How to Open a Daycare in 5 Steps (License, LLC, and Costs)
Almost every guide on how to open a daycare describes one project. There are really two. One is the child care license your state issues, the long inspected track. The other is the business that holds it, which childcare guides skip. The order matters: a license is issued to a legal person, so the business usually has to exist before the application names it. This guide walks both in the order that keeps them from colliding: the home-or-center decision, your state's licensing requirements, registering the business and getting an EIN, the plan and funding, and insurance.
Key Takeaways
- Two tracks at once: a state child care license, and the business underneath it.
- Home or center is the first decision, and it sets your license class, zoning, and insurance.
- Most states want the entity to exist before the license application names it.
- LLC filing runs $35 in Montana to $500 in Massachusetts, median $100. The IRS charges nothing for the EIN.
- Licensing fees, ratios, and training hours are set by your state, not by a national estimate.
What Do You Need to Open a Daycare?
To open a daycare you need a child care license from your state, a legal business to hold that license, a compliant space, background checks for every adult on site, and liability insurance. The license takes the longest. Requirements, fees, and staff ratios are set state by state, not federally.
That is why national checklists get thin fast. The sequence below holds everywhere. The numbers do not.
How to Start a Daycare in 5 Steps
- Decide between a home daycare and a center, because it changes everything downstream.
- Meet your state's licensing requirements, the longest step by far.
- Register the business and get your EIN before the license application.
- Write the business plan and line up funding.
- Get daycare business insurance, which some states want before issuing the permit.
Step 1: Decide Between a Home Daycare and a Center
This is not a preference. It decides which license class you apply under, and almost every cost that follows.
If you are working out how to start a home daycare, you are usually applying under a family child care license, with a lower child limit and a faster path. Your residence becomes the regulated space, so zoning rules, building and fire codes, and sometimes a homeowners association get a say before your state does. Many providers begin as the only caregiver, with no payroll to set up.
A center is a different project. Working out how to open a daycare center means leasing non-residential space, meeting commercial building and fire requirements, and hiring staff from the start. That makes you an employer on day one, with payroll, workers' compensation, and staff qualification records.
Choose by working backwards from capacity. If the enrollment you need to hit your income target exceeds what your state allows in a residence, you are opening a center. More on the home route in starting a home-based business.
What Is In Home Daycare?
Also called family child care, in home daycare is licensed care delivered in the provider's own residence rather than a commercial facility. It is still a regulated business, with its own license class, its own inspection schedule, and in most states a cap on enrollment.
Step 2: Meet Your State's Licensing Requirements
There is no federal license to open a daycare. Your regulator might be a health department, a human services agency, or a dedicated child care regulator, and the name changes at the state line. Find yours at childcare.gov, because no national checklist can tell you your capacity limit, your fee, or your training hours.
The short version of how to get a daycare license is: complete any required pre-application training, submit the application with your background checks, prepare the space, pass inspection, and receive the permit. Three ordering traps are worth knowing first.
- Some states require an orientation class before you may apply at all. Booking it late stalls everything behind it.
- Some states require proof of liability insurance before the permit is issued, moving insurance from a launch task to a pre-application task.
- Home programs and commercial facilities are inspected on different schedules. A residential program may be able to open once background checks clear, while a commercial facility is generally inspected before any child is in care. That changes when revenue starts.
You will also be asked for a written plan of operation: your policies, procedures, and parent handbook. Writing it early beats retrofitting it during an inspection.
Daycare License Requirements
These vary by state, but the categories are consistent:
- Background checks. Every adult who works, lives, or regularly volunteers in the program is screened. States taking federal child care funds run comprehensive checks under federal CCDF requirements, covering criminal history and child abuse registries.
- Staff qualifications and training. Expect a minimum age, a high school diploma or equivalent, pediatric CPR and first aid, and training hours set by your state.
- Child to caregiver ratios. Every state caps how many children one caregiver may supervise, and the cap is tighter for infants. Those caps drive your staffing budget more than any other rule.
- Health, safety, and inspection. Expect an onsite survey covering sanitation, food handling, safe sleep, playground safety, and emergency procedures.
