How to Start a Daycare Business: Licensing, Inspections, and Insurance

Opening a daycare legally means working through a stack of requirements in roughly this order: choose your facility type, confirm zoning, apply for a state license, clear federal background checks, pass a safety inspection, set up insurance and tax registration, and then keep up with ongoing compliance. Learning how to start a daycare business is less about any single rule than about moving through all of them in the right sequence, because a missed step late in the process can send you back to the beginning. Most people spend several months from first planning to first enrollment.

Decide What Kind of Daycare You’re Opening

Childcare operations split into two broad categories, and the choice shapes nearly every requirement that follows. A family child care home runs out of your own residence and serves a smaller group of children in a home setting.¹ Most states further divide these into small homes (commonly up to six or eight children) and large homes (up to twelve or fourteen), with exact capacity limits turning on state rules and the ages of the children.

A child care center is the commercial version: a storefront, converted building, or purpose-built space that can serve dozens or hundreds of children. Centers face stricter building, staffing, and operational rules, higher startup costs, and more intense regulatory scrutiny. Home-based is cheaper and faster to launch; center-based reaches more families and more revenue. Pick before you look at real estate.

Confirm Zoning Before You Sign Anything

Local zoning ordinances divide land into residential, commercial, and mixed-use areas, and each zone specifies which activities are allowed. Family child care homes often fit under residential zoning rules that permit small-scale professional work from a home, but this is not automatic everywhere. Child care centers generally need commercial zoning, or a special-use permit if the site sits in another zone.

Expect requirements like minimum street setbacks, parking minimums for parent drop-off, limits on proximity to certain businesses, caps on the number of non-resident employees on site, or restrictions on peak-hour traffic. Visit your city or county planning office before you commit money. Pull up the zoning map for your intended address and get written confirmation that your proposed use is allowed. If you need a variance or conditional-use permit, build the public hearing timeline into your plan. Finding out about a zoning conflict after signing a lease is one of the costliest mistakes in this business.

Apply for Your State License

Every state designates an agency to license childcare providers, with names like the Department of Children and Family Services, the Department of Social Services, or a division of the state education department.² The childcare.gov directory points you to the right one for your state.

The application package you’ll need to put together generally includes:

Proof of site control, such as a property deed, signed lease, or rental agreement.
Business formation documents: articles of incorporation, an LLC operating agreement, or a partnership agreement.
Government-issued identification for you and any co-owners.
Character references attesting to your fitness to care for children.
A budget and financial documentation showing the business can sustain operations, sometimes including proof you can cover initial expenses without relying on enrollment revenue.
Health clearances and immunization records for you, and in home-based facilities often for every household member.

Forms are usually filed through a state online portal or regional office. Disclose every household member and every business partner. Omissions and inaccuracies are among the fastest routes to denial, and some states treat false statements as grounds for permanent disqualification.

Clear the Required Background Checks

Background checks are a federal floor, not a state preference. Every state that receives childcare development funding must run a specific set of criminal and safety checks on all childcare staff, including prospective hires.³ The required checks are:

An FBI fingerprint check through the Integrated Automated Fingerprint Identification System.
A state criminal registry search in the current state and every state the person has lived in during the past five years.
A state sex offender registry search covering the same states.
A state child abuse and neglect registry search covering the same states.
A National Crime Information Center search.
A National Sex Offender Registry search.

Anyone who refuses to consent is ineligible for employment. Federal law permanently bars anyone convicted of murder, child abuse or neglect, crimes against children, sexual assault, kidnapping, or arson, and bars anyone with a drug-related felony conviction in the past five years.³ In a home-based program, every adult living in the household must clear the checks, not just the caregivers.

Fees typically run from around $25 to over $100 per person. Multistate searches can take several weeks, so submit them early.

Prepare the Facility for Inspection

Your space has to meet specific physical standards before a licensing inspector will approve it. Exact figures vary by state, but most require a minimum of 35 square feet of usable indoor activity space per child and 75 square feet of outdoor play area per child. Hallways, bathrooms, kitchens, and storage don’t count toward the indoor figure. You’ll submit a detailed floor plan showing how each room will be used.

Fire Safety and Hazards

Expect requirements for properly rated fire extinguishers, clearly marked exit signs, and interconnected smoke detectors. Many states also require carbon monoxide detectors on every level. A fire marshal or certified inspector usually has to sign off before licensing can proceed. Older buildings may need lead paint testing and water quality analysis. Cleaning supplies and medications must be stored in locked cabinets children cannot access, and windows above the ground floor generally need guards or stops. Photograph everything and keep the documentation on-site.

