to help you get started. This is a basic outline of what should be included.
Daycare Marketing Plan
Most daycare business plan templates will include a section for your marketing plan. Most people overlook the marketing aspect of their business, but it is one of the most important pieces of your puzzle.
In your business plan, you need to outline your target market, your marketing strategies, and how you plan on executing those strategies.
You also need to set aside a budget for your marketing efforts. Many people make the mistake of thinking that they don't need to spend money on marketing, but that couldn't be further from the truth.
The following daycare business plan example shows you how you should describe your marketing efforts:
"Our target market is working for families with children between six weeks and five years old. We will reach our target market through online and offline marketing efforts.
Some of the offline marketing strategies we will use include print advertising, flyers, and word-of-mouth referrals. We will use a mix of SEO, content marketing, and social media for online marketing.
We have set aside a budget of $500 per month for our marketing efforts."
As you can see from the example above, your marketing plan should be clear, concise, and to the point. Don't forget to include a budget!
Daycare Financial Plan
Your business plan should include a financial plan section. This is where you'll lay out how much money you need to start or grow your business. Be specific and include dollar amounts. If you're seeking a loan, including information on how much you're requesting and how you'll use the funds.
You should also include a detailed budget in your business plan. Your budget should include all of your projected income and expenses for at least the first year of operation. Creating a budget will help you get a clear picture of what it will cost to start and operate your business.
This section should include projected costs for:
- Rent or mortgage payments
- Advertising and marketing
- Operating expenses such as utilities, supplies, and more.
Startup costs are another vital item to include in your business plan. This is the money you need to purchase equipment, furniture, or any other items to get your business up and running.
If you plan to secure a loan, your lender will want to see a detailed business plan with information on how you plan to use the loan funds. Ensure you include this information in your business plan to increase your chances of securing funding.
If you're seeking funding from investors, you'll need to include information on how they will be compensated. This is typically done through equity, a percentage ownership stake in your business.
For example, if you seek $100,000 in funding and offer a 20% equity stake, the investor will own 20% of your business.
Make sure you use a daycare business plan template that includes a section on funding to ensure you include all the necessary information. If you’re planning to get a loan or seek investment, you’re going to need full financial projections. Our daycare financial model will provide up to 5 years of projected income statements, cash flow and balance sheet forecasts.
Next I want to answer some key financial questions for you as you consider how to forecast your daycare financials. I am going to hit on:
- Daycare Startup Costs
- Daycare Revenue
- Daycare Facility Operating Expenses
- Daycare Profitability
Let’s dive into some key questions.
How much does it cost to start a daycare?
It costs between $10,000 and $50,000 to start an in-home daycare business according to Bizfluent.
It costs between $59,000 and $3 million dollars to start a daycare facility according to Bizfluent.
So obviously this is a huge range in startup costs. The main thing that will determine your startup costs is your daycare facility. Depending on how large your daycare is, whether you are buying, building, or leasing the space, and how much renovation needs to be done, your startup costs can vary drastically.
Some tips to help you estimate a cost of a daycare facility:
- A daycare facility should have 35 square feet of open floor space indoors per child.
- So if you wanted a facility that could care for 100 children you would need 3,500 square feet of indoor space for children, plus additional space for offices, kitchen, bathrooms, etc. Let’s assume that you would need at least 5,000 square feet of space for a daycare facility that served 100 children.
- A daycare center would cost at least $295 per square foot to construct in the U.S. based on data from Levelset.
- Constructing a new 5,000 square foot daycare center would likely cost at least $1,475,000 based on $295 per square foot.
- Now you might not be constructing new, rather you might rent an existing facility which could require renovations. You will need to get a specific quote for the specific renovations that you need for your space.
How much revenue can a daycare business make?
A daycare facility can generate $17,680 in revenue per year per child according to Zippia.
A daycare business with 100 children can generate over $1.75 million per year in annual revenue based on our average revenue per child of $17,680.
How much does daycare cost?
The average cost of daycare is $17,680 per year, per child in the U.S. according to Zippia.
This means that the average monthly cost of daycare in the U.S. is roughly $1,475.
