How to Start a Childcare Business: Costs & Break-Even

The costliest mistake in childcare is committing to a building before you know which license it has to pass. Deposits and whole seasons go that way, because zoning, occupancy and fire rules set your capacity long before a business plan does. This guide sequences the decisions to start a childcare business the way your money needs them sequenced: license first, site second, everything else after.

To start a childcare business, choose between a family child care home and a center, confirm your license type with your state agency in writing, prove demand at a specific address, register and insure the business, secure a site that will pass inspection, hire to ratio with fingerprint-cleared staff, build a budget that breaks even at realistic enrollment, line up the four revenue lines, then fill places before you open.

Before you start: budget $10,000 to $20,000 for a licensed home program with 8 places and $150,000 to $350,000 for a 40-place center, and allow three to six months for a home program and nine to eighteen months for a center. If your plan is school-age and term-time rather than full-day, read how to start an after school program instead. The licensing test and the economics are different.

Step 1: Decide whether you are opening a home or a center

Capacity, licensing load, capital and margin all follow from this one choice, and it is not cheaply reversible. A home program that outgrows itself has to apply for a center license from scratch, at a new address, with a new inspection.

Treat those margins as the ceiling for a well-run program at high occupancy, not as a forecast. The US Treasury's 2021 analysis of child care supply found that most for-profit facilities operate on margins below 1%. The gap between 1% and 20% is almost entirely occupancy, and occupancy is the variable this whole guide is built around.

There is a supply signal worth reading too. Child Care Aware of America's 2025 price and supply analysis found that licensed centers declined by 1% while family child care homes grew by 1.4%. Net new supply in the US is appearing in homes, not centers. If you are choosing between the two and the capital is your own, the home model is where the odds sit.

Step 2: Get the licensing answer in your state, in writing

There is no national childcare license. Every rule that decides whether you can open, how many children you can take and who is allowed to be in the room is set by a state agency, and the answer you need before spending money is which license type your plan triggers.

The four things every state checks

Ratios and maximum group size. Staff qualifications and background checks. Facility, health and safety standards, including square footage, fencing, egress and sanitation. And recordkeeping, meaning enrollment files, immunization records, medication authorizations and a daily attendance log.

Most states require a license once you care for a set number of unrelated children, often three or more, for more than a few hours a day on a regular basis. The threshold, the hour count and the definition of "unrelated" are all state-set, so the number you read on a national site is a starting point and nothing more. Search your state's child care licensing portal, download the current handbook, and call your local Child Care Resource and Referral agency. The CCR&R call is free, and they will tell you which license your plan triggers faster than the handbook will.

Fees are small, the process is not

Application fees are the cheapest part of licensing. California charges a one-time application fee of $73 for a small family child care home and $140 for a large one, with the same amounts recurring annually. Across the states, expect $25 to $500 for a home program and up to a few thousand dollars for a large center, where fees usually scale with licensed capacity.

The real cost is time, and the facility work the inspection forces. A fence that is four inches too low, a water heater set too hot, or an exit that opens the wrong way are all cheap to fix and expensive to discover in week 20.

Start these three things on day one

Three items run on external clocks and none of them depends on the others, so start all three the week you decide, not in sequence as a checklist implies.

1. Fingerprint-based state and federal background checks for you and every adult who will be in the building, including household members in a home program.
2. Zoning verification for your exact address. Ask the planning department in writing whether child care is permitted at that parcel and at what capacity.
3. The certificate of occupancy, specifically permitting child care as the use class. An existing commercial CO for retail or office use does not carry over.

Everything else, including the business plan, the parent handbook and the enrollment forms, can be written while those three run. A licensing decision commonly takes two to six months for a home program and six to twelve for a center, and it starts from the date your file is complete, not the date you first called.

Step 3: Prove demand at a specific address

National demand for childcare is not in question. Demand at your address, at your price, for the age bands you plan to serve, is the only thing that matters, and parents choose on commute rather than on quality claims.

