Did you know contract work makes up 4% of the United States’ GDP? Construction is even a leading indicator of how the economy is likely to progress in the future.

We ask two general contractors, Marc Rousso and Vitaliy, how to start a contracting business—and ensure its success.

Marc Rousso lost everything when the Great Recession caused banks to collect on their loans, but today, his company JayMarc Homes makes $80M annually. Meanwhile, Vitaliy started with $80 bucks in tools and now earns 50% profits on his homes.

We’ll discuss how to start a general contracting company. Plus, we’ll help you understand the different types of contractors and what each does. Throughout it all, you’ll get great information from these successful business owners.

[su_note note_color="#dbeafc"] Click on any of the links below to jump ahead, or just read on.

• What is a contracting business?
• What is a general contracting business?
• How much do contractors make?
• How much does it cost to start a contracting business?
• How to Start a Contracting Business
  • 1. Decide Whether You’re a Fit
  • 2. Choose a Trade
  • 3. Learn a Bit of Everything
  • 4. Write a Contracting Business Plan
  • 5. Choose a Business Name
  • 6. Register Your Contracting Business
  • 7. Get Licensed and Bonded
  • 8. Get a Business Bank Account
  • 9. Get General Liability Insurance (and Other Coverage)
  • 10. Plan Funding and Finance
  • 11. Set Pricing
  • 12. Brand and Market Your Business
  • 13. Find Customers
  • 14. Follow Regulations
  • 15. Get Equipment
  • 16. Hire Subcontractors
  • 17. Monitor Performance and Grow
• Are you ready to start your own general contractor business? [/su_note]

What is a contracting business?

A contracting business is a company—of one or several people—that consumers hire to perform a specific task. There are different types of contractors people hire based on their skill sets and needs. Contractors are most commonly seen in the construction industry.

Common types of contractors include general contractors, subcontractors, and independent contractors. Like business owners, contractors work for themselves and may manage a team of subcontractors.

Next, let’s look at some of the specialized contracting companies you might see in the construction business.

What is a general contracting business?

A general contractor (GC) is responsible for overseeing construction companies. The GC is the direct point of contact between the construction crew and the property owner.

GCs are often responsible for maintaining budgets and timelines, as well as hiring subcontractors, paying them, and inspecting their work.

Marc is a general contractor focusing on buying off-market properties, demolishing them, and building multi-million dollar custom homes. Find out how below.

https://www.youtube.com/watch?v=dCSP8nNbdq8

How much do contractors make?

According to IBIS World, the construction industry makes $3T and is growing. When you divide the industry revenue by the 4 million U.S. construction businesses, you get an average revenue of $750K per business.

The net and gross profit margins vary depending on the specific type of contractor, but the table below shows some of the publicly held segment margins based on NYU Stern Data as of January 2023.

Industry Name	Number of firms	Gross Margin	Net Margin
Building Materials	45	29.45%	10.30%
Construction Supplies	49	21.82%	8.23%
Electrical Equipment	110	32.33%	7.31%
Engineering/Construction	43	13.92%	2.16%
Environmental & Waste Services	62	32.74%	7.29%
Furn/Home Furnishings	32	26.38%	2.03%
Green & Renewable Energy	19	62.86%	17.77%
Healthcare Support Services	131	14.72%	2.01%
Homebuilding	32	27.32%	13.98%
Machinery	116	34.20%	8.51%
Metals & Mining	68	32.76%	9.66%
Office Equipment & Services	16	32.45%	2.36%
Oil/Gas (Integrated)	4	36.54%	15.17%
Oil/Gas (Production and Exploration)	174	64.45%	26.01%
Oil/Gas Distribution	23	23.60%	2.08%
Oilfield Svcs/Equip.	101	11.83%	5.25%
Paper/Forest Products	7	29.64%	10.23%
Power	48	35.40%	9.17%
Precious Metals	74	36.98%	7.18%
R.E.I.T.	223	60.46%	23.77%
Real Estate (Development)	18	32.51%	15.04%
Real Estate (General/Diversified)	12	48.08%	12.67%
Real Estate (Operations & Services)	60	31.13%	-0.76%
Retail (Building Supply)	15	34.51%	8.67%
Rubber & Tires	3	19.96%	4.21%
Semiconductor	68	54.23%	22.74%
Semiconductor Equip	30	44.65%	22.27%
Steel	28	26.23%	14.70%
Telecom (Wireless)	16	57.91%	2.54%
Telecom. Equipment	79	53.85%	13.29%
Telecom. Services	49	55.53%	12.81%
Utility (General)	15	36.67%	12.68%
Utility (Water)	16	54.31%	25.12%
Total Market	1786	39.22%	12.30%

JayMarc Homes makes $80M annual revenue. Marc told us:

[su_quote]We aim for 10% profits. In recessionary times, you're hoping to get a 5% profit. In a normal year, it's about 10%. When it is booming, it could be 17%, and when it is through the roof, it could be 27%. And I think that in a 10-year timeline, you touch all of those profit margins.[/su_quote]

Meanwhile, Vitaliy, another custom home builder, makes nearly 50% margins.

How much does it cost to start a contracting business?

Marc and his business partner, Jay Mezistrano, started JayMarc Homes during the Great Recession. This made it harder to start a general contracting business because banks weren’t lending and millions of homes were underwater—but that didn’t stop them.

They sold their SUVs for $100,000 and put all the money into buying lots. Then they raised money from friends and family to get started and used hard-money lenders for three years before getting real loans.

The hardest part about starting his own business was getting the funding. Marc told us:

[su_quote]I sent 200 emails, and everyone said no. When I started asking people to meet up with me and showed them our business plan, people started investing.[/su_quote]

You don’t have to start that big. Take it from Vitaliy, who only spent $80 on tools and made $1,000 in the first week. From there, he grew VP Homes to a $1.2M-per-year general contracting business. Check out our interview with him below:

https://www.youtube.com/watch?v=wuqVb9B58CE

How to Start a Contracting Business

1. Decide whether you’re a fit.
2. Choose a trade.
3. Learn a bit of everything.
4. Write a contracting business plan.
5. Choose a business name.
6. Register your contracting business.
7. Get licensed and bonded.
8. Get a business bank account.
9. Get general liability insurance.
10. Plan funding and finance.
11. Set pricing.
12. Brand and market your business.
13. Find customers.
14. Follow regulations.
15. Get equipment.
16. Hire subcontractors.
17. Monitor performance and grow.

1. Decide Whether You’re a Fit

Before starting a contracting business, you should take the time to consider whether becoming a contractor is right for you. You’ll need a diverse skillset, you’ll be waking up early, and you’ll be working in inclement weather.

General contractors need business skills, accounting skills, knowledge of project and people management, an understanding of laws and regulations, and knowledge of each building trade.

Meanwhile, specialty trades like HVAC, plumbing, electricians, carpenters, masons, and other fields require specialized skills and licensing.

If you have these qualities or are committed to building them, you might be cut out for the contracting business.

2. Choose a Trade

Most contractors start with a specific trade and then move on to running full builds. There are more than 70 in-demand skilled trades in the U.S., but some aren’t in the construction industry.

You might want to take this easy trade quiz to find some ideas that fit you well.

3. Learn a Bit of Everything

You’ll need to know a little bit about all the construction trades to become a general contractor.

