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How to start a daycare business in California in 11 steps

According to the Center for American Progress, before the COVID-19 pandemic, nearly 25% of children under five attended daycare. And, the changing nature of work will create gaps in the marketplace that childcare businesses can fill. Read on to avoid the pitfalls that cause 50% of small businesses to fail and learn how to make your daycare successful.

1) Choose home daycare or daycare center

Home daycares have fewer regulations, lower startup costs, and more individual attention. On the other hand, daycare centers serve more children with a larger staff and potentially make more revenue.

2) Create a daycare business plan

Ask yourself these questions before you start a business:

  • Executive Summary: How would you describe the business and your potential success?
  • Overview: What are the business's key attributes?
  • Industry Analysis: What does market research reveal about the daycare industry?
  • Competitive Analysis: What are your competitors' strengths and weaknesses?
  • Marketing: What is your marketing strategy?
  • Management: What skills do you bring to the business?
  • Operations Plan: How will you manage the day-to-day tasks?

3) Find your daycare niche

Your niche is your daycare's area of focus that sets it apart from competitors. A niche helps your ideal clients find you. For example, you might start a Montessori, school-age, or Waldorf daycare.

4) Uncover your unique selling proposition (USP)

After you pick a niche, your USP communicates your specific distinction from your competition. For example, your childcare program may have the USP, "Montessori Preschool for Children 3 to 5." USPs make daycares referable, memorable, and targeted.

5) Pick your daycare business name

A good name marries your niche and USP in a creative way that draws clients. It can be as simple as "Sacramento Montessori Daycare" or colorful as "Magic Montessori Minds Preschool." To find the name, check your competition, use a business name generator, or brainstorm with friends and family.

6) Choose your daycare location and supplies

For entrepreneurs starting daycares in their own homes, this step is done. If your business is outside the home, you'll need to hunt for a child care facility. Suitable candidates for your center include local businesses, churches, schools, and recreational centers. Before you lease a building, check zoning laws. After you pick a place, add these items to your shopping list:

  • Art/Crafts
  • Education technology
  • Furniture
  • Miscellaneous supplies
  • Toys

7) Figure out your financial plan

Take a look at these ways to fund your venture:

  • Credit lines
  • Crowdfunding
  • Friends or family
  • Grants
  • Loans

8) Licensing

If you only plan to provide care for your own children (or relative's children) and one other family, you don't need a license. Otherwise, your child care business will be licensed by the Childcare Licensing Division (CCLD) of the California Department of Social Services. The licensing requirements and classification differ based on the number of children that you have:

  • Home daycare with 1 to 8 children: Small family child care home
  • Home daycare with 9 to 14 children: Large family child care home
  • Daycare center with 1 or more children: Child care center

For all three types of daycares, the same four-step application process applies for child care licensing, and you'll find that below.

a) Step 1: Attend an orientation

The licensing agency requires you to attend an online orientation or in-person one before applying in the state of California. Orientation costs a non-refundable $25 for home daycares and $50 for daycare centers. To register for an online orientation, go here. For in-person orientation, the regional Community Care Licensing Offices are temporarily closed because of the pandemic (check the status of Community Care Licensing Division regional offices here).

b) Step 2: Submit your application

Applications for potential licensees may include:

  • Applicant: Name, address, phone number, and other basic info
  • Children: Number of children and ages whom you'll care for
  • Criminal records: Owners, residents, and employees 18 or older must complete criminal background checks, child abuse checks, and Live Scan fingerprinting
  • Education/Training: Owners and employees may have to prove child development education and pediatric CPR, first aid, and other training.
  • Experience: Owners and employees may have to prove prior experience, such as the one-year requirement to move from a small family child care home to a larger one.
  • Home/Facility: Fire marshal approval and a sketch of the daycare may be required
  • Health: Proof of tuberculosis clearance and vaccinations

You can find a detailed application fee schedule here, and the non-refundable fees for the first three levels are:

  • Home daycare with 1 to 8 children: $73
  • Home daycare with 9 to 14 children: $140
  • Daycare center with 1 to 30 children: $484

c) Step 3: Prepare for Inspection

Before licensing, you must schedule a time with the state. To get ready, check out the home daycare readiness guide or the daycare center readiness guides.

d) Step 4: Await approval

The process from start to finish can take 60 to 90 days, so there's a bit of hurry up and wait. However, the licensing agency will inform you of approval or denial within 30 days of a completed application. If denied, they'll tell you how to fix the situation.

9) Get your paperwork in order

While you're getting your licensing, you'll be performing these errands too.

a) Register your daycare with the state

Pick a type of business structure for your child care services business, such as sole proprietorship or corporation, and then register with the state.

b) Apply for your free EIN

Your Employer Identification Number (EIN) identifies your business for taxes.

c) Get daycare business insurance

Below are key coverages to insure your daycare:

  • Workers' compensation: Protects your employees if they get sick or injured while working in your daycare business.
  • General liability insurance: Protects your daycare business if you're sued for an injury or property damage claim.
  • Accidental medical: Protects a child (activity participant) who gets injured at your daycare by paying medical costs.
  • Property insurance: Protects your daycare equipment.
  • Commercial auto insurance: Protects vehicles that are used for business purposes.

d) Draft a contract

Your contract should outline concerns like payment, pick-up times, and sick children. Hire a contract lawyer or buy a template from a legal website.

10) Hire your first employees

As soon as you add your first team member, you'll need workers' compensation insurance to operate legally.

11) Spread the word about your new daycare business

Take a glance at these winning ways to market your daycare:

  • Website
  • Google and Yelp
  • Social media
  • Word-of-mouth
  • Loyalty program

Bonus: Check out these resources for running a successful daycare business

Want to move your daycare from a dream to reality? You can move one step closer with business insurance from Huckleberry in just a handful of minutes. (Getting a quote is free, easy, and 100% online.)

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