- Zoning and facility. Confirm zoning, building, and fire requirements with your city or county, plus any homeowners association rules.
Step 3: Register the Business and Get Your EIN
This is the step childcare guides leave out, and skipping it creates real rework.
A child care license is issued to a legal person, either an individual or a registered business. If you intend to operate through an LLC, it generally needs to exist before you apply, because the application asks for the applicant's legal name, and changing the licensee afterwards is an amendment.
A sole proprietorship is the default and costs nothing to form: you and the business are legally the same thing. An LLC is a separate legal entity you create by filing with your state, and it walls your personal assets off from claims against the business. In childcare, where the realistic claims involve an injured child in your care, most owners choose that wall. See how to start an LLC and whether you need an LLC.
Then get an EIN, the business equivalent of a Social Security number, required once you hire staff. Apply directly at the IRS EIN page. It is free and issued immediately online, so treat any price attached to it as a service fee rather than a government cost. More in applying for an EIN.
On taxes, the IRS default for a single member LLC is to treat it as a disregarded entity, so profit flows to your personal return. A CPA can confirm what fits your situation.
Step 4: Write a Daycare Business Plan and Line Up Funding
Most daycare business plans exist for two readers: a lender, and sometimes the licensor, since several states ask for a plan of operation and a budget with the application. The SBA business plan guide is a neutral starting structure.
Two funding lines specific to childcare are worth knowing. Your state administers federal Child Care and Development Fund money, which often includes provider grants and subsidies for enrolled families. Separately, the Child and Adult Care Food Program reimburses providers for meals and snacks served to enrolled children. Most guides file that under paperwork. It belongs in your operating model, because it offsets a recurring cost every month.
Build your enrollment projection against your state's ratio caps rather than square footage, since the ratios are what limit revenue.
Step 5: Get Daycare Business Insurance
Start with the gap that catches home providers: a homeowners policy does not cover a business operating out of the home. A provider who assumes their existing policy has them covered is generally not covered at all, and a claim is the worst time to learn that.
So home daycare liability insurance is bought as its own policy or a rider, never assumed. For a center, general liability sits alongside property coverage. Once you have employees, workers' compensation is mandatory in most states. Abuse and molestation coverage is standard here, and because some states require proof of coverage before issuing the permit, this is not a launch-week task. More in business insurance.
How Much Does It Cost to Open a Daycare?
The cost to open a daycare splits in two. The part we can price exactly is the business: LLC filing runs $35 in Montana to $500 in Massachusetts, median $100, and the IRS issues the EIN at no charge. The part only your state can price is licensing, your space, and staffing.
That split matters, because the national startup ranges published elsewhere are estimates, some of them traceable to template vendors rather than any state agency. At least one state currently charges applicants nothing for the application and background check, because federal relief funding covers it. A national average would tell you the opposite.
Here is the part we can prove, taken from state filing schedules:
| State | One-Time Filing Fee | Ongoing Cost |
|---|---|---|
| Montana | $35 | $20 annual report |
| California | $70 | $800 franchise tax yearly, plus $20 every 2 years |
| Ohio | $99 | No annual report required |
| Texas | $300 | No annual report fee, but a franchise tax report is required |
| Massachusetts | $500 | $500 annual report every year |
| National median | $100 | Varies widely |
Read the second column carefully. California is one of the cheaper states to enter and one of the most expensive to stay in, because the $800 franchise tax is due whether you enrolled thirty children or none. See what an LLC costs and LLC cost by state.
Your recurring daycare business expenses decide whether the model works: wages, food, insurance, licensing renewals, and supplies. If you run from home, home daycare tax deductions can offset part of the household cost tied to the business, and a CPA can confirm how that applies to you.
Disclaimer: FormationHub is not a law firm or an accounting firm, and this article is general information, not legal or tax advice. Filing fees, processing times, and state requirements change. Confirm the current requirements with your state's filing office or the IRS before you file, and talk to a licensed attorney or CPA about your specific situation.
Ready to Set Up Your Daycare Business?
The care part you already understand. What trips people up when they open a daycare is the order of operations, so get the business registered before the license application asks for the applicant's legal name.
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