HVAC techs work with plumbers and electricians; painters' work can impact carpenters, tile layers, and carpet installers. The more you know as a tradesperson, the more valuable your services, regardless of whether you work directly with homeowners or subcontract for a general contractor business.

4. Write a Contracting Business Plan

Any contractor should have a solid business plan. Their business plan should include:

• The type of contracting business you’ll start
• Information about your competitors
• Challenges facing your industry and how you’ll overcome them
• Necessary licenses
• Regulations you’ll need to follow
• Amount of funding you need
• Your pricing strategy
• Detailed information about your target market
• Your marketing strategies
• Equipment you’ll need

Whether you’re writing a general contractor business plan or a specialty trade business plan, you will be able to use the documentation to inform your management style, expansion efforts, and budget. Plus, you’ll need a business plan to get a small business loan.

5. Choose a Business Name

Contracting businesses need effective names. The name needs to be descriptive and easy to remember so people can search for your business’s website, reviews, and social media.

We offer more business name tips here.

6. Register Your Contracting Business

You’ll want to register your business as a legal entity. Register through your secretary of state as either a limited liability company (LLC) or corporation—this keeps your personal assets and business assets completely separate.

While starting a contractor business as a sole proprietorship is technically allowed, it’s a horrible idea for new business owners. A contractor business can be held legally liable if employees die on the job, and more than 300 people die each year across all contractor businesses.

7. Get Licensed and Bonded

Many locations need a contractor’s license, which is like a business license but with more requirements. Business licenses typically only require paying a fee, while a construction license may also require a surety bond, background checks, prior experience, and passing a written test.

Check with your state and local governments for the exact requirements for each type of contracting business.

8. Get a Business Bank Account

Get a business bank account when starting your own business. In addition to registering as limited liability companies or corporations, this is how contractor companies keep their business expenses and personal finances separate.

Note that you’ll need your business registration documents and your employer identification number to open a business account.

Check out our blog about business accounts to learn about other benefits of getting the best business bank accounts.

9. Get General Liability Insurance (and Other Coverage)

Both general contracting companies and subcontractors need business insurance. You’ll want at least general liability protection and property insurance for your own company.

Most contractors will combine general liability, property insurance, and business income insurance in a business owner policy plan. You might also want to get other types of insurance, like:

• Equipment insurance: Covers losses when equipment is stolen
• Commercial auto insurance: Covers automotive accidents
• Workers’ compensation: Covers employee injuries
• Contractor’s broadening insurance: Protects from liability for professional mistakes that cause damage

10. Plan Funding and Finance

You may struggle with funding when you start your own company. Equipment and materials can be expensive, plus there is a period between when you need to buy everything and when you get paid.

Marc Rousso told us:

[su_quote]We had to sell our SUVs to get our first plot of land and then still needed hard money loans (i.e., loans backed by real property). It took us three years before we saw enough business success as a general contractor to qualify for normal bank loans.[/su_quote]

There are loans, partners, and other ways to start contractor business operations. Learn more about funding a contracting business.

11. Set Pricing

One of the hardest parts of the construction industry is estimating the time and materials required to build homes or commercial buildings.

That means you’ll want to have estimating software, like On-Screen Takeoff, and add your pricing sheets to it. Using this software allows you to quickly and accurately measure the dimensions of each material and create an estimate.

Both general contractors and independent contractors can benefit from this software.

You might also consider time-and-materials or fixed-price quote methods. Both have advantages and disadvantages that you must consider when you are operating on thin margins.

12. Brand and Market Your Business

Contractors often rely on word-of-mouth, but that’s not the only way to market your services. Vitaliy told us:

[su_quote]Up until the last year, we had no branding. The hoodies, car magnets, and hats we have now are only because my 12-year-old son started doing some graphic design work for fun.[/su_quote]

You need to be intentional in your marketing efforts. He also explained:

[su_quote]I have a signature style. I love the distressed wood look, but I want to provide a high-end vibe. That’s what the outside of many of our homes is. I’m amazed at how well it’s done.[/su_quote]

13. Find Customers

Marc uses a strategy of finding distressed homes in nice neighborhoods, buying, demolishing, and building beautiful custom homes.

Meanwhile, Vitaliy only works based on word-of-mouth referrals. He normally requires a 5% to 10% deposit when building a home.

Then, Vitaliy designs and builds the custom homes. Some homes are commissioned for a specific person, and others are built and sold to whoever offers the best price.

14. Follow Regulations

Starting a general contracting business requires complying with many laws and industry regulations. Vitaliy and Marc have to ensure they are up to date on all the rules that apply to their business to protect their customers and themselves.

Industry regulations include OSHA regulations, building codes, and other laws. General contractors must ensure that the subcontractors follow the laws, too.

They must also get the necessary permits for any project, hire licensed subcontractors, and schedule inspections.

15. Get Equipment

Successful general contractor businesses need a lot of tools and equipment. Vitaliy told us:

[su_quote]I spend about $1,000 per month and $15,000 every few months on larger purchases.[/su_quote]

16. Hire Subcontractors

A successful contractor can’t possibly be effective doing every position. There are too many skill sets necessary for a single build, and the easiest way to offer them is to hire talented subcontractors.

You’ll want to verify all subcontractors’ licenses, business insurance, and previous experience.

Your company stands to gain potential clients if the subcontractors represent you well. Their behavior on the job site can affect your business.

17. Monitor Performance and Grow

General contractors need to monitor performance as an ongoing task. The business’s finances and cash flow depend on consistent performance.

In addition to measuring the finances and timelines, you should also measure customer satisfaction. Your business entity should support customer requests after your initial services are complete. While a general contractor might do well in the build phase, Vitaliy mentioned:

[su_quote]One of the biggest differences between what I do and what other people who start a general contracting company do is I am heavily focused on supporting the customer after they move in, too.[/su_quote]

This helps increase satisfaction, word of mouth, and eventually growth. You must also seek out new clients as you manage your existing projects.

Are you ready to start your own general contractor business?

We’ve explained how to get into contracting and clarified the different types of contractors. We shared a handy step-by-step for starting a contracting business and relayed advice from two successful general contractors.

The primary responsibility of a general contractor is to make sure construction contracts go well. Make sure you give the kind of service you can be proud of showing people.

What else would you like to know about how to start a contractor business?

Have you ever wondered how to write a business plan step by step? Mike Andes, told us:  [su_quote]Poor planning is the number one reason I see a business fail. Being prepared is why people succeed.[/su_quote] This guide will help you write a business plan to impress investors. Throughout this process, we'll get information from Mike Andes, who started Augusta Lawn Care Services when he was 12 and turned it into a franchise with over 90 locations. He has gone on to help others learn how to write business plans and start businesses. He knows a thing or two about writing  business plans! We'll start by discussing the definition of a business plan. Then we’ll discuss how to come up with the idea, how to do the market research, and then the important elements in the business plan format. Keep reading to start your journey! [su_youtube url="https://www.youtube.com/watch?v=Seac5PbUZXk "]

What Is a Business Plan?

A business plan is simply a road map of what you are trying to achieve with your business and how you will go about achieving it. It should cover all elements of your business including: 

• Finding customers
• Plans for developing a team
•  Competition
• Legal structures
• Funding
• Key milestones you are pursuing

If you aren't quite ready to create a business plan, consider starting by reading our business startup guide.

