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The business of child care
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August 6, 1999: 6:34 a.m. ET
Home-based care programs are serious business, but can be money makers
By Staff Writer Shelly K. Schwartz
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NEW YORK (CNNfn) - If you're like many working mothers, or moms-to-be, chances are you've considered the merits of opening a day care center in your home.
After all, such an arrangement affords young mothers -- and occasionally fathers -- the opportunity to stay at home with their own young kids, do something they love, and bring home a little extra on the side.
Compared with juggling two full-time jobs and a family, they figure, how much work can it be?
Plenty, says Dot Willingham, president of the National Association for Family Child Care.
"A lot of times people enter into the family child care business because they love children," she said. "They often drop out when they realize it's a business."
Experts say the family child care business, which is defined as those programs operated out of the provider's home, is hard work, Willingham said, complete with long hours, regulatory restrictions and labor-intensive bookkeeping.
"There's a lot of good business practice that needs to go into it, and to stay in business you have to do it right," she said.
Blossoming industry
Industry insiders say home-based child care programs have blossomed in the last 20 years, due largely to the changing demands of working parents.
Experts say many have decided their children are better served in the smaller group settings that these programs provide. The average family child care program has between 5 and 6 children enrolled at any given time.
"A lot of times, for a child's first group experience, having a smaller group leads to a more positive experience," Willingham said. "The providers have more one-on-one contact with the children and the parents have more interaction with the providers."
In 1994, the most recent year for which data are available, the U.S. Census Bureau reports that 1.59 million children under age five are cared for by home-based program providers.
Of the 10.3 million preschoolers who were cared for in some type of setting that year, 15.4 percent were enrolled in non-relative home-based programs, while 29.4 percent were enrolled in organized child care facilities. The figures represents only the children of working mothers.
Willingham said family child care programs are taking their place as a credible option among the overall universe of child care options.
"The industry as a whole recognizes family child care now," she said, noting many home-based programs these days offer educational curriculums. "Before it was not so much looked at as a professional choice by the providers, but more as an opportunity for them to stay at home with their children and make money."
Profit potential
Tom Copeland, director of the Redleaf National Institute and author of a series of books on the business of home-based child care programs, said the vast majority of care providers enter the field for a short period of time -- three to five years -- while their own children are at home.
Many quit their full-time jobs to run the programs while their spouses continue to work. Most, too, return to their careers when their children enter elementary school, he said.
In the meantime, operating a family child care program enables young mothers to eliminate the costs they would otherwise incur in child care expenses, cut down on job-related expenses -- including clothes, meals and commuting -- and contribute to the family finances.
Almost none become millionaires, though. On average, family child care providers earn a gross annual income of $21,189 and a net profit of $13,418, according to the latest industry data.
On the high end of the scale, the top 20 percent of home-based child care providers earn an average gross income of $39,908. Net profits are closer to $27,700.
Providers can charge up to $200 or more per week, per child. In higher-paying markets, such as New York City and San Francisco, family child care providers can charge up to $200 a week per child, compared with the $40 to $50 providers in rural and lower income areas charge.
Copeland noted those averages don't take into account the more than 750 tax breaks home-based child care providers receive.
The Internal Revenue Service allows for the deduction of standard business expenses --including toys, educational materials, marketing costs and snacks -- in addition to a portion of their utility bill, mortgage interest, repair costs, insurance, property tax and house and appliance depreciation.
Write-offs even include household supplies -- to keep your business functional and clean - as well as furniture depreciation and car expenses.
"The people who go into this field don't generally take a look at the income data and let that determine whether they do it," Copeland said. "A lot of times people go into it because they have children of their own at home and it's an economically viable option."
He noted that industry data reveals the average child care provider spends 50 hours a week with the children. They spend another 10 hours in curriculum planning, cleaning and record keeping.
In most cases, he said, income is not the bottom line.
"That's 65 hours a week of work," Copeland said. "When you divide that into the pay, it's often times less than minimum wage, so clearly that's not the primary motivation."