Three checks you can finish in a week:

1. Count the competition and the children. Use your state's licensing lookup to count licensed capacity within a 10-minute drive, then use Census data to count under-fives in the same tracts. More than three children under five for every licensed place is the standard child care desert threshold, and a genuine gap to build into.
2. Call three nearby providers as a parent. Ask about infant and toddler waitlists specifically. Waitlist length is the cleanest free demand signal available, and infant waitlists are almost always the longest.
3. Map the employers. Check the shift patterns of the two or three largest employers within 15 minutes. Hospitals, warehouses and plants create demand that an 8am to 6pm program does not serve, and they are your best route to the employer contracts covered below.

Two figures set the context. Child Care Aware of America's 2025 analysis puts the national average annual price of child care at $13,184, which takes 10% of median income in a two-parent household and 33% in a single-parent household. And only about 16% of children eligible for federal child care subsidy actually receive it. Demand is not your constraint. Affordability at your price point is, which is why the subsidy and employer lines matter so much to a new provider.

Step 4: Register the business, then insure it properly

The registration mechanics are short. Form the entity, usually an LLC for liability separation. Get an EIN from the IRS. Open a business bank account before the first deposit lands, because commingling a parent's deposit with household money is the fastest way to lose the liability protection you just paid for. Then register with your state and your municipality.

Insurance deserves more of your attention than any of that, because it is the line item that moves most.

Budget $500 to $1,500 a year for general liability on a home program and $1,100 to $2,200 for a small center, and treat those as opening figures rather than settled ones. Abuse and molestation coverage is separately underwritten, increasingly hard to place, and non-negotiable if you want a school district contract or an employer contract. Get a written quote before you sign a lease.

The market is moving against providers. NAEYC's January 2026 survey of more than 7,000 early childhood educators found that 68% saw liability insurance costs rise, up from 46% the year before, and its earlier liability insurance survey found 13% of center-based programs facing increases of $10,000 or more in a single year. Rebudget insurance annually rather than carrying last year's number forward, and get more than one quote every renewal.

While you are on paperwork, write the policies that prevent disputes rather than settling them: fees, late pickup, illness exclusion, and above all withdrawal notice. Our cancellation and refund policy examples give you wording to start from, and photo consent forms cover the permission most new providers forget until the first newsletter goes out.

Step 5: Find a site that will pass inspection

Budgets break on buildings. The single most useful clause in a childcare lease or purchase contract is one that makes the deal contingent on licensing approval, so a zoning refusal or a failed fire inspection does not leave you paying rent on a room you cannot use.

Two numbers govern the search. Thirty-five square feet of usable indoor activity space per child is the most common state minimum, and outdoor minimums cluster around 75 square feet per child. Both are net figures, and the two are calculated independently, so outdoor space does not offset indoor. Bathrooms, hallways, closets, cubbies, the kitchen, the office and the floor under fixed storage all come out before you measure.

Work that through and the implication is uncomfortable. A 40-place center needs roughly 1,400 square feet of qualifying classroom space before you add a single hallway, so a 2,500 square foot lease for 40 places is realistic rather than generous. Anyone selling you 40 places in 1,800 square feet has not measured net.

Three things fail a site, and all three are checkable before you make an offer:

• Zoning that does not permit child care at that parcel, or permits it only below a capacity you cannot make work.
• A certificate of occupancy for the wrong use class, which turns a signing into a change-of-use application and a fire marshal review.
• Fire egress, especially for rooms above or below ground level. Many states restrict infant and toddler rooms to the ground floor outright.

Commercial fit-out runs $75,000 to $300,000 depending on what the building already has, and it is the largest single line in a center budget. Classroom sinks, ADA-compliant bathrooms, fencing and playground surfacing are the items that consistently come in above estimate.

Step 6: Hire to ratio, and start background checks early

Ratios are law, not guidance. They set your payroll before you hire anybody, and they are the reason labor absorbs 60% to 80% of a childcare operating budget.

State minimums are the floor. NAEYC's accreditation ratios are stricter than every state legal minimum, so if accreditation is part of your positioning, model payroll on the accreditation ratio instead. State rules vary more than any national table can capture, so model payroll on your own state's ratio table rather than the ranges above.