Get a Business Idea

Before you can write a business plan, you have to have a business idea. You may see a problem that needs to be solved and have an idea how to solve it, or you might start by evaluating your interests and skills.  Mike told us, "The three things I suggest asking yourself when thinking about starting a business are:

• What am I good at?

• What would I enjoy doing?

• What can I get paid for?"

If all three of these questions don't lead to at least one common answer, it will probably be a much harder road to success. Either there is not much market for it, you won't be good at it, or you won't enjoy doing it.  As Mike told us, "There's enough stress starting and running a business that if you don't like it or aren't good at it, it's hard to succeed." If you'd like to hear more about Mike's approach to starting a business, check out our YouTube video

Conduct Market Analysis

Market analysis is focused on establishing if there is a target market for your products and services, how large the target market is, and identifying the demographics of people or businesses that would be interested in the product or service. The goal here is to establish how much money your business concept can make.

Product and Service Demand

A search engine is your best friend when trying to figure out if there is demand for your products and services. Personally, I love using presearch.org because it lets you directly search on a ton of different platforms including Google, Youtube, Twitter, and more. Check out the screenshot for the full list of search options. With quick web searches, you can find out how many competitors you have, look through their reviews, and see if there are common complaints about the competitors. Bad reviews are a great place to find opportunities to offer better products or services.  If there are no similar products or services, you may have stumbled upon something new, or there may just be no demand for it. To find out, go talk to your most honest friend about the idea and see what they think. If they tell you it's dumb or stare at you vacantly, there's probably no market for it. You can also conduct a survey through social media to get public opinion on your idea. Using Facebook Business Manager, you could get a feel for who would be interested in your product or service.  I ran a quick test of how many people between 18-65  you could reach in the U.S. during a week. It returned an estimated 700-2,000 for the total number of leads, which is enough to do a fairly accurate statistical analysis.

Identify Demographics of Target Market

Depending on what type of business you want to run, your target market will be different. The narrower the demographic, the fewer potential customers you'll have. If you did a survey, you'll be able to use that data to help define your target audience. Some considerations you'll want to consider are:

• Location
• Age
• Gender
• Other Interests
• Marital Status
• Do they have kids?
• Job title
• Income

Once you have this information, it can help you narrow down your options for location and help define your marketing further. One resource that Mike recommended using is the Census Bureau's Quick Facts Map. He told us,  "It helps you quickly evaluate what the best areas are for your business to be located."

How to Write a Business Plan

Now that you've developed your idea a little and established there is a market for it, you can begin writing a business plan. Getting started is easier with the business plan template we created for you to download. I strongly recommend using it as it is updated to make it easier to create an action plan.  Each of the following should be a section of your business plan:

1. Business Plan Cover Page
2. Table of Contents
3. Executive Summary
4. Company Description
5. Description of Products and Services
6. Marketing Plan
   • SWOT Analysis
   • Competitor Data
   • Competitive Analysis
   • Marketing Expenses Strategy 
   • Pricing Strategy
   • Distribution Channel Assessment
7. Operational Plan
8. Management and Organizational Strategy
9. Financial Statements and/or Financial Projections
10. Funding

We'll look into each of these. Don't forget to download our free business plan template (mentioned just above) so you can follow along as we go. 

How to Write a Business Plan Step 1. Create a Cover Page

The first thing investors will see is the cover page for your business plan. Make sure it looks professional. A great cover page shows that you think about first impressions. A good business plan should have the following elements on a cover page:

• Professionally designed logo
• Company name
• Mission or Vision Statement
• Contact Info

Basically, think of a cover page for your business plan like a giant business card. It is meant to capture people's attention but be quickly processed.

How to Write a Business Plan Step 2. Create a Table of Contents

Most people are busy enough that they don't have a lot of time. Providing a table of contents makes it easy for them to find the pages of your plan that are meaningful to them. A table of contents will be immediately after the cover page, but you can include it after the executive summary. Including the table of contents immediately after the executive summary will help investors know what section of your business plan they want to review more thoroughly. Check out Canva's article about creating a table of contents. It has a ton of great information about creating easy access to each section of your business plan. Just remember that you'll want to use different strategies for digital and hard copy business plans.

How to Write a Business Plan Step 3. Write an Executive Summary

An executive summary is where your business plan should catch the readers interest.  It doesn't need to be long, but should be quick and easy to read. Mike told us, [su_quote]A business plan should only be a page or two unless you are trying to get investors. Banks will normally need around 40 pages of information.[/su_quote]

How long should an executive summary bein an informal business plan?

For casual use, an executive summary should be similar to an elevator pitch, no more than 150-160 words, just enough to get them interested and wanting more. Indeed has a great article on elevator pitches.  This can also be used for the content of emails to get readers' attention. It consists of three basic parts:

• An introduction to you and your business.
• What your business is about.
• A call to action

Example of an informal executive summary 

One of the best elevator pitches I've used is: [su_quote]Hi I'm Brandon Boushy with Vintage Vest Company. We're a startup clothing line based around the tenets of Music, Freedom, and  Country.  We love your music and think you'd be a great fit to partner with our brand. We're planning to come to your show on X date and would love it if you could take about 5-10 minutes to check out what we're doing.[/su_quote] So far that pitch has achieved a 100% success rate in getting partnerships for the business.

What should I include in an executive summary for investors?

Investors are going to need a more detailed executive summary if you want to secure financing or sell equity. The executive summary should be a brief overview of your entire business plan and include:

• Introduction of yourself and company.
• An origin story (Recognition of a problem and how you came to solution)
• An introduction to your products or services.
• Your unique value proposition. Make sure to include intellectual property.
• Where you are in the business life cycle
• Financials
• Request and why you need it.

Successful business plan examples

When to write an executive summary?

Even though the summary is near the beginning of a business plan, you should write it after you complete the rest of a business plan. You can't talk about revenue, profits, and expected expenditures if you haven't done the market research and created a financial plan.

What mistakes do people make when writing an executive summary?

Business owners commonly go into too much detail about the following items in an executive summary:

• Marketing and sales processes
• Financial statements
• Organizational structure
• Market analysis

These are things that people will want to know later, but they don’t hook the reader. They won't spark interest in your small business, but they'll close the deal.

How to Write a Business Plan Step 4. Company Description

Every business plan should include a company description. A great business plan will include the following elements while describing the company:

1. Mission statement
2. Philosophy and vision
3. Company goals
4. Target market
5. Industry
6. Legal structure

Let's take a look at what each section includes in a good business plan.

Mission Statement

A mission statement is a brief explanation of why you started the company and what the company's main focus is. It should be no more than one or two sentences. Check out HubSpot's article 27 Inspiring Mission Statement for a great read on informative and inspiring mission and vision statements. 

Company Philosophy and Vision

The company philosophy is what drives your company. You'll normally hear them called core values.  These are the building blocks that make your company different. You want to communicate your values to customers, business owners, and investors as often as possible to build a company culture, but make sure to back them up.

What makes your company different?

Each company is different. Your new business should rise above the standard company lines of honesty, integrity, fun, innovation, and community when communicating your business values. The standard answers are corporate jargon and lack authenticity. 

Examples of core values

One of my clients decided to add a core values page to their website. As a tech company they emphasized the values:

•  Prioritize communication.
•  Never stop learning.
•  Be transparent.
•  Start small and grow incrementally.

These values communicate how the owner and the rest of the company operate. They also show a value proposition and competitive advantage because they specifically focus on delivering business value from the start. These values also genuinely show what the company is about and customers recognize the sincerity. Indeed has a great blog about how to identify your core values.