What is the typical child to staff ratio for a daycare?
The typical child to staff ratios for a daycare are:
- 1 adult staff for every 4 infants (age 0 to 12 months)
- 1 adult staff for every 6 toddlers (age 1 to 3 years)
- 1 adult staff for every 10 pre schoolers (age 3 to 5 years)
- 1 adult staff for every 12 school aged children (5+ years old)
Source - Childcare.gov
These ratios will help you estimate how many staff members you will need. Our financial projection template makes this easy. Just enter in your ratios and the number of children you expect to have in each age group and the model will automatically calculate the number of staff required to maintain your ratios. See the input daycare staffing table below:
What are the typical operating costs for a daycare?
Your largest operating expense for a daycare facility is likely to be your rent.
It should cost between $20 and $30 per square foot to rent a daycare center space based on available spaces on Loopnet.
Other operating costs for a daycare center include:
You can see how you can enter in your operating costs into our financial model below:
How much profit can a daycare make?
The average daycare profit margin is 6.5% according to Daycare Business Boss.
Once you complete your projections you will want to take a look at our At a Glance tab to make sure that your projected profit margins aren’t way out of line with the industry norms. You can find projected profit margins for your daycare below:
This is an important aspect that you may not find in most daycare business plan templates, but it's still essential. An appendix includes any additional information to help you understand your business plan. This might include things like your:
- Business licenses
- Insurance policy
- Lease agreement
- Sample contracts
- Staff bios
This section adds credibility to your daycare business plan and shows that you've done your homework. Including all of the necessary details in your appendix will give investors peace of mind and show that you're serious about starting a daycare center.
An executive summary is a brief overview of your business plan and is often considered the most important section. It should be two pages long, with a clear description of your business, your goals, and why you will achieve them.
There are several key elements to include in your executive summary:
- Business Name: This is the name you have chosen for your business.
- Location: Include the city, state, and country where your business will be located.
- Business description: Describe what type of business you will be operating.
- Target market: This is the group of people you will be targeting as customers.
- Competition: Who are your competitors, and how will you compete with them?
- Product or service: What product or service will you be offering?
- Sales and marketing: How will you generate sales?
- Financials: Include a five-year income statement, balance sheet, and cash flow statement.
- Management team: Introduce your management team and their experience.
- Exit strategy: This is the plan for how you will eventually sell or otherwise exit the business in case you decide to retire or move on to other projects.
The executive summary is the most crucial section of your business plan because it gives investors and lenders a quick overview of your company and its prospects. Be sure to include all of the key elements listed above, and keep it under two pages in length.
What Are The Benefits of Creating a Daycare Business Plan?
Research shows that a business plan helps business owners make better decisions, turn abstract goals into tangible objectives, and track progress over time. But what does this mean for those who want to open a daycare?
Creating a business plan forces you to think through every step of starting your company. It's a valuable exercise that can save you time and money in the long run. Even if you don't end up following your business plan to a tee, the process of writing it will help you better understand your business and what needs to be done to make it successful.
There are many benefits to creating a daycare business plan, including:
Gives You a Roadmap to Follow
As with any journey, it's always helpful to have a map. A business plan is that map for your daycare business. It will give you a clear idea of where you want to go and how you can get there.
Helps You Secure Funding
A business plan is essential if you're looking for investors or loans. It will show potential lenders and investors that you've put thought into your business and have a solid strategy for making it successful.
Ensures Your Daycare Business is Feasible
When you're starting a business, it's easy to get caught up in the excitement and overlook potential problems. A business plan forces you to take a step back and assess whether your business is truly viable. It also helps you identify any areas where additional research is needed.
A daycare business plan is a valuable tool to help you make your business successful.
It is worth noting that your business plan is not a one-time exercise but should be updated regularly as your business grows and changes. This document is meant to be a living document that evolves as your business does.
If you're unsure where to start, there are plenty of resources available to help you, including daycare business plan examples online, books, and daycare business plan templates.
You can also use our daycare projection template to get your financial plan ironed out and ready for your business plan.
The most important thing is just to get started. The sooner you create your business plan, the better prepared you will be for success.