Daycare Business Plan: Costs, Licensing & How to Start (2026)

Is a daycare profitable?

A daycare center can be profitable, but margins are tight and scale matters. At 70-75% enrollment occupancy, a small center (20-30 children) covers operating costs; net margins at that size run 0-10%. A medium center (50-75 children) at the national average of about $1,099 per child per month ($13,184 a year) generates about $55,000-$82,000 in monthly revenue, with 40-60% going to staff payroll, making net margins of 10-15% achievable. Large centers (100+ children) can reach 15-25% net margins once overheads are absorbed.

The honest constraint is staffing. Infant rooms staffed at a 1:3 to 1:4 ratio roughly triple your labor cost per dollar of revenue compared to a preschool classroom at 1:10. Most centers break even in 1-3 years. Thin margins leave little room for underenrollment in the first year. Model a conservative ramp to 60% occupancy before projecting profit.

How much does it cost to start a daycare?

Startup costs for a licensed childcare center break into two buckets: capital expenditure (facility, equipment, build-out) and a working-capital reserve to cover payroll and fixed costs during the 6-18 months it takes to reach target enrollment. The figures below reflect a leased commercial space; purchasing or building a facility adds $300,000-$1,000,000 or more.

Line item	Typical range
Facility lease deposit and first/last month	$10,000-$40,000
Build-out, leasehold improvements, and code compliance	$30,000-$150,000
Classroom furniture, cribs, tables, chairs, and storage	$15,000-$40,000
Playground equipment, fencing, and safety surfacing	$8,000-$30,000
Kitchen and dining equipment	$5,000-$20,000
Security, cameras, and access control	$5,000-$15,000
State childcare license, permits, and legal fees	$1,500-$8,000
General liability and abuse/molestation insurance (year 1)	$3,000-$12,000
Working-capital reserve (payroll ramp)	$20,000-$100,000
All-in licensed childcare center	$60,000-$500,000+

The all-in row is a rounded planning range across center sizes, not the sum of the rows above, which add up to $97,500 to $415,000; the low end assumes a small center that does not incur every row. A home-based family daycare cuts facility and build-out costs sharply, bringing total startup spend to $10,000-$50,000, but your state caps how many children a home-based program may serve. A licensed center serving 50+ children has a substantially different cost profile because staff-to-child ratios are the single largest ongoing driver: an infant room staffed at 1 per 3-4 children needs far more staff per child than a preschool room at 1 per 8-10. At those ratios a center with 20 infants needs 5-7 staff in that room alone, so your staffing plan must match your enrollment mix before you project revenue.

Regulation

What licenses does a daycare need?

State Childcare License

Issued by your state's Department of Social Services, Health, or Education, this is the primary operating license for any childcare center or family daycare home. It sets your licensed capacity, mandates your staff-to-child ratios, specifies square footage per child, and must be renewed on the cycle your state sets, with ongoing compliance inspections. Operating without a required license is unlawful, and the penalty is set by state law.

Staff-to-Child Ratios

Ratios are set by state law and vary by child age. Caring for Our Children, the national health and safety standards, recommends for centers no more than 3 children per staff member at 12 months and under, 4 at 13 to 35 months, 7 for 3-year-olds and 8 for 4- and 5-year-olds (4th edition, Standard 1.1.1.2). Some states such as Florida and Georgia allow higher ratios at older ages; Early Head Start programs are held to a strict 1:4 maximum for children under 3. Ratios directly determine your staffing cost and profitability.

Background Checks and Fingerprinting

Required by federal law (CCDBG Act of 2014) for all staff with direct child contact. The mandatory checks cover FBI fingerprint-based criminal history, state criminal repository for all states where the applicant lived in the previous 5 years, National Sex Offender Registry, state sex offender registry, and state child abuse and neglect registry. Federal law gives the state up to 45 days to return results (42 U.S.C. 9858f(e)(1)); ask your licensing agency how long checks are taking. Staff may not be alone with children until clearances are received.

Facility Inspections (Fire, Health, and Zoning)

Before your license is issued, your facility must pass three separate inspections: (1) a fire marshal inspection covering egress routes, exit signage, smoke and CO detectors, fire extinguisher placement, and evacuation plan; (2) a local health department inspection covering sanitation, diaper-changing surface disinfection, food preparation if meals are served, and illness exclusion policies; and (3) a zoning or building inspection confirming conditional-use permit compliance and minimum indoor/outdoor square footage per licensed child.