What is a vision statement?

A vision statement communicate the long lasting change a business pursues. The vision helps investors and customers understand what your company is trying to accomplish. The vision statement goes beyond a mission statement to provide something meaningful to the community, customer's lives, or even the world.

Example vision statements

The Alzheimer's Association is a great example of a vision statement:

A world without Alzheimer's Disease and other dementia.

It clearly tells how they want to change the world. A world without Alzheimers might be unachievable, but that means they always have room for improvement.

Business Goals

You have to measure success against goals for a business plan to be meaningful. A business plan helps guide a company similar to how your GPS provides a road map to your favorite travel destination. A goal to make as much money as possible is not inspirational and sounds greedy. Sure, business owners want to increase their profits and improve customer service, but they need to present an overview of what they consider success. The goals should help everyone prioritize their work.

How far in advance should a business plan?

Business planning should be done at least one year in advance, but many banks and investors prefer three to five year business plans. Longer plans show investors that the management team  understands the market and knows the business is operating in a constantly shifting market. In addition, a plan helps businesses to adjust to changes because they have already considered how to handle them.

Example of great business goals

My all time-favorite long-term company goals are included in Tesla's Master Plan, Part Deux. These goals were written in 2016 and drive the company's decisions through 2026. They are the reason that investors are so forgiving when Elon Musk continually fails to meet his quarterly and annual goals. If the progress aligns with the business plan investors are likely to continue to believe in the company. Just make sure the goals are reasonable or you'll be discredited (unless you're Elon Musk).

Target market

You did target market research before creating a business plan. Now it's time to add it to the plan so others understand what your ideal customer looks like. As a new business owner, you may not be considered an expert in your field yet, so document everything. Make sure the references you use are from respectable sources.  Use information from the specific lender when you are applying for lending. Most lenders provide industry research reports and using their data can strengthen the position of your business plan.

Industry

A small business plan should include a section on the external environment. Understanding the industry is crucial because we don't plan a business in a vacuum. Make sure to research the industry trends, competitors, and forecasts. I personally prefer IBIS World for my business research. Make sure to answer questions like:

1. What is the industry outlook long-term and short-term?
2. How will your business take advantage of projected industry changes and trends?
3. What might happen to your competitors and how will your business successfully compete?

Industry resources

Some helpful resources to help you establish more about your industry are:

• Trade Associations
• Federal Reserve
• Bureau of Labor Statistics
• Statista

Legal Structure

There are five basic types of legal structures that most people will utilize:

1. Sole proprietorships
2. Limited Liability Companies (LLC)
3. Partnerships
4. Corporations
5. Franchises.

Each business structure has their pros and cons. An LLC is the most common legal structure due to its protection of personal assets and ease of setting up. Make sure to specify how ownership is divided and what roles each owner plays when you have more than one business owner. You'll have to decide which structure is best for you, but we've gathered information on each to make it easier.

Sole Proprietorship

A sole proprietorship is the easiest legal structure to set up but doesn't protect the owner's personal assets from legal issues. That means if something goes wrong, you could lose both your company and your home. To start a sole proprietorship, fill out a special tax form called a Schedule C. Sole proprietors can also join the American Independent Business Alliance.

Limited Liability Company (LLC)

An LLC is the most common business structure used in the United States because an LLC protects the owner's personal assets. It's similar to partnerships and corporations, but can be a single-member LLC in most states. An LLC requires a document called an operating agreement. Each state has different requirements. Here’s a link to find your state's requirements. Delaware and Nevada are common states to file an LLC because they are really business-friendly. Here's a blog on the top 10 states to get an LLC.

Partnerships

Partnerships are typically for legal firms. If you choose to use a partnership choose a Limited Liability Partnership. Alternatively, you can just use an LLC.

Corporations

Corporations are typically for massive organizations. Corporations have taxes on both corporate and income tax so unless you plan on selling stock, you are better off considering an LLC with S-Corp status. Investopedia has good information corporations here.

Franchise

There are several opportunities to purchase successful franchises. TopFranchise.com has a list of companies in a variety of industries that offer franchise opportunities. This makes it where an entrepreneur can benefit from the reputation of an established business that has already worked out many of the kinks of starting from scratch.

How to Write a Business Plan Step 5. Products and Services

This section of the business plan should focus on what you sell, how you source it, and how you sell it. You should include:

1. Unique features that differentiate your business products from competitors
2. Intellectual property
3. Your supply chain
4. Cost and pricing structure 

Questions to answer about your products and services

Mike gave us a list  of the most important questions to answer about your product and services:

• How will you be selling the product? (in person, ecommerce, wholesale, direct to consumer)?
• How do you let them know they need a product?
• How do you communicate the message?
• How will you do transactions?
• How much will you be selling it for?
• How many do you think you'll sell and why?

Make sure to use the worksheet on our business plan template.

How to Write a Business Plan Step 6. Sales and Marketing Plan

The marketing and sales plan is focused on the strategy to bring awareness to your company and guides how you will get the product to the consumer.  It should contain the following sections:

1. SWOT Analysis
2. Competitor Data
3. Competitive Analysis
4. Marketing Expenses Strategy 
5. Pricing Strategy
6. Distribution Channel Assessment

SWOT Analysis

SWOT Analysis stands for strengths, weaknesses, opportunities, and threats. Not only do you want to identify them, but you also want to document how the business plans to deal with them. Business owners need to do a thorough job documenting how their service or product stacks up against the competition. If proper research isn't done, investors will be able to tell that the owner hasn't researched the competition and is less likely to believe that the team can protect its service from threats by the more well-established competition. This is one of the most common parts of a presentation that trips up business owners presenting on Shark Tank.

SWOT Examples

  Examples of strengths and weaknesses could be things like the lack of cash flow, intellectual property ownership, high costs of suppliers, and customers’ expectations on shipping times. Opportunities could be ways to capitalize on your strengths or improve your weaknesses, but may also be gaps in the industry. This includes:

• Adding offerings that fit with your current small business
• Increase sales to current customers
• Reducing costs through bulk ordering
• Finding ways to reduce inventory
•  And other areas you can improve

Threats will normally come from outside of the company but could also be things like losing a key member of the team. Threats normally come from competition, regulations, taxes, and unforeseen events. The management team should use the SWOT analysis to guide other areas of business planning, but it absolutely has to be done before a business owner starts marketing. 

Include Competitor Data in Your Business Plan

When you plan a business, taking into consideration the strengths and weaknesses of the competition is key to navigating the field. Providing an overview of your competition and where they are headed shows that you are invested in understanding the industry. For smaller businesses, you'll want to search both the company and the owners names to see what they are working on. For publicly held corporations, you can find their quarterly and annual reports on the SEC website. What another business plans to do can impact your business. Make sure to include things that might make it attractive for bigger companies to outsource to a small business.

Marketing Strategy

The marketing and sales part of business plans should be focused on how you are going to make potential customers aware of your business and then sell to them. If you haven't already included it, Mike recommends: [su_quote]Start by providing the information from business research, surveys, observations, etc.[/su_quote] He adds, "They'll want to know about Demographics, ages, and wealth of your target market." Make sure to include the Total addressable market. The term refers to the value if you captured 100% of the market.

