Based on the geographic region, the startup costs for developing a day care center can range substantially. In most instances, day care centers and early childhood education centers have startup costs that range from $100,000 to $500,000+. A major component as to these capital expenditures is whether or not real estate is being acquired when developing the facilities. On a side note, there is a school of thought that indicates that acquiring the property is economically advantageous given that there is zero risk of having a landlord not renew a commercial lease. Furthermore, substantial equity is developed during the time the property is held. For the purposes of this document, it is assumed that a facility is leased rather than acquired. The range bands of day care startup costs are as follows:
• Rent and Utility Deposits – $5,000 to $20,000
• Furniture, Fixtures, and Equipment: $50,000 to $75,000
• Working Capital: $50,000 to $100,000
• Teacher and Assistant Recruitment: $7,500 to $15,000
• Professional Fees and Licenses: $5,000 to $10,000
• Pre-Launch Marketing – $5,000 to $15,000
These bands are within the normal ranges for establishing a day care center. One of the most commonly overlooked expenses is the cost of pre-launch marketing. It is incredibly important that a day care center engages in wide spread marketing within their regional market so that enrollment can occur prior to the establishment of the business. This will ensure the economic viability of the business from the onset of operations. An additional expense that needs to be fully addressed is the cost of recruiting and onboarding qualified teachers that will provide their services at your day care center or early childhood education facility. This expense can often be higher than expected, and it is imperative that a day care facility has the proper staff in place prior to the full scale launch of the business.
As noted above, a reserve for the costs of the lease or mortgage for a day care center also needs to be fully taken into account. A good rule of thumb is to ensure that three to six months of working capital is allocated towards ensuring the rent or mortgage (principal and interest) is available. For a day care center, the risks are relatively low in this regard given the highly recurring income that is produced from tuition and ongoing registration fees.
It should be noted that day care centers and early childhood education facilities are strong candidates for financing given the immense demand and economic stability of these businesses. Most businesses in this industry fully qualify for SBA loans, conventional business loans, and revolving lines of credit given that their revenues are relatively immune during challenging economic climates. Furthermore, these businesses are also strong candidates for private investment.
Currently, day care centers produce over $75 billion of revenue per annum. This is a highly fragmented industry as most locations are operated as owner-operator enterprises. This presents an enormous opportunity for entrepreneurs that are seeking to enter this rapidly growing industry. The compounded annual growth rate is expected to remain near 5% over the next five years.