Sanitation and Outdoor Play

Handwashing stations and diaper-changing areas must be physically separated from food preparation to prevent cross-contamination. Outdoor play areas need to be enclosed by fencing, typically at least four feet high. Ground surfaces beneath playground equipment need shock-absorbing material like rubber mulch, engineered wood fiber, or poured rubber.

Safe Sleep for Infants

If you’ll care for infants, safe sleep compliance carries some of the heaviest consequences for violations. Federal safety standards require cribs used in childcare facilities to meet current Consumer Product Safety Commission standards, which effectively bans older cribs with drop-side rails or wide slat spacing, used or new.⁴ Widely adopted guidelines also require placing infants on their backs for every sleep, using a firm flat mattress with a tight-fitting sheet, and keeping soft bedding, toys, bumpers, and blankets out of the crib.⁵ Most states have written these into their licensing regulations. You’ll need a written safe sleep policy and training records for every staff member who handles infants.

Plan for Children With Disabilities

The Americans with Disabilities Act applies to virtually every daycare. Privately run centers fall under Title III as places of public accommodation; government-run programs fall under Title II.⁶ You cannot refuse to enroll a child simply because they have a disability. Small home-based providers are not exempt.

You must make reasonable modifications to policies and practices to include children with disabilities, unless doing so would fundamentally alter your program. That might mean diapering an older child who needs it, administering medication under written instructions from a doctor, or allowing a service animal despite a general no-pets rule. Any exclusion decision must be based on an individualized assessment of whether the child’s presence would pose a direct threat to health or safety, not on generalizations about the disability.⁶

For the building itself, existing facilities must remove architectural barriers where removal is “readily achievable,” meaning it can be done without significant difficulty or expense. New construction must comply fully with the 2010 ADA Standards for Accessible Design.

Staff Up and Follow Labor Law

Every state sets mandatory staff-to-child ratios that vary with age. Infant ratios commonly run from 1:3 to 1:4, toddlers from 1:4 to 1:6, and preschool ages as wide as 1:8 to 1:10. Dropping below ratio, even briefly during breaks or transitions, is one of the most commonly cited inspection violations.

Directors and lead teachers typically need specific credentials. The baseline is often a Child Development Associate credential, with some states requiring an associate’s or bachelor’s degree in early childhood education for center directors. Every staff member, including assistants and substitutes, needs current CPR and First Aid certification. Most states also require annual continuing education, often in the range of 15 to 30 hours, in areas like child development, health and safety, and recognizing abuse.

Minimum Wage and Overtime

Once you hire, the Fair Labor Standards Act applies. Daycare employers must pay at least the federal minimum wage of $7.25 per hour and time-and-a-half for any hours over 40 in a workweek. Many states set a higher minimum, so check your state rate. A narrow exemption exists for bona fide teachers whose primary duty is classroom instruction in a preschool setting, but workers whose primary role is physical caregiving do not qualify.⁷ Misclassifying caregivers as exempt is a common and costly mistake.

Mandatory Reporting of Abuse

Every state designates childcare workers as mandatory reporters of suspected child abuse and neglect.⁸ Reporting windows and procedures vary by state, but the obligation is universal. Train every staff member on signs of abuse and how to file with your local child protective services agency. Failure to report is a criminal offense in most states.

Line Up Insurance Before You Open

A license does not protect you financially, and many states require proof of liability coverage before issuing one. Three policies to consider:

Commercial general liability, which covers bodily injury, property damage, and related legal costs when a child or visitor is hurt on your premises. This is the baseline.
Professional liability, which covers claims of negligence in the care you provide, such as failure to supervise. Annual premiums for small operations typically run from roughly $350 to $1,500 depending on location, claims history, and enrollment.
Abuse and molestation liability, which protects the business from the financial consequences of allegations of abuse by an employee. Many general liability policies exclude these claims, so a standalone rider or policy is strongly recommended.

If you operate from your home, your standard homeowner’s policy almost certainly does not cover business claims. You’ll need either a commercial policy or a specific endorsement. Get the coverage confirmed in writing before you open.

Write Your Policies and Parent Handbook

States require written policies governing day-to-day operations. The main document is a parent handbook, which functions as the agreement between the provider and the family. Cover enrollment procedures, daily schedules, tuition and payment terms, late pick-up fees, illness and exclusion rules, and your approach to discipline.

Discipline policies must comply with state law. Every state prohibits corporal punishment in licensed childcare, and most define it broadly to include hitting, spanking, shaking, pinching, or any measure meant to cause physical pain or fear. Spell out what methods your staff will use and what is prohibited.

You also need written emergency preparedness plans covering natural disasters, medical emergencies, lockdowns, and evacuation procedures. Post them, practice them through drills, and make them available to parents. Keep an employment file for every staff member containing background check results, credentials, CPR certification, and training records, accessible on-site at any time.