Advertising Strategy

You'll explain what formats of advertising you'll be using. Some possibilities are:

• Online: Facebook and Google are the big names to work with here.
• Print: Print can be used to reach broad groups or targeted markets. Check out this for tips.
• Radio: iHeartMedia is one of the best ways to advertise on the radio
• Cable television: High priced, hard to measure ROI, but here's an explanation of the process
• Billboards: Attracting customers with billboards can be beneficial in high traffic areas.

You'll want to define how you'll be using each including frequency, duration, and cost. If you have the materials already created, including pictures or links to the marketing to show creative assets. Mike told us "Most businesses are marketing digitally now due to Covid, but that's not always the right answer." Make sure the marketing strategy will help team members or external marketing agencies stay within the brand guidelines.

Pricing Strategy

This section of a business plan should be focused on pricing. There are a ton of pricing strategies that may work for different business plans. Which one will work for you depends on what kind of a business you run. Some common pricing strategies are:

• Value-based pricing – Commonly used with home buying and selling or other products that are status symbols.
• Skimming pricing – Commonly seen in video game consoles, price starts off high to recoup expenses quickly, then reduces over time.
• Competition-based pricing- Pricing based on competitors’ pricing is commonly seen at gas stations.
• Freemium services – Commonly used for software, where there is a free plan, then purchase options for more functionality.

HubSpot has a great calculator and blog on pricing strategies. Beyond explaining what strategy your business plans to use, you should include references for how you came to this pricing strategy and how it will impact your cash flow.

Distribution Plan

This part of a business plan is focused on how the product or service is going to go through the supply chain. These may include multiple divisions or multiple companies. Make sure to include any parts of the workflow that are automated so investors can see where cost savings are expected and when.

Supply Chain Examples

For instance, lawn care companies  would need to cover aspects such as:

• Suppliers for lawn care equipment and tools
• Any chemicals or treatments needed
• Repair parts for sprinkler systems
• Vehicles to transport equipment and employees
• Insurance to protect the company vehicles and people.

Examples of Supply Chains

These are fairly flat supply chains compared to something like a clothing designer where the clothes would go through multiple vendors. A clothing company might have the following supply chain:

1. Raw materials
2. Shipping of raw materials
3. Converting of raw materials to thread
4. Shipping thread to produce garments
5. Garment producer
6. Shipping to company
7. Company storage
8. Shipping to retail stores

There have been advances such as print on demand that eliminate many of these steps. If you are designing completely custom clothing, all of this would need to be planned to keep from having business disruptions. The main thing to include in the business plan is the list of suppliers, the path the supply chain follows, the time from order to the customer’s home, and the costs associated with each step of the process. According to BizPlanReview, a business plan without this information is likely to get rejected because they have failed to research the key elements necessary to make sales to the customer.

How to Write a Business Plan Step 7. Company Organization and Operational Plan

This part of the business plan is focused on how the business model will function while serving customers.  The business plan should provide an overview of  how the team will manage the following aspects:

• Production
• Quality Control
• Location
• Legal environment
• Personnel

Let's look at each for some insight.

Production

Production has already been discussed in previous sections so I won't go into it much. When writing a business plan for investors, try to avoid repetition as it creates a more simple business plan. If the organizational plan will be used by the team as an overview of how to perform the best services for the customer, then redundancy makes more sense as it communicates what is important to the business.

Quality Control

Quality control policies help to keep the team focused on how to verify that the company adheres to the business plan and meets or exceeds customer expectations. Quality control can be anything from a standard that says "all labels on shirts can be no more than 1/16" off center" to a defined checklist of steps that should be performed and filled out for every customer. There are a variety of organizations that help define quality control including:

• International Organization for Standardization – Quality standards for energy, technology, food, production environments, and cybersecurity
• AICPA – Standard defined for accounting.
• The Joint Commission – Healthcare
• ASHRAE – HVAC best practices

You can find lists of the organizations that contribute most to the government regulation of industries on Open Secrets. Research what the leaders in your field are doing. Follow their example and implement it in your quality control plan.

Location

For location, you should use information from the market research to establish where the location will be. Make sure to include the following in the location documentation.

• The size of your location
• The type of building (retail, industrial, commercial, etc.)
• Zoning restrictions – Urban Wire has a good map on how zoning works in each state
• Accessibility – Does it meet ADA requirements?
• Costs including rent, maintenance, utilities, insurance and any buildout or remodeling costs
• Utilities – b.e.f. has a good energy calculator.

Legal Environment

The legal requirement section is focused on defining how to meet the legal requirements for your industry. A good business plan should include all of the following:

1. Any licenses and/or permits that are needed and whether you’ve obtained them
2. Any trademarks, copyrights, or patents that you have or are in the process of applying for
3. The insurance coverage your business requires and how much it costs
4. Any environmental, health, or workplace regulations affecting your business
5. Any special regulations affecting your industry
6. Bonding requirements, if applicable

Your local SBA office can help you establish requirements in your area. I strongly recommend using them. They are a great resource.

Personnel

Your business plan should include a plan for company organization and hiring. While you may be the only person with the company right now, down the road you'll need more people. Make sure to consider and document the answers to the following questions:

• What is the current leadership structure and what will it look like in the future?
• What types of employees will you have? Are there any licensing or educational requirements?
• How many employees will you need?
• Will you ever hire freelancers or independent contractors?
• What is each position's job description?
• What is the pay structure (hourly, salaried, base plus commission, etc.)?
• How do you plan to find qualified employees and contractors?

One of the most crucial parts of a business plan is the organizational chart. This simply shows the positions the company will need, who is in charge of them and the relationship of each of them. It will look similar to this: Our small business plan template has a much more in-depth organizational chart you can edit to include when you include the organizational chart in your business plan.

How to Write a Business Plan Step 8. Financial Statements 

No business plan is complete without financial statements or financial projections. The business plan format will be different based on whether you are writing a business plan to expand a business or a startup business plan. Let's dig deeper into each.

Provide All Financial Income from an Existing Business

An existing business should use their past financial documents including the income statement, balance sheet, and cash flow statement to find trends to estimate the next 3-5 years. You can create easy trendlines in excel to predict future revenue, profit and loss, cash flow, and other changes in year-over-year performance. This will show your expected performance assuming business continues as normal. If you are seeking an investment, then the business is probably not going to continue as normal. Depending on the financial plan and the purpose of getting financing, adjustments may be needed to the following:

• Higher Revenue if expanding business
• Lower Cost of Goods Sold if purchasing inventory with bulk discounts
• Adding interest if utilizing financing (not equity deal)
• Changes in expenses
• Addition of financing information to the cash flow statement
• Changes in Earnings per Share on the balance sheet

Financial modeling is a challenging subject, but there are plenty of low-cost courses on the subject. If you need help planning your business financial documentation take some time to watch some of them. Make it a point to document how you calculated all the changes to the income statement, balance sheet, and cash flow statement in your business plan so that key team members or investors can verify your research.