For wages, the Bureau of Labor Statistics put the median hourly wage for childcare workers at $16.82 in May 2025, and the median annual wage for preschool teachers at $38,140. Budget the fully loaded cost, roughly 1.25 to 1.35 times wages once payroll taxes, workers' compensation and any benefits are counted. A $38,140 teacher costs you $48,000 to $51,000.

Every adult needs fingerprint-based state and federal background checks, current CPR and pediatric first aid, and whatever pre-service training hours your state mandates. The binding constraint on opening a center is almost always the director qualification, which typically requires a mix of coursework in early childhood education and documented supervisory experience. If you do not hold it yourself, you are recruiting for it, and that search takes months. Start it at the same time as the lease search.

Step 7: Build a startup budget you can defend

Ranges are useless when you are asking a lender for money. Two worked budgets follow, one for each model. Build your own version by substituting local numbers into the same lines rather than copying the totals.

Budget A: licensed family child care home, 8 places

Budget B: small center, 40 places, leased 2,500 square feet

Two lines carry the argument, so here is the arithmetic behind them.

Contingency is 15% of everything above it. In Budget B, the ten lines before contingency total $282,000, and 15% of that is $42,300. Fifteen percent is not padding on a construction-heavy project. It is the number that absorbs one fire marshal requirement you did not expect.

Working capital is the line first-timers cut, and the one that closes programs. It is not a reserve, it is the payroll you owe while you are half full. A 40-place center staffed to licensed capacity runs teaching payroll of roughly $24,000 a month. Open at 55% enrollment and you are collecting about $22,000 a month against $43,000 of total monthly cost. Three months of that gap is more than $60,000, and three months is optimistic. Six is safer.

If you need the plan document that wraps these numbers for a lender, our guide to writing an after school program business plan covers the same structure, and the financial section transfers directly.

What each room actually earns

A childcare center is not one business. It is a portfolio of rooms with completely different economics, and the mix is decided at the floor-plan stage, before the lease is signed and long before you can change it.

Here is the arithmetic, using a fully loaded teacher cost of about $46,000 a year, which is the BLS median childcare worker wage plus 30% loading, across 52 weeks at typical ratios.

Real occupancy runs 85% to 92%, so haircut all three figures accordingly. The ranking does not change.

The point is the gap. The infant room contributes roughly a quarter of what the preschool room does off identical payroll, and once rent, insurance, food, admin and a director's salary are allocated across the rooms, an infant room frequently contributes nothing at all. Every state's infant ratio produces this arithmetic. It is why infant places are scarce nationally, and why "we take infants" is a demand magnet that the preschool rooms have to pay for.

Three practical conclusions:

• Run at most one infant room per two preschool rooms unless subsidy or employer money is covering the difference.
• Price infant care at what the ratio costs, not at what feels fair next to your preschool rate. A 1:4 room needs roughly two and a half times the per-child revenue of a 1:10 room to contribute the same amount.
• Plan the room mix at the floor-plan stage. Licensed capacity is granted per room and per age band, and re-mixing it later means a new licensing application, not a rearranged calendar.

The four ways a childcare business gets paid

Most guides model private tuition and stop there. There are four revenue lines, and three of them are routinely left on the table by new providers.

1. Private tuition

The base, and the only one most providers ever bill. Set your price against local comparables rather than the $13,184 national average, because the same room bills at wildly different rates 40 miles apart. Then treat the ancillary lines as real revenue: registration fees of $50 to $200 per family per year, sibling discounts of 5% to 15% priced deliberately rather than negotiated at the door, and late pickup fees of $1 to $5 per minute, which exist to change behavior rather than to earn money.

2. State subsidy through the Child Care and Development Fund

Federal money that flows through your state agency to pay for eligible families' care. Becoming a subsidy-accepting provider widens your addressable market considerably in most markets, given how few eligible children currently receive it.

The mechanic that decides whether it helps you is how your state pays. If the state pays on enrollment, an absent child still generates revenue. If it pays on attendance, a snow day, a stomach bug or a family vacation costs you money you have already staffed for.

