Finances, Business Skills, and Growth

You cannot successfully run a childcare business without knowing business basics. To do so, you must learn how to handle your finances, develop business skills, and find means of support for your business.

	Topics Covered:
	Basics of Finances, Bookkeeping, and More Business Continuity Taxes and More Tax Tips for Childcare Businesses Resources on Employment Law in Texas Funding Your Childcare Business Other Programs Boosting Your Business Tap into Local Needs Marketing and Recruiting Parents to Your Business Making Connections with Other Operations Applying for a Small Business-Based Childcare Business Permit Opening a Childcare Franchise How to Find a Childcare Franchise to Partner with Shared Services Alliances Considerations Before Expanding Your Business Increasing Infant and Toddler Capacity

Basics of Finances, Bookkeeping, and More

Below are several resources for learning how to handle recordkeeping, bookkeeping, and other business tasks:

• Recordkeeping: Information on how to track information needed for taxes, employment, and legal issues. Your recordkeeping system can make doing your business taxes simple or difficult, depending on how organized you are. Start off with an easy-to-follow recordkeeping method to avoid problems in the future.
• Bookkeeping: Bookkeeping is how you manage your childcare business’s finances. Whether you operate as a home-based business or a center, you must account for your expenses and income. These bookkeeping tips from TWC at the link can help.
• Staffing contracts: This page guides you to making effective staff contracts for all your childcare workers.
• Managing enrollment: Find out ways to balance your staff availability with the number of children your home or center can care for. Managing enrollment effectively contributes to increasing your income and reducing costs.
• Contracts with parents: Parents also must have contracts outlining their expectations when they enroll their children with your childcare business. Learn more about how to create these contracts at this TWC resource.
• Liability insurance: Your home or childcare center needs liability insurance in most instances. Find out why this coverage is an essential way to protect your business’s finances.
• Creating an emergency preparedness plan: Follow these steps to create an effective emergency response plan for your childcare facility, so you will be prepared for anything. This resource also has checklists for emergency preparedness plans for home-based and center-based childcare facilities.
• Handling emergencies by enacting your plans: Once you set your emergency plans, prepare to hold drills, and keep all adults at your facility aware of emergency procedures. This guide gives you tips for honing your emergency plan based on what happens during drills.
• Keeping track of finances: This useful tool has ample tips for keeping your childcare business profitable. You’ll also find a variety of tables to use for tracking your income and expenses. Not that all federal programs mentioned herein ended in 2021 and are no longer available.
• Texas Childcare Provider Quality Cost Estimator: If you want to see how much you’ll need to invest in your business to increase your quality level and Texas Rising Star rating, use this calculator from the Texas
• ECE Technology 101: Child care management (CCM) software can streamline your recordkeeping and finances, but you need to know how to choose the right product to use and effectively use it. This resource from Opportunities Exchange describes why you should use a CCM and includes worksheets to help you choose the right solution for your childcare facility.
• Financial Management Toolkits: Opportunities Exchange has toolkits to help home-based and center-based childcare operations to handle their finances. Download these valuable resources to learn about managing risks, charging the optimum fees, understanding human resources essentials, and keeping your business fiscally healthy.

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Business Continuity

In the Gulf Coast area, major events that have closed schools and childcare facilities occur with regularity. Your emergency plans address how you respond to these events. However, you also need to plan for what to do after. Whether a flood, fire, hurricane, tornado, ice storm, or other event disrupts your operations, you need to prepare for getting your childcare business back into operation.

A source from Childcare Aware of America outlines the necessity for a business continuity plan, or continuity of operations plan (COOP). Think of this as an emergency plan for your business operations that you follow after a disruption of your childcare services.