Childcare is regulated at the state level, so requirements differ significantly across jurisdictions. The National Database of Child Care Licensing Regulations, an Office of Child Care resource, links to each state's licensing agency and regulations, and brightwheel publishes state-by-state licensing guides. Always download your state licensing agency's current application packet directly; third-party summaries lag regulatory updates. Plan for the licensing process to take 6-12 months for a center and 2-6 months for a home-based program.

What must your daycare business plan contain?

A daycare business plan for SBA or investor review covers: executive summary with licensed capacity and target market; market analysis citing local childcare desert data and competitor tuition survey; operations plan showing staff-to-child ratios by age group and your director's qualifications; a 3-year financial model with monthly enrollment ramp, revenue by age-band, payroll built to ratio, and a debt service coverage ratio at or above the SBA floor for your loan (next paragraph); startup cost schedule separating CapEx from working-capital reserve; and a licensing and compliance timeline. Investors in childcare also look for your CACFP participation plan and subsidy acceptance policy, as both materially affect occupancy rates and revenue predictability.

SBA sets no single debt service coverage ratio. Under SOP 50 10 8.1, in effect since 1 October 2026, the floor depends on the loan: 1.15 for a Standard 7(a) loan (greater than $350,000); 1.10:1 for a 7(a) Small loan ($350,000 or less) that is not funding a change of ownership; 1.15:1 on a historical basis for a 504 loan, with projections analyzed where history falls short; and 1.25:1 for a 7(a) loan to buy an existing center as an Initial Acquisition, on that center’s last fiscal year-end or two-year average. A new center has no history, so its projections carry the test: on a Standard 7(a) loan they must “reflect a debt service coverage equal to or greater than 1.15 within 2 years from loan funding or, for construction projects, within 2 years from the end of construction”, and on a 7(a) Small loan they must reach 1.10:1 “within one year of loan funding”. Your lender or CDC also applies its own credit analysis (13 CFR 120.150), so ask what it wants to see. Our SBA debt service coverage guide covers each case.

How do you fund a daycare?

The SBA 7(a) loan, which SBA calls its primary business loan program, can cover working capital, equipment, and leasehold improvements, up to a maximum loan of $5 million. The SBA 504 program finances fixed assets, so it fits when you are purchasing or constructing a building: SBA describes it as “long-term, fixed rate financing for major fixed assets”, SBA’s share (the debenture) is limited to $5,000,000 for each small business and its affiliates, apart from the energy and small manufacturer projects the SOP lists, and it cannot fund working capital. The SBA Microloan program provides loans of up to $50,000 through SBA-approved intermediary lenders, at rates SBA says are generally between 8 and 13 percent, and a borrower may use the proceeds “to establish a nonprofit childcare business” (13 CFR 120.707). 7(a) and 504 loans are for businesses organized for profit: SOP 50 10 8.1 says “Non-profit businesses are not eligible for SBA business loan assistance”. Beyond SBA, look to Community Development Financial Institutions (CDFIs) that specialize in childcare lending, your state's Child Care and Development Fund (CCDF) lead agency, which you can ask what provider grants, if any, your state funds now, and First Children's Finance, a nonprofit CDFI that lends only to child care businesses, in the states listed on its site. Do not plan around American Rescue Plan child care stabilization grants: federal guidance (CCDF-ACF-IM-2021-02) gave states until 30 September 2023 to liquidate those funds. The regulation that made a business “principally engaged in teaching, instructing, counseling or indoctrinating religion or religious beliefs” ineligible for SBA business loans, 13 CFR 120.110(k), was removed by a final rule effective 1 August 2022 (87 FR 38900), and we found no religious category among the ineligible business types in SOP 50 10 8.1. A faith-based center must still be organized for profit to use a 7(a) or 504 loan.

One SBA rule is specific to child care buildings. SOP 50 10 8.1 names day care centers and preschools as examples of a Child-Occupied Facility: a building, or portion of one, constructed prior to 1978 that the same child under 6 years of age visits regularly (Appendix 4 sets the days and hours). Such a facility “must undergo a lead risk assessment and also testing for lead in drinking water”, new for each new loan, and the lender “may not disburse the loan unless the risk of lead exposure to infants and small children has been sufficiently minimized” (Section A, Chapter 5). If your building predates 1978, raise this with your lender before you commit to the site. See SBA environmental requirements.

FAQ

Frequently asked questions

How much does it cost to open a daycare?