A 2024 federal rule pushed states toward enrollment-based, prospective payment. In May 2026 the Administration for Children and Families finalized a rule rescinding that requirement, effective July 13, 2026. A state can now pay on enrollment, pay the full authorized amount when a child attends at least 85% of authorized time, pay in full when a child misses five days or fewer in a month, or use an alternative set out in its CCDF plan. As of the 2025 CCDF plans, 27 states and territories pay on enrollment and 27 pay on attendance. Ask your state agency which option it has taken before you put subsidy income into a forecast, and if payment follows attendance, forecast below the authorized amount.

3. CACFP food reimbursement

The US Department of Agriculture reimburses licensed providers for meals and snacks served to enrolled children through the Child and Adult Care Food Program. Most new providers never claim it, largely because the paperwork looks worse than it is. These are the published rates for July 1, 2026 through June 30, 2027 in the contiguous states.

Work one example. A family child care home serving 8 children breakfast, lunch and an afternoon snack at tier I rates claims $6.03 per child per day. Across 250 operating days that is about $12,000 a year, against a food cost comfortably below it. The obligation is menu records, meal counts at the point of service, and enrollment forms kept current, which is a daily habit rather than a project.

4. Employer contracts

The channel almost nobody writes about, and the one that changed this year. For tax year 2026 and later, the employer-provided child care credit under section 45F is worth 40% of qualified child care expenditures, or 50% for an eligible small business with average annual gross receipts up to $32 million. The annual cap rose to $500,000, and $600,000 for small businesses. Amounts paid after December 31, 2025 under a contract with an intermediary that contracts with a child care facility now count as well.

In plain terms, a local employer that reserves places with you can claim back a large share of what it pays. That turns a cold approach to a hospital or a mid-sized employer with a retention problem into a credible way to fill a room before you open. Do not explain the credit yourself. Send their finance team to the IRS page and let them do the math.

How many children you need to break even

Two calculations, both short, both worth rebuilding with your own numbers. The assumptions are stated inline so you can substitute.

Home program, 8 places. Annual fixed and semi-fixed costs of roughly $28,000: insurance $1,200, food $6,000, supplies $2,000, incremental utilities and home costs $4,800, licensing and training $700, software and admin $1,500, and a part-time assistant at $12,000. At $220 a week and 50 billing weeks, each child contributes $11,000 a year. Break-even lands between two and three children. Places four through eight are your income, which is why the home model is forgiving.

Center, 40 places. Annual fixed costs of roughly $520,000: rent $84,000, director $65,000, teaching payroll at full licensed ratio $290,000, insurance $4,000, food $30,000, utilities and maintenance $25,000, supplies $12,000, software and admin $10,000. At a blended $240 a week across the age bands and 50 weeks, each child contributes $12,000. Break-even lands at about 43 children.

Read that again, because it is the whole point. A 40-place center staffed to licensed capacity from day one does not break even at 40 places. Break-even sits above the capacity you are licensed for. Nothing about that math is unusual, and it is precisely why the Treasury found sub-1% margins across most for-profit facilities.

Centers close the gap three ways, and a viable plan uses all three:

1. Staff to actual enrollment, not licensed capacity. In year one you open rooms as they fill. Drop teaching payroll to $210,000 while you ramp and fixed costs fall to about $440,000, which puts break-even near 37 children, or 92% occupancy.
2. Shift the age mix toward preschool. Per the room economics above, one fewer infant room and one more preschool room moves break-even by several children.
3. Add subsidy, CACFP and employer revenue. These three lines are the difference between 92% occupancy and something you can survive a bad February at.

Ninety-two percent occupancy is still tight, and that is the honest answer to whether a childcare center is a good business. It works at high occupancy, with a mix weighted to older children, and only with enough working capital to reach that occupancy without borrowing at a bad moment.

Funding the gap

Work the stack in this order.