Financial Projections For A Startup Business Plan

Unlike an existing business, a startup doesn't have previous success to model its future performance. In this scenario, you need to focus on how to make a business plan realistic through the use of industry research and averages. Mike gave the following advice in his interview: [su_quote]Provide 3-5 years of financial projections and try to be realistic. If you don't have revenue yet, guess based on industry averages. Make sure you have accurate information. Good information is important. Make sure it is well documented[/su_quote]

Financial Forecasting Mistakes

One of the things a lot of inexperienced people use is the argument, "If I get one percent of the market, it is worth $100 million." If you use this, investors are likely to file the document under bad business plan examples. Let's use custom t-shirts as an example. Credence Research estimated in 2018 there were 11,334,800,000 custom t-shirts sold for a total of $206.12 Billion, with a 6% compound annual growth rate. With that data,  you can calculate that the industry will grow to $270 Billion in 2023 and that the average shirt sold creates $18.18 in revenue. Combine that with an IBIS World estimate of 11,094 custom screen printers and that means even if you become an average seller, you'll get .009% of the market. Here's a table for easier viewing of that information. The point here is to make sure your business proposal examples make sense. You'll need to know industry averages such as cost of customer acquisition, revenue per customer, the average cost of goods sold, and admin costs to be able to create accurate estimates. Our simple business plan templates walk you through most of these processes. If you follow them you'll have a good idea of how to write a business proposal.

How to Write a Business Plan Step 9. Business Plan Example of Funding Requests

What is a business plan without a plan on how to obtain funding? The Small Business Administration has an example for a pizza restaurant that theoretically needed nearly $20k to make it through their first month. In our video, How to Start a $500K/Year T-Shirt Business (Pt. 1), Sanford Booth told us he needed about $200,000 to start his franchise and broke even after 4 months. Freshbooks estimates it takes on average 2-3 years for a business to be profitable, which means the fictitious pizza company from the SBA could need up to $330k to make it through that time and still pay their bills for their home and pizza shop. Not every business needs that much to start, but realistically it's a good idea to assume that you need a fairly large cushion.

Ways to get funding for a small business

There are a variety of ways to cover this. the most common are:

• Bootstrapping – Using your savings without external funding.
• Taking out debt – loans, credit cards
• Equity, Seed Funding – Ownership of a percentage of the company in exchange for current funds
• Crowdsourcing – Promising a good for funding to create the product

Keep reading for more tips on how to write a business plan.

How funding will be used

When asking for business financing make sure to include:

• How much to get started?
• What is the minimum viable product and how soon can you make money?
• How will the money be spent?

Mike emphasized two aspects that should be included in every plan,  [su_quote]Include a plan for when things go wrong and make it clearly defined what the exit strategy will be. Whether it is to hand it over to your kids, sell it, or turn it into a franchise, let your investors know your intent.[/su_quote]

How to Write a Business Plan Resources

Here are some links to a business plan sample and business plan outline. 

• Sample plan
• Outline

It’s also helpful to follow some of the leading influencers in the business plan writing community. Here’s a list:

• Wise Plans – Shares a lot of information on starting businesses and is a business plan writing company.
• Optimus Business Plans – Another business plan writing company.
• Venture Capital – A venture capital thread that can help give you ideas.

How to Write a Business Plan: What's Next?

We hope this guide about how to write a simple business plan step by step has been helpful. We've covered:

1. The definition of a business plan
2. Coming up with a business idea
3. Performing market research
4. The critical components of a business plan
5. An example business plan

In addition, we provided you with a simple business plan template to assist you in the process of writing your startup business plan. The startup business plan template also includes a business model template that will be the key to your success. Don't forget to check out the rest of our business hub. Have you written a business plan before? How did it impact your ability to achieve your goals?

According to Move.org, infant childcare costs between 10.6% and 26.3% of household income. It’s no wonder that many parents decide it’s more beneficial for a parent to stay at home than to go back to work and spend a large portion of their income to pay someone else to watch their own children. That’s why we’re going to show you how to start a daycare.

Kristy Bickmeyer started Twinkle Toes Nanny Agency when she struggled to find placement in daycare centers and nanny agencies required a $1K-2K placement fee just to provide a list of nannies. She created a network that provides nannies and families better in-home child care. 

In less than 15 years, Twinkle Toes has grown to a franchise with more than $12 million in revenue and 20 locations across 5 states. We’ll share Kristy’s approach to the daycare business and how it’s revolutionized the daycare industry. Best of all, she’s done all this with word-of-mouth marketing.

[su_note note_color="#dbeafc"]

We’ll discuss how to become a daycare business owner by providing you with information on the following subjects:

• 9 Steps to Start a $12 Million Day Care Business
  
  • Should I Start a Daycare Business?
  • How to Start a Day Care Business
    
    • Step 1. Get Early Childhood Education (ECE) Credentials (Optional)
    • Step 2. Research Your Location’s Daycare Licensing Requirements
    • Step 3. Perform Competitive Analysis of Daycare In Your Area
    • Step 4. Write a Day Care Business Plan
    • Step 5. Research Childcare Tax Credits
    • Step 6. Pursue Early Childhood Education Grants and Funding
    • Step 7. Create a Childcare Contract
    • Step 8. Market Your Child Care Business
    • Step 9. Provide Great Customer Service
  • Day Care Business Ideas
  • How much does it cost to start a daycare?
  • Resources for Daycare Owners
  • Ready to Start Your Own Daycare?

[/su_note]

Let's start by discussing the future of the daycare business.

Should I Start a Daycare Business?

According to IBIS World, daycare businesses in the United States make $60.8 billion in revenue with a median profit margin of 9.3%. Business consistently grows with the birth of new babies which means it is virtually recession-proof. 

You can make even higher profits if you run a daycare like Kristy which is a nanny service. The median nanny service is approximately 51.7% profit because they provide at-home childcare. Kristy told us:

[su_quote]I went through a lot of business models before I finally found one that worked for everyone. I considered the standard model, monthly recurring fees, and finally found the model I have now.[/su_quote]

Check out the rest of our interview with her below.

How to Start a Day Care Business

Ultimately, your goal is to provide child care for parents. Whether you go to their home, they drop their kids off at your house, or you run a facility with multiple people, you’ll want to follow our 9-step process when starting a day care company:

1. Get Early Childhood Education (ECE) Credentials (Optional)
2. Research Your Location’s Daycare Licensing Requirements
3. Perform Competitive Analysis of Daycare In Your Area
4. Write a Daycare Business Plan
5. Research Childcare Tax Credits
6. Pursue Early Childhood Education Grants and Funding 
7. Create a Childcare Contract
8. Market Your Child Care Business
9. Provide Great Customer Service

Step 1. Get Early Childhood Education (ECE) Credentials (Optional)

This step is mostly for those running a child care facility or preschool, but if you’re running a nanny business, the early childhood education credentials could be a differentiating factor.

What Certifications Do I Need to Open a Daycare?

Some states may have certification requirements for daycare business operations, but it is always useful to have the following certifications. 

• CPR and First Aid: Current CPR certification is important for any daycare provider because it will teach you how to provide basic life support in an emergency. Find CPR training near you.
• Child Development: This certification will teach you about child development and how to care for children of different ages. It requires 120 hours of education and passing a test. Learn more.
• Early Childhood Education: This 180-hour certification will teach you about the principles of early childhood education and how to create a stimulating and educational environment for children. It is offered by the Childcare Education Institute.
• Food Safety: This certification will teach you about food safety practices and how to prevent the spread of foodborne illness. These are normally offered by your local health district.
• First Aid for Infants and Toddlers: This certification will teach you about the specific needs of infants and toddlers and how to provide first aid for them. You can take this with the Red Cross online.
• Trauma-Responsive Care Certification: This certification will teach you about the philosophy of responsive care and how to create a nurturing and responsive environment for children.
• Positive Discipline: This certification will teach you about the principles of positive discipline and how to use positive reinforcement and redirection to discipline children.
• Child Passenger Safety: This certification will teach you to be a child safety technician and install car seats properly.