A home-based family daycare typically costs $10,000 to $50,000 to start. A licensed commercial childcare center ranges from $60,000 to $500,000 or more, depending on the size of the facility, whether you lease or build, and the age mix you serve. Infant programs cost more to staff because of strict ratios. Plan to hold at least 3-6 months of operating expenses as a cash reserve on top of your capital expenditures.

What licenses do you need to open a daycare?

At minimum you need a state childcare license from your state's Department of Social Services or equivalent, a local business license, and zoning or conditional-use permit approval. Your facility must pass fire marshal and health department inspections before the license is issued. All staff must clear FBI and state background checks. Some states add a food service permit if you serve meals. Requirements vary by state, so pull the current application packet from your state licensing agency directly.

What is the staff-to-child ratio for a daycare?

Ratios are set by state law and vary by child age. Caring for Our Children, the national health and safety standards, recommends for centers 1 staff member per 3 infants (12 months and under), 1 per 4 toddlers (13 to 35 months), 1 per 7 three-year-olds and 1 per 8 four- and five-year-olds. Some states allow higher ratios for older children. Early Head Start is held to 1:4 for under-3s.

Is owning a daycare a good investment?

It can be, but it is not a fast-return business. Most centers break even in 1-3 years and reach 10-15% net margins at medium scale (50-75 children). The structural demand is real: 46% of US children under 6 live in childcare deserts as of 2025, and average tuition reached $13,184 per year nationally. The risk is the enrollment ramp and high fixed staffing costs. Owners who own their building and reach 80-90% occupancy see the strongest returns.

What qualifications does a daycare director need?

Requirements are set by state. Most states require at minimum a Child Development Associate (CDA) credential, which requires formal training, work experience and an assessment. Many states require an associate or bachelor's degree in early childhood education or child development. Texas and several other states additionally require a state-issued director credential or certificate beyond the CDA. Check your state licensing agency's director qualification chart before hiring or applying.

Reviewed by Muhammad Tayyab Shabbir, Founder of AVVALE. Our team has prepared funding documents for 500+ businesses across regulated, capital-intensive and main-street industries, from SBA and bank loans to investor and visa applications.

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Sources: Child Care Aware of America, Child Care in America: 2025 Price & Supply (May 2026), national average annual price $13,184, licensed center supply down in 26 of the 43 states with complete data; Caring for Our Children: National Health and Safety Performance Standards, 4th edition (AAP, APHA and National Resource Center for Health and Safety in Child Care and Early Education), Standard 1.1.1.2, recommended center ratios; Florida Statutes s. 402.305(4), Georgia Rule 591-1-1-.32 and 45 CFR 1302.21(b), state and Early Head Start ratios; Child Care and Development Block Grant Act of 2014 (CCDBG), 42 U.S.C. 9858f, mandatory background check components and the 45-day limit for results; FinancialModelsLab.com, Daycare Center Startup Costs (2024), CapEx breakdown; BusinessDojo, How Profitable Is a Daycare Center (2025), margin and enrollment figures; SBA SOP 50 10 8.1 (effective 1 October 2026; Section A, Chapters 1, 3 and 5; Section B, Chapters 1 and 2; Section C, Chapter 1; Appendices 4 and 15), 13 CFR 120.110, 120.150 and 120.707, the final rule at 87 FR 38900, and SBA’s 7(a), 504 and Microloans pages, read 12 October 2026, for the SBA rules; Office of Child Care, CCDF-ACF-IM-2021-02 (10 May 2021), for the stabilization fund deadline; Brightwheel, How to Start a Daycare (2026), licensing timeline and step sequence; MoneyGeek, Daycare Insurance Cost Report (2026), insurance premium ranges; Center for American Progress, America’s Licensed Child Care Deserts (29 April 2026; read in the Internet Archive copy of 23 August 2026), an estimated 46% of children under age 6 in a child care desert in 2025. All startup cost figures are planning ranges; actual costs vary by state, market, facility size, and build-out scope. The SBA rules here are general information, not lending, legal or environmental advice: confirm them with your lender or CDC.

Daycare Business Plan: Costs, Licensing & How to Open One (2026)

Is a daycare profitable?

How much does it cost to start a daycare?

How do you start a daycare?

Research your state licensing agency

Write your business plan and run your numbers

Secure your location and confirm zoning

Complete the state childcare license application

Pass fire, health, and building inspections

Complete staff background checks and certifications

Hire and train your team before opening

Open enrollment and market your program