Because every childcare business has different structures and business operations, the business continuity plans will have to be made for your business. However, the suggestions from Childcare Aware of America indicate that you need to think of the following topics and more when creating your plan for returning to business:

• How to protect business records and child records from damage or loss
• Back-up location in case your facility sustains damage that makes caring for children in it unsafe
• Substitute caregivers in case your regular team cannot make it to work after an event
• Connect with Licensing before opening an alternate site
• Outline whether parents must pay during emergency shutdowns and include the information in parent contracts
• Decide how you will pay employees during emergency closures and where you will source the funds. Include information on pay during emergencies in employee handbooks.
• Establish an emergency fund that you use only to cover costs during emergency situations that shut down your childcare business. Contribute to this fund regularly to maintain and grow it.
• Create an inventory with photos and images of your business equipment, both office equipment and childcare materials. Include prices of the items to more easily track total losses for insurance.
• Check your insurance coverage annually to see if you need to update the protection amount

By having a plan of action for getting back into business after a disaster, you can weather many types of situations that could put unprepared facilities out of business.

Taxes and More

As a business owner, you’ll need to pay taxes for yourself, your business, and your employees. However, the state does not impose business income taxes, but it does levy franchise taxes on businesses that earn more than $2.47 million. You may have local property taxes. Check with your tax jurisdiction.

Additionally, you’ll need to have liability insurance for your childcare business.

If you need any help with tax or employment law questions, consult with a business coach, tax attorney, or accountant.

Unemployment Tax

Unemployment tax is a payment that all businesses make toward the state’s Unemployment Compensation Fund. When people go on unemployment and get temporary payments, the money comes from this fund.

As a small business owner, you will likely need to pay unemployment tax. Find out if you need to establish an unemployment tax account through the Texas Workforce Commission. Note, if you want to apply for a Skills for Small Business Grant, you must have an unemployment tax account number.

Liability Insurance

Liability insurance helps to cover costs that may result from someone being injured at your childcare business. No matter how small your operation, you should have liability insurance. In fact, licensing requires it unless you can prove that you cannot afford it.

While homeowners insurance policies have liability as a portion of their coverage, this does not cover business liability if you have a home-based childcare business. Therefore, even home-based childcare providers need liability coverage.

When shopping for insurance, err on the side of choosing more coverage rather than less. A good balance of coverage is $1 million per occurrence and $2 million aggregate. Also, consider having a second policy to cover the deductible of the first to limit your financial burden.

When paying for your business liability premiums, remember that they are completely deductible when you file taxes.

Food Service Permit

The State of Texas Department of State Health Services (DSHS) does not consider daycare centers or home-based childcare facilities to be food establishments. The state does not inspect these sites, nor does it permit them. However, county health departments may require childcare facilities to have local food service permits and inspections.

Find out more about getting a food service permit for your county below, and if you have any questions about whether your childcare operation needs a permit, contact your county’s public health department directly:

• Austin County: No information on county’s website about food permitting
• Brazoria County: Childcare centers that care for 13 or more children and prepare food on site are food establishments in Brazoria County and need to complete a food permit application for the county’s Environmental Health Department.
• Chambers County: Per the Chambers County Amended Food Order, daycares are establishments that require food permits, filled out on the MyGovernmentOnline These facilities have a flat-rate fee for annual food service inspections.
• Colorado County: No information on county’s website about food permitting
• Fort Bend County: As part of the Environmental Health Department, Fort Bend County requires daycares to file paperwork and undergo inspections as any other food establishments. Visit the county’s food establishments page for links to the paperwork you need to complete to request the permit and inspection of your facility.
• Galveston County: Childcare centers that have 13 children or more and prepare food on-site must have a food permit in Galveston County. The fee for this permit is a flat rate.
• Harris County: The Environmental Public Health Division (EPH) of Harris County Public Health considers day cares to be retail food establishments that require food service permits.
• Liberty County: No information on county website
• Matagorda County: The Environmental Public Health Department in Matagorda County does not specifically name daycares or childcare facilities in its food service permit guidelines. However, the guidelines mandate that anyone “providing food for public consumption in Matagorda County,” obtain a food service permit. Contact this department to find out if your specific facility needs this type of permit.
• Montgomery County: Montgomery County defines food establishments as operations that prepare, serve, store, package, or otherwise handle products for human consumption for the general public. All food establishments need food permits in the county. Additionally, someone on staff at your facility may need to be a Certified Food Manager or have food handlers training to supervise staff who distribute pre-portioned foods. With supervision by a trained individual, staff serving pre-portioned foods at a childcare facility would be exempt from needing food handlers training themselves.
• Walker County: Walker County does not have a county level food permit requirement listed on its website. However, the City of Huntsville does list daycares on its food permit application. Make sure that your facility meets all of Huntsville’s day care requirements and the mandates outlined in the plan review packet for food establishments.
• Waller County: Waller County does not have anything on its website specific to food permits for childcare facilities.
• Wharton County: Wharton County does not have anything on its website about food permits for childcare facilities.