These are just a few of the many certifications that are available for daycare providers. By obtaining these certifications, you can demonstrate your commitment to providing quality care for children. 

Some of these may apply to other daycares like adult daycare and home health assistants.

Step 2. Research Your Location’s Daycare Licensing Requirements

Childcare.gov states that a childcare business should meet these minimum requirements:

• Building safety standards
• Child and caregiver health standards
• Emergency preparedness
• Monitoring government regulatory environment for new health and safety requirements impacting child care providers
• Perform criminal background checks on all daycare employees
• Routine CPR, first aid, and safe sleep for infants training for employees
• Sanitation standards
• Business insurance requirements

Check out Childcare Aware for state-specific resources for early childhood education providers.

Kristy told us:

[su_quote]I wish someone had told me, ‘Don’t even bother researching going with a child care service. I would go straight to offering nanny services.’[/su_quote]

Requirements for nanny services are much easier to meet, but make sure you aren’t violating the laws. You’re taking care of other people’s children. It’s important they can trust you with their kids.

[su_note note_color="#dbeafc"]

 

In June of 2023, a Las Vegas resident’s husband was arrested for sex crimes. The resident was running an unlicensed in-home childcare center and intends to continue. Parent groups in the area have started an active campaign to prevent her from doing so.

This story displays the importance of being cautious about who you hire in childcare providers. If your business gets caught in something like this, there is no recovery. Make sure to comply with all government regulations.[/su_note]

As Kristy said:

[su_quote]As a mother, I wouldn’t let anyone watch my clients’ kids that I wouldn’t let watch my own.[/su_quote]

That’s why background checks are so important.

Keep reading to learn how to analyze the budding child care centers in your area.

Step 3. Perform Competitive Analysis of Daycare In Your Area

Research the daycare and nanny agencies in your location. You’ll want to know:

• How many daycare centers are there?
• Where is each daycare center located?
• What complaints and praise can you find about each child care center?
• How much does each profitable daycare business charge?
• Are there waiting lists for each daycare center?
• What services does the daycare industry have or lack?

This information will help you write your daycare business plans, which we’ll discuss next.

Step 4. Write a Day Care Business Plan

A business plan for a daycare service can be used to help you achieve your goals faster, get financing, and help employees make decisions based on the mission statement and values. Your business plan should include the following:

• Business Purpose: What makes your business different, how you’ll help customers, what your goals are. Make sure to include your mission and vision, too.
• Local Demand: Use the Census Bureau and your competitive analysis research to establish how many kids between 1-6 years old are in your area, how many need daycare, and how much they can pay.
• Financial Plan: A detailed budget of how much you’ll attempt to make and what you’ll spend it on. Be realistic. You should include both startup costs and ongoing expenses for up to 5 years.
• Insurance Policies: Day care facilities definitely need insurance. What happens if a kid is injured or dies?
• Standard Operating Procedures: Make sure to document rules and policies for everything you can think of. Make this a living document.
• Marketing Plan: Document exactly how you will market your daycare to find customers, nannies, and employees.

Kristy told us:

[su_quote]The benefit of buying a Twinkle Toes franchise is that we’ve already created the business plan. You just have to follow it.[/su_quote]

You’ll need $35K for the original franchise fee and an ongoing royalty of 3%. Learn more.

Keep reading for information on differentiating your own business from other local businesses when starting a daycare business.

Decide What Makes Your Daycare Business Unique

Your unique selling point for a daycare could be any number of differentiating factors. It might be the cleanliness of your facility, pricing, education, or in Kristy’s case:

[su_quote]The parents don’t have to deal with recruiting or nanny contracts and payroll. We handle it all so they only have to focus on choosing the one they like best. Then they pay the weekly invoice.[/su_quote]

Prepare a Budget

You can prepare a budget for your daycare startup and ongoing costs using the following percentages. Make sure to stay within your state limits for clients per caregiver.

Managing business finances by the numbers is the best way to build financial freedom over the long run.

Next, we’ll discuss the financial assistance available to families and small businesses opening a daycare center.

Step 5. Research Childcare Tax Credits

The federal government and some states offer tax credits to help people pay for child care. You can find information on the child and dependent care credit by going to IRS Topic 602.

Basically, it allows credits of up to $3,000 for one child or $6,000 for more than one child under 13 years old. If the child qualifies, they can claim between 20% and 35% of their income. The percentage claimable decreases as income rises.

A daycare owner should understand these tax credits to help people navigate them. The tax credits also impact how much people can realistically afford to spend. If you open a daycare for after-school care, you might want to charge the amounts in the table below.

Time Period	Amount to Qualify Assuming 180 Day School Year
Daily	$16.66/kid
Weekly	$83.33/kid
Monthly	$500/kid
School Year	$3,000/kid

Don’t forget to see if your state has any tax credits. I found the Keeper Tax write-off guide useful for common tax deductions during tax season.

Next, let’s discuss some unique opportunities a business owner has when starting a daycare.

Step 6. Pursue Early Childhood Education Grants and Funding 

There are numerous grants and funding opportunities when opening a daycare or other childcare location. Utilize as many as possible to improve your own daycare business and help children develop during their early years. 

Check out daycare center grants available at some of the following locations:

• Childcare Lounge: Site for finding grants for childcare facilities.
• Health and Human Services: Government department that provides aid for families and business expenses.
• Family Services: Offers assistance to families. A childcare center can accept funds directly from the agency, too. These are run by local agencies.

Next, we’ll discuss the importance of creating a daycare business contract before opening a daycare.

Step 7. Create a Childcare Contract

Your childcare contract is the basis for the services and payments exchanged between your daycare business and your customers. You’ll want to include the following sections:

• Parties: The names of the day care provider and the parents
• The Children: How many kids, names, and birth dates
• Duration: The beginning date, length of contract, and end date
• Child Care Services: What services will and will not be covered
• Schedule: Days of the week and times the daycare will watch the children
• Holidays: Any provisions for how holidays are handled
• Payment Amount: How much you’ll charge per period of time
• Payment Method: How often the parent needs to pay
• Deposit: Any charge for a security deposit
• Absences: How to handle absences
• Vacation Times: How to handle vacation periods
• Damages: How to handle damages
• Governing Law: The state the contract law is based on
• Severability: This is a standard contract term that makes it where one clause does not render the full contract useless
• Additional Terms & Conditions: Place to add additional terms
• Entire Agreement: Clause stating that the daycare contract is the primary contract and can only be superseded by contracts signed by both parties after the original contract

You should always consult with a licensed attorney to verify your contract is enforceable, but download our childcare contract template to get started.

In-home daycares should modify the contract because it is written for a daycare center where parents drop off their kids.

Next, we’ll discuss the importance of marketing when opening a daycare.

Step 8. Market Your Child Care Business

Marketing your daycare opening is crucial to help get customers to your business. Most daycares use a combination of several different marketing strategies including:

1. Paid and free social media
2. Search engine optimization
3. Word-of-mouth
4. Email marketing
5. Door hangers/mailers
6. Referral agreements
7. Create flyers and hang them on local bulletin boards

Keep reading for more advice on how to open a daycare.

