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How much does it cost to run a daycare?

One of the most popular industries in the U.S. over the past few years has been the daycare business, which, according to some reports, is growing at an annual rate of 3.5%. With the cost of child care expected to see a continued rise in the coming years, it’s no wonder why folks are beginning to look at child care as an investment opportunity and are starting to explore how to start a daycare now more than ever before.

The child care facilities system in the U.S. is predominantly comprised of small, in-home child care businesses and larger child care centers, each offering either full-time care, part-time care, or some combination of both. Depending on the child care programs or infant care programs available and the qualifications of the child care workers, each specific daycare may have to abide by a different set of rules and regulations.

If you’re looking to start your own daycare business, the following will explore the associated costs of your new entrepreneurial endeavor, helping you better plan for your initial start-up fees and the overall price tag you can expect to plunk down to run a successful monthly daycare operation.

1. Payroll costs for daycare businesses

Several factors impact the payroll costs for your daycare business, most notably the size of your daycare, the age of the children in your care, and how many caregivers, assistants, staff members, and other child care providers you have working for you.

Generally speaking, the larger the size of your daycare provider, the more you will pay in payroll. This is because more children will require more attention to meet their needs, so you’ll be paying more staff to help make sure those needs are met. The age of those children will also affect your payroll costs because—for example—caring for infants involves much more than caring for early adolescents or those who are over 10 years old. While each state has its own adult-child ratio requirement, more adults are generally needed to care for younger children than older children, which will impact your payroll more significantly if you work with younger kids or babies.

Depending on the hours of your daycare operation, you may be paying more or less to employees. Part-time employees are generally less expensive than full-time employees, so you’ll need to think through what kind of daycare you want to run—and for what age group—to better understand what kind of staffing requirements are needed. For example, if you’re running an in-home daycare, you’ll probably require less staff than a daycare facility serving the demographics of a larger city.

As of 2017, the average cost for individual daycare payrolls in the U.S. was around $25,000, while small corporate daycare businesses averaged around $50,000 annually in payroll. The average annual payroll for daycare centers was just over $260,000.

2. Other expenses for daycare businesses

Aside from payroll, the cost for running your monthly daycare will include several other expenses. Depending on where you’re located, those costs may include transportation, office supplies, cleaning supplies, food, and utilities. You’ll also have expenses almost exclusively associated with your start-up costs, such as furniture purchases.

Depending on whether you’re operating an in-home daycare or a larger daycare facility, you’ll also need to factor in the costs for owning, renting, or leasing the property. For in-home daycares within a home or apartment, the price will usually be lower than if you’re leasing out a commercial space as a small business. Daycare centers with higher occupancies also tend to have higher costs associated with those spaces, while locations with building improvements—such as bathrooms, kitchens, and child-safe areas—also tend to be higher.

3. How to make a budget for your daycare business

When crafting a budget for your daycare business, you’ll first want to make a list of all your fixed annual costs and variable annual costs.

Fixed costs include:

Variable costs include:

  • Marketing and advertising
  • Equipment
  • Supplies
  • Electric
  • Water and trash
  • Transportation
  • Food and beverages
  • Aides and substitutes

With awareness around your fixed and variable annual daycare costs, you’ll then be able to determine the monthly cost of running your daycare. According to some studies, the average estimated cost of running a daycare is just over 3,000 per month. This amount can be higher or lower depending on your state’s guidelines for child care licensing and the number of children in your care.

4. How to claim daycare expenses on your taxes

The first step to claiming your daycare expenses on your taxes is to ask your business accountant or tax professional to assist with the filing. Having your registered tax agent or tax attorney help you with your filing will ensure that your forms are being filed accurately and that you’re maximizing all the benefits from your expenses that are specific to your state.

For corporations, regardless of the state in which your daycare is located, the amount you pay in salaries, wages, and operating expenses all count as deductible business costs. You’ll then be required to pay a corporate tax at the end of the year based on the amount of profit your daycare has generated.

For sole proprietors, daycare expenses can be classified as a deduction under Schedule C on personal tax returns. Additionally, if your daycare business is located in specific areas of your home, a commensurate portion of your housing cost—as in a mortgage or rent payment—can be deducted from taxes as an expense. You can only deduct the area of your home that is used for the daycare, nothing else.

The items you’re allowed to claim as deductions will vary from state to state, so be sure to consult your specific state’s website for more information on which income tax deductions apply to your daycare. You can also find a comprehensive list of what can and cannot be a deductible expense from the Internal Revenue Service (IRS) website.

How to get the best insurance for your daycare business

Anytime you’re in the business of serving others, there’s inherent risk involved. Thus, part of running a daycare means you’ll be assuming many risks. To help mitigate your exposure to risk and potential lawsuits, you must secure small business insurance.

Many different kinds of small business insurance could be helpful to your daycare operation. To help you determine which types of daycare insurance you’ll need, you must speak with your business accountant, who can help advise you on the best policies for your specific business.

For example, most lease agreements for your daycare business will require some form of property insurance, which helps you comply with the complex rules and regulations of commercial leases. For in-home daycares, general liability insurance will help protect you in the event of a lawsuit. Those legal fees can also be tax-deductible if you’re an incorporated business, not if you’re a sole proprietor.

The cost of daycare insurance can range from over $200 to $800 for in-home businesses and between $400 and $200 for larger daycare centers. The location of your daycare and how much coverage you’re purchasing will also influence your daycare cost, so remember to check with your business accountant for a better understanding of the best small business insurance for your company in your area.

Choosing the right business insurance for your daycare might feel like an overwhelming process, but it doesn’t have to be. That’s where Huckleberry can help.

No matter what type of insurance you're looking for to protect your early childhood education operation, Huckleberry will provide you with a multitude of insurance quotes and policy options that will safeguard your daycare now and in the future.

In less time than it takes to change a diaper, Huckleberry will give you an accurate estimate on the policies you need, so you'll spend less time searching for affordable business insurance and more time delivering high-quality child care.

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