Licensing
As you might have guessed, child care programs in the home and otherwise are highly regulated. Each state has its own set of requirements, but by and large all mandate that providers be licensed as a business, have their homes or facilities inspected by government authorities, and pass health and safety codes.
Some, too, require background checks. And nearly every expert highly recommends the provider take out some sort of insurance, to protect their home and personal assets against loss.
However, start-up costs, including licensing fees, are relatively inexpensive since many registration documents are free. Copeland said it should cost you little more than a "few hundred bucks" to get started.
In all of these capacities, the Internet can help simplify an otherwise complicate process.
The Daycare Provider Beginner's Page , for example, provides links to the licensing boards of all 50 states.
Diving in
If you're just beginning to explore the option of running a home-based child care program, the National Association for the Education of Young Children suggests you start by checking out the market in your local area.
Find out how many other programs you'll have to compete with, and do your own research of the demographics of the children already enrolled. The group said you should try to identify the underserved parts of your region to determine proximity and for future marketing purposes.
You'll also want to get a sense of rates providers charge in your given area. That's less difficult than it sounds.
You can either do some cold calls of your own, or simply touch base with a child care resource and referral agency in your area.
The National Association for Child Care Resource and Referral Agencies can help you out there.
The National Child Care Information Center also has some valuable tips on getting started.
Down to business
Next, you'll want to start thinking like a business person.
Determine how the program will be funded and governed. And what items should be included in your budget? Among other things, you should include taxes, insurance, utilities and supplies.
Will you hire an assistant, and will you consult a child care expert, accountant or nutritionist for advice getting started?
Also consider any start-up costs you may incur. You may need to install a new bathroom, or retrofit an existing one to meet the needs of small children. You may also have to install new fire alarms and do some minor remodeling or redecorating to enhance a playroom-type atmosphere.
And don't forget the cost of publicizing your new business. You may want to send out flyers, advertise in your local churches or take out ads in the regional newspapers.
Once you've estimated those costs, it's time to begin the budget. The NAEYC said it should include what portion of income will likely come from parent fees or other sources such as government subsidy programs. It should also break out your expected costs, salaries (if any), taxes, licensing fees, marketing costs, supplies, utilities, and transportation.
Planning the program
The NAEYC suggests you begin the program-planning phase of your business by setting objectives.
Determine how the program will serve families, what age group you will cater to, and select educational materials and toys that will help you achieve those goals.
Communicate clearly -- preferably in a written contract - what your fees, expectations for parental participation and schedule will be up front.
Unless you've been trained in early childhood education, you'll probably need the help of a professional in planning a program.
Again, the National Association for the Education of Young Children can be a valuable resource there.
Other sources recommended by the NAEYC include the Child Care Information Exchange, a magazine written for child care program directors, and Caring Spaces, Learning Places, a book that focuses on the importance of using space creatively to provide meaningful experiences for children.
The logicistics
From a legal standpoint, experts say it's wise to get everything in writing.
Organize your books and keep well-documented records of all your financials. That'll keep you out of trouble with the IRS and up to date with your billing cycles. It's also vital to ensuring that the special dietary and medical needs of your enrolled children are being met.
"Generally speaking, family child care centers face the same legal issues that any business face, including appropriate bookkeeping so they pay their taxes correctly and confirming with licensing laws," said Alice Bussiere, managing attorney with the Child Care Law Center. "A lot of folks go into child care because they love kids, but they also need to understand that they are running a business."
She noted permission slips, emergency numbers, policies and procedures, and parental agreements should all be written down
Don't forget
To be sure, running a family child care center from your home offers lots of advantages, from the extra income you can earn to benefit of being able to stay at home with your own young kids.
But experts say it takes more than just a mere interest in children to run a program. It takes good business sense.
"I always tell people to start in their home because you want to make sure it's something you like doing long-term and develop a clientele," said Wanda Rattrey, owner of her own child care center business and founder of the MomsRus Web site. "Too many people start because they have too many kids and can't afford day care, but they don't calculate the expenses correctly. If you don't do it right, it's not worth the headache." 
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