Advice on Word-of-Mouth Marketing

Kristy told us:

[su_quote]I primarily used word-of-mouth because I had more time than money. One of my first clients was my former boss at the surgery center. Two of the surgeons I worked with sent out an email blast to all the employees and that was the turning point where I could quit my day job and focus solely on Twinkle Toes.[/su_quote]

Next, we’ll talk about how relationships with a child care center can be highly beneficial for in-home daycare providers.

Referral Agreements

One of the unique strategies that Kristy uses is trading referrals with childcare centers in her area. When there is a waiting list, the day care centers will refer their clients to her and Kristy’s company will provide nannies until the daycare center can admit the kids. She also explained:

[su_quote]During the lockdowns, child centers closed, but we were still operating. The centers sent all their employees to us so they could come back once the lockdown ended.[/su_quote]

Whether you run a home daycare or provide childcare in home, you can benefit by providing great customer service. Find out how.

Step 9. Provide Great Customer Service

Kristy explained that customer service is the primary driver of a successful daycare center.

[su_quote]Parents want to know that their children are safe. In my scenario I won’t hire anyone that I wouldn’t let watch my own kids. That makes them feel more comfortable. Then, when something goes wrong, you need to be there for them.

I have seen daycares that just offer a discount and don’t show they care. I don’t want to be that kind of small business owner.[/su_quote]

Day Care Business Ideas

There are different types of day cares you can start including:

1. Doggie day care
2. At-home day care
3. In-home child care
4. Adult day care
5. Special needs day care
6. Day care centers
7. In-home preschools

How to Start a Dog Day Care Business

Dog day cares focus on providing a place for a dog to go play while the person is at work or on vacation.

1. Create a doggie daycare business plan
2. Decide where you’ll host the dogs.
3. Hire staff
4. Get equipment to care for dogs
5. Evaluate dog behavior
6. Market your daycare
7. Provide service

These care facilities are less profitable and consistent than other small businesses, but pet owners love their animals and are willing to pay a premium for good care.

Have Your Own Children? Consider How to Start an At-Home Daycare

At-home daycare is when you host day care services in your home. This is perfect for people with their own kids. You can make money and watch other people’s kids in your home. You’ll have fewer kids in an at-home daycare and you probably won’t have employees. 

There will be special rules you’ll have to follow if you choose to start a small business this way, but your business will pay part of your housing payment. Most parents would actually prefer for the more personalized care, but kids can get possessive of the stuffed animals.

How to Start an In-Home Child Care Business

In-home child care businesses, or nannies, go to people’s homes and watch their kids exclusively. Kristy described the difference between a nanny agency and the way Twinkle Toes works.

[su_quote]Normal nanny agencies don’t handle all the contracts, while we do. At Twinkle Toes, when a client is going out of town, the nanny can pick up shifts with other clients. If a nanny doesn’t work out, we help them cover it.[/su_quote]

Effectively Kristy started a home daycare that is part daycare, part nanny service.

How to Start an Adult Day Care

An adult day care helps adults that can’t care for themselves. This may mean taking care of people with disabilities or health problems. You’ll probably need special licensing based on the type of patients you’ll be helping.

Providing adequate care is a big business, but you’ll want to make sure you follow all the laws, like the Americans with Disabilities Act and any other laws governing elderly care.

How to Start a Special Needs Day Care

Special needs day care facilities are specifically focused on helping kids or adults with mental, physical, or health issues. The care will normally be focused on a specific category of problems like Alzheimer's patients or kids with Down’s syndrome. Because each health issue requires different care, you’ll need to research requirements for caring for their specific challenges.

How to Start a Day Care Center

Day Care centers have specific rules that have to be followed about:

• The ratio of children per adult
• Hiring standards
• Insurance
• Inspections

Start by researching your location’s laws about day care centers, and then follow the rest of this guide. 

How to Start an In-Home Preschool

In-home preschools are much like day care centers but have an added emphasis on learning. Education facilities will normally have additional accreditation processes like those from NECPA. Make sure to check with your school board to see what accreditations they require. 

How much does it cost to start a daycare?

A daycare is not the least expensive business to start, but it can be a rewarding career with lots of potential clients. You’ll also have plenty of professional development work as you start your own business 

It may be beneficial to understand the financial commitment you’ll make when starting a daycare. The cost to start a daycare business is between $10K and $100K, but most can start daycares for under $50K.

Overall, at-home daycares normally require lower start-up costs because there are no costs associated with buying or renting a space. 

The operating costs of running a daycare center include:

• Rent or mortgage
• Utilities
• Insurance
• Food
• Supplies
• Staff salaries
• Marketing
• Licensing and permits

Let’s look at the typical costs associated with daycare businesses.

Rent and Utilities

Most commercial spaces charge between $0.60 and $2.50 per square foot. Plus, you’ll need to pay expenses like electricity, water, heating, TV, phone, and internet.

Home-based daycare centers won’t have these costs, but you'll still be able to deduct the expenses if you run an in-home daycare. If you go to other people’s homes, you’ll have costs of transportation.

Employee Compensation

The Bureau of Labor Statistics estimates childcare workers in the U.S. earn between $21K and $40K per year. The employee salaries will vary based on education, location, certifications, and years of experience. You can find detailed statistics about day care positions and their hourly pay on Payscale.com.

Licensing Fees

Every state has different daycare business licensing fees and requirements. Contact your state's early childhood education department for more information. The licensing process can be quite challenging. 

We’ve provided a picture of Nevada’s process as an example. Don’t be surprised if you are spending $10K+ and 6 months to complete everything.

Insurance

Insurance normally costs $3K to $5K annually and varies based on location, credit, and state laws. Kristy told us:

[su_quote]Insurance is my largest expense after paying all the nannies. It is also the largest startup cost unless you rent a facility.[/su_quote]

You may have to buy the following insurance policies: 

• Liability Insurance
• Workers’ Compensation Insurance
• Property Insurance
• Errors and Omissions Insurance

Go to Simply Business to find the best quotes for childcare businesses.

Supplies and Equipment 

You will need furniture and equipment at your daycare. Indoor furniture can cost between $30K and $40K. You might need:

• Chairs
• Changing stations
• Computers
• Cribs
• Mats
• Playground equipment
• Tables

You might also want toys, books, craft supplies, cleaning supplies, diapers, and wipes.

Food

You’ll also need to calculate the cost of food and kitchen utensils if you provide meals. Most daycares follow USDA Child and Adult Care Food Program nutrition standards.

Advertising and Marketing

Expect to spend between $1K and $1.5K monthly on advertising. This includes expenses such as printed flyers, marketing materials, website costs, and social media ads.

If you are social, you might be able to get by without it. Kristy’s main marketing expense is sweat equity, or spending time instead of money to get the word out. She told us:

[su_quote]Everywhere I went I was talking about the in-home daycare. That’s all I could do. I had more time than money.[/su_quote]

Resources for Daycare Owners

Take a look at some of the industry organizations in child care and nanny services.

• Department of Education: Government agency that governs education
• Health and Human Services: Offers assistance to low income families and other services
• National Child Care Association: Industry organization that provides advocacy and resources about child care and education
• International Nanny Association: Industry organization that provides advocacy and resources for nannies
• National Domestic Workers Association: Industry organization that provides advocacy and resources for people employed to work in others’ rooms

Ready to Start Your Own Daycare?

At this point, we’ve shown you how to start a daycare center. We’ve also provided all the resources you’ll need to help you open a successful day care. 

Which type of daycare business sounds best to you?