Register for Taxes and Use the Home-Provider Deduction

Any daycare that hires employees, operates as a partnership or corporation, or has payroll tax obligations needs an Employer Identification Number from the IRS.⁹ You can apply online and receive the number immediately. Sole proprietors who plan to hire need the EIN before running their first payroll.

Home-based providers get a tax benefit center operators do not. The IRS allows family childcare providers to deduct business expenses for the portion of the home used for daycare even when that space is not used exclusively for the business, a special exception to the usual exclusive-use rule for home offices.¹⁰ The deduction combines the share of your home’s square footage used for care with the share of hours it is actually used for daycare during the year.

Home providers can also deduct food costs using standard meal and snack rates instead of tracking every grocery receipt. The IRS ties those rates to Child and Adult Care Food Program figures, covering one breakfast, one lunch, one dinner, and up to three snacks per eligible child per day.¹⁰ Keep attendance records showing which children were present and which meals were served.

Food Reimbursement and Subsidy Programs

The Child and Adult Care Food Program (CACFP) reimburses licensed providers for serving nutritious meals and snacks to enrolled children. Family daycare homes receive set per-meal rates; centers receive different rates depending on whether children qualify for free, reduced-price, or paid meals.¹¹ For a small operation, CACFP can meaningfully offset food costs. Home-based providers usually enroll through a sponsoring organization that handles paperwork and monitoring; centers apply directly through their state agency. Either way, meals must meet USDA nutrition guidelines, and you must keep daily records of what was served and who was present.

If you want to accept families receiving childcare subsidies through the federal Child Care and Development Fund, families qualify when their income is below 85% of the state median income and the parents are working, in school, or in job training.¹² Accepting subsidized families expands your enrollment pool, but it also means meeting whatever additional requirements your state’s lead agency imposes on subsidy-eligible providers.

The Final Inspection and License Issuance

Once documentation, facility, and policies are ready, you submit the full application. Application fees vary widely; family child care home fees can be as low as $50, and center fees can run into several hundred dollars. Many states require a mandatory orientation on state-specific regulations before moving forward.

Then comes an on-site inspection. A licensing representative measures room dimensions, checks fire safety equipment, reviews staff credentials, examines storage of hazardous materials, and confirms that the layout matches your floor plan. Inspectors often interview staff to gauge their understanding of emergency and safety procedures.

If deficiencies are found, you’ll receive a written list and a deadline, commonly 30 days. Failing to correct them in time can result in withdrawal or denial of the application.¹³ Once you pass, the agency issues the license. Display it where parents can see it. Most states also require posting a notice explaining how parents can file complaints with the licensing agency.

Keep the License After You Get It

Licensing agencies run unannounced inspections throughout the year. These spot checks can cover ratios, staff credentials, food storage, medication records, and drill logs. The most commonly cited violations involve ratios that dropped during breaks or transitions, expired CPR certifications, and incomplete attendance or medication records.

Licenses must be renewed on cycles that vary by state, commonly one, two, or four years. Renewal typically requires updated background checks for any new staff, current CPR and First Aid certifications, proof of completed continuing education, and confirmation that the facility still meets physical safety standards. Submit the renewal well before the expiration date. If a license lapses, you must stop operating immediately and may need to restart the full application from scratch.

Keep employment files, attendance records, health and safety documentation, and inspection reports organized and accessible every day. Licensing officials will walk in and ask to see any of them during an unannounced visit. The providers who get into trouble are rarely the ones with a single missed detail. They’re the ones who stopped treating compliance as a daily habit.

1
Childcare.gov. Family Child Care Homes
2
Childcare.gov. What Is Child Care Licensing?
3
Office of the Law Revision Counsel. 42 U.S. Code 9858f – Criminal Background Checks
4
eCFR. 16 CFR Part 1220 – Safety Standard for Non-Full-Size Baby Cribs
5
Child Care Technical Assistance Network. 3.1.4.1 Safe Sleep Practices and Sudden Unexpected Infant Death
6
ADA.gov. Commonly Asked Questions about Child Care Centers and the Americans with Disabilities Act
7
U.S. Department of Labor. Fact Sheet #46: Daycare Centers and Preschools Under the Fair Labor Standards Act (FLSA)
8
Office of the Law Revision Counsel. 34 U.S. Code 20341 – Child Abuse Reporting
9
Internal Revenue Service. Get an Employer Identification Number
10
Internal Revenue Service. Publication 587, Business Use of Your Home (Including Use by Daycare Providers)
11
Food and Nutrition Service. CACFP: Payment and Reimbursement Rates for the Period July 1, 2025, Through June 30, 2026
12
Child Care Technical Assistance Network. Understanding Federal Eligibility Requirements
13
eCFR. 7 CFR Part 226 – Child and Adult Care Food Program