Property Tax

In 2023, Texas voters approved SB 1145, which went into effect on January 1, 2024 and added section 11.36 to the Texas Tax Code. This new law permits counties and cities to allow certain childcare providers exemptions on property taxes ranging from 50 to 100%.

You may qualify for this exemption if your childcare facility is:

• A participant in Texas Rising Star
• A licensed home or center facility (not listed or registered home)
• Have a minimum of 20% of your children receiving CCS subsidies

Even if you qualify based on the above criteria, you need to know whether your local area has approved the exemption. The following cities and counties have passed the property tax exemption for qualifying childcare providers:

• Austin County: No decision
• Brazoria County: No decision
• Chambers County: No decision
• Colorado County: No decision
• Fort Bend County: No decision
• Galveston County: No decision
• Harris County: 100% exemption
• City of Houston: 100% exemption
• Liberty County: No decision
• Matagorda County: No decision
• Montgomery County: No decision
• Walker County: No decision
• Waller County: No decision
• Wharton County:  No decision

If you do live in an area that allows for this exemption and you qualify, you must fill out the Application for Child-Care Facility Property Tax Exemption and return it to your local county tax office with all required documents to claim the exemption.

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Tax Tips for Childcare Businesses

All businesses must file taxes annually. Use the following resources from Texas Workforce Commission to help you to get ready for preparing and filing your taxes:

• How Do I Prepare for Tax Season?: On this page, you’ll get tips on planning your taxes using information from prior tax years.
• Self-Assessing Taxes: Using the Confidence in Quality Tax Assessment, you can take a closer look at your childcare business taxes. This resource walks you through using your Schedule C from your 1040 Form to gain valuable insights into the risks and potential savings you could see in your taxes.
• Are your workers employees or contractors?: This resource gives you tips for determining whether your childcare business workers are contractors or employees. If you have contractors, you don’t provide benefits or take out any taxes from their paychecks as you do with employees. Most childcare workers are employees because they:
  • Only work for your childcare business,
  • Earn regular paychecks based on a set number of hours, and
  • Have specific requirements for their daily work set by their employer.
• How to Legally Employ Your Child: You can legally increase your tax deductions by paying your child to work for your childcare business. You can even set up a Roth IRA for retirement or a 529 education savings plan. Both of these offer tax-free savings for your child.
• Pay Raises and Payroll Taxes: If you want to pay your employees more, you have the chance to attract more people with top qualifications. However, you should also consider the impact to tax withholdings the extra pay will create. This resource gives you ways to give your workers extra compensation and accurately calculate the changes to withholdings.
• How and Why to Pay Yourself: Whether you run your childcare business on your own or have staff working with you, you need to set aside regular pay for yourself. Some TWC programs, such as Child Care Services, count your salary as an allowable cost, and if you get funds from these programs you can use those funds to pay yourself and your employees.
• How to Deduct Food and Transportation Costs: You can reduce your tax burden by taking smart deductions on transportation and food costs. If you use the Child and Adult Food Program to get reimbursed for food costs, include those payments with your business income and deduct food expenses.
• Creating a Capitalization Policy: To make filing taxes easier later, create a capitalization policy for your childcare business today. This policy outlines what your business counts as a major purchase. Purchases lower than this cost become current-year expenses, and you won’t need to include depreciation on those items.
• What Is the Time/Space Calculation?: This resource discusses the importance of knowing how to calculate the amount of time and space you dedicate to running your home-based childcare business. The percentage of time and space used for business will help you in calculating business deductions on your taxes.
• Tax Credits Childcare Businesses Need to Know About: This page outlines the many types of tax credits available to small businesses or childcare operations. Ways to save on your taxes include credits for health care coverage, retirement plans, hiring people from targeted groups, and for providing childcare to your employees.