• SBA microloan. Up to $50,000, with an average loan around $13,000 and repayment terms up to seven years, available to for-profit small businesses and certain not-for-profit childcare centers. It covers working capital, supplies, furniture and equipment, but not real estate or existing debt, and the nonprofit intermediaries that issue it set their own credit terms. This is the most accessible option for a home program and the one most new providers should try first. The SBA also runs a child care business development hub with sector-specific guidance.
• SBA 7(a) and 504 loans. Larger and more flexible, for-profit providers only. The 504 program funds equipment and facilities up to $5 million, which is the route if you are buying a building rather than leasing one. It cannot be used for working capital.
• State startup grants. Several states run new-provider startup and quality-improvement grants funded through CCDF. These are rarely well advertised, so ask your CCR&R agency about them by name. Our guide to grants for youth programs covers the method for finding and qualifying grant money, and most of it transfers.
• CDFIs and local economic development funds. Childcare is treated as infrastructure in a growing number of local economic plans, which sometimes unlocks facility money a commercial bank will not lend against.
• Self-funding the home model. At a startup cost near $15,000, a family child care home is reachable without debt. That is the strongest argument for starting at home, running it well for two years, and growing into a center with a track record and a waitlist behind you.

Fill places before you open, not after

Everything above assumes children. The default failure is opening at 40% occupancy and burning working capital while enrollment catches up, and it is entirely avoidable, because enrollment is the one part of this process you can start months before licensing clears.

1. Open a waitlist the day you file your licensing application, not the day you open. A waitlist with a small refundable deposit is a demand test and a cash flow bridge in one move. Deposits of $100 to $250 held against the first invoice are normal, and they separate the families who are enrolling from the ones who are browsing.
2. Take enrollment on a phone. Parents compare two or three providers and commit to whichever one they can finish signing up with while standing in a kitchen. A form that has to be printed, signed and returned loses to one that does not, every time.
3. Publish your prices. Providers who make parents call for pricing lose the comparison before it starts.
4. Claim your Google Business Profile and your state licensing directory listing. Both are free, and both are where "daycare near me" lands.
5. Have one employer conversation. Given the 45F credit above, a single reserved-place agreement can fill most of a room and stabilize your first year.

That last part is where we come in. We make booking and registration software for childcare and activity providers: online registration, deposits and recurring payments, automatic waitlists that email the next family the moment a place frees up, class and session rosters, and daily sign-in and sign-out records that hold up in a licensing file instead of living on a clipboard. Our pricing starts at $45 a month, with Stripe payments at 0.59% plus Stripe fees. If you would rather start on paper, our free attendance sign-in sheet shows the format an inspector expects.

To be straight about the boundaries: we handle enrollment, payments, waitlists and attendance records. We are not a state subsidy billing system and we are not a licensing compliance platform, so you will still keep those files with your state agency.

A realistic timeline

Three to six months for a home program, nine to eighteen for a center. The table below assumes you start the background checks, the zoning check and the certificate of occupancy work on day one, as covered in step 2.

Two items on that list are outside your control and both of them slip: the date the licensing inspector can visit, and the certificate of occupancy. Everything else is schedulable, so schedule it tightly and leave the float where you know you will need it.

Two decisions carry this business, and both are made before any real money is spent. Which license your plan triggers, and how your rooms are mixed. Get those right and the rest is execution. Get them wrong and no amount of good practice on the floor will fix the arithmetic.

Key takeaways

• Choose home or center first. Startup capital, licensing load and margin all follow from that decision, and reversing it is expensive.
• Start fingerprints, zoning verification and the certificate of occupancy on day one. Sequencing them instead of running them in parallel turns six months into twelve.
• Model the rooms, not the center. An infant room at 1:4 contributes roughly a quarter of what a preschool room does off the same payroll, and the mix is fixed at the floor-plan stage.
• A 40-place center staffed to licensed capacity breaks even above 40 children. Staff to actual enrollment while you ramp, weight the mix toward preschool, add non-tuition revenue.
• Bill all four revenue lines: private tuition, CCDF subsidy, CACFP reimbursement and employer contracts under the expanded 45F credit.
• Open the waitlist when you file for licensing. Every place filled early shortens the ramp your working capital has to cover.