Nearly 33 million children participate in a form of child care. Among those child care programs, organized facilities account for 25%. With the growing number of working mothers, the need for child and after school care continues to rise. Despite this increasing demand, however, the business of child care is one wrought by unsuccessful attempt after unsuccessful attempt. If you’re thinking of starting a daycare or after school program, it’s important to know what to expect before you begin. The first thing to consider: your start-up cost.
What does it cost to start a child care program?
Child care management experts advise new entrepreneurs to think in terms of economies of scale. In business, economy of scale is the cost advantage and thus proportionate savings you can earn by operating on a higher scale. Think of it this way: a family of two requires almost the same goods as a family of six (i.e. a home, supplies, food), but the family of six can shop at Costco. Similarly, a daycare that supervises ten children will require the same things to get started (i.e. a facility, insurance, staff, toys, etc.) as one that cares for twenty children, but at twenty children you can not only buy in bulk, but earn double the income from parent payments as you would with a ten-child facility.
The optimum size for your facility: 80 or more. At this size, you can expect a start-up cost of around $30,000, according to Forbes. That’s assuming you’re renovating or taking over an existing facility and not building one from scratch. You can expect a per child cost of between $300 and $400 for smaller assets such as the playground, furniture, and toys. You also might have the additional up-front cost of extra months’ rent and training for your staff.
While you’re calculating these up-front costs, don’t forget it could easily be a year before you’re able to reach a level of profitability. Yes, economies of scale are a great thing in the long-run, but at first, they can be a drain on your pocket book. It takes a strong marketing campaign to fill an 80-child roster. Once you’ve made it, however, you’re not likely to sink.
And once you’ve got your child care business up and running, your expenses will begin to level off. You’ll still have to account for payroll – – your staffing salaries are likely to be the largest expense you face going forward. Your state’s laws will dictate what staff-to-child ratio you can maintain, but on average you can expect to need a staff member for every 12 preschoolers; one adult for every six children between two and four; and one staffer for every four infants.
The next biggest expense most child care programs face are rent and property taxes. At 15% of revenue, they’re a far cry less than paying for your staff, which generally costs 70% of your revenue, but still a burden you can’t avoid. After rent, you’re looking at maybe 4% of revenue for supplies, including food and meals; around 3% for insurance; and in the ballpark of 2% of revenue towards maintenance costs. All said and done, according to Forbes, if you’re lucky, you can expect perhaps a 5% pretax operating margin. That’s not to say you won’t reap other rewards from your child care venture. Chances are, if you’re considering starting a daycare, you aren’t in it solely for the money.