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Resources on Employment Law in Texas

The following links provide you with more information about Texas and federal employment laws for small businesses:

New and Small Business Laws Handbook (Federal Laws): This handbook from the United States Department of Labor explains the resources and tools available to help your childcare business to comply with national employment laws.

Texas Employment Laws: This page from Workforce Solutions offers resources and information about employment laws and how they apply to Texas business owners. You will also find links to resources that can help ensure that your business meets the requirements of these laws.

Houston Small Business Legal Consultations: If you live in or near the city of Houston and own a small business or are a self-employed entrepreneur, you may be able to have a free one-hour consultation with an attorney. These lawyers can help you with legal questions regarding your small business, including contracts, employment, commercial leases, taxes, and more.

Small Business Toolkit: The Texas Young Lawyers Association published a document that outlines the basics of what small business owners need to know about Texas laws and running their operations. If you have any specific questions regarding your business, consult with a lawyer.

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Funding Your Childcare Business

Money to support the operations of your childcare business will come from many sources, not only parent-paid tuition. The following are possible sources of income to help you cover the costs of running a childcare home or center:

• Subsidies from the Department of Agriculture from the Child and Adult Food Service Program to help cover the costs of food, drinks, and snacks for children under your care
• Tuition paid by parents for their children’s enrollment
• Reimbursements from your local Workforce Board for children in your program who qualify for CCS scholarships. The reimbursement rates depend on whether you participate in Texas Rising Star and your star level.
• Small business loans from banks or other financial institutions
• Investment capital from small business investment companies. Find out more about this funding from the Small Business Administration.
• Small Business Administration-Backed loans
• Microloans from the Small Business Administration for not-for-profit childcare centers
• Other state and federal funding options as they become available. Find funding options for childcare providers from the Texas Workforce Commission
• Get personal financial assistance to help pay for the costs of starting a new job by contacting Workforce Solutions.
• Find links to angel investors, grants, and other sources of financing through the City of Houston’s Office of Business Opportunity Financing Tools page.

Grants

Grants provide you with money that you don’t have to pay back. However, you need to know where to find these and how to apply.

The NEA Foundation  works to help teachers to offer the best education they can to their students. This organization provides a page of grant resources that includes a writing tutorial for drafting grants and a video on how to apply for a grant. If you’ve never sought grant money before, start here.

Grants often change regularly, but to get started, try looking up the following organizations known to have offered grants to childcare providers in the past:

• Texas Department of Agriculture: This organization, which offers the Child and Adult Care Food Service Program to subsidize the cost of food for childcare facilities also has a page of resources to find additional grants for food, health, fitness, and community-based endeavors. Bookmark this page and check it often as a starting point in your grant search.
• Texas Workforce Commission Skills Development Fund helps employers to pay for training for their employees
• Workforce Solutions Financial Aid: The Gulf Coast Workforce Solutions has several options for individuals and businesses seeking financial assistance. Check out the financial aid page on their site for the current offerings.
• Find CDA Scholarships: If you need help paying for your CDA training, search the Find CDA Scholarships site for available scholarships to apply to or to recommend to your employees.
• E.A.C.H. Early Childhood CDA Assessment Fee Scholarship: Employees looking to pay for their CDA assessment fee could get a 95% scholarship to cover most of the costs. Find out more from the Texas Association for the Education of Young Children.

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 Other Programs

Another source of funding your childcare operation is through joining a program or group that helps to pay for children’s tuition or your operating costs.  Most of these programs have strict entry requirements. However, they can help you financially if you qualify.

Consider some of the following programs in the Gulf Coast region:

United Way Bright Beginnings

In an effort to increase the availability of high-quality childcare options in the area, the United Way sponsors the Bright Beginnings program. For more than 20 years, this program has operated in the Greater Houston area and served more than 15,000 children. The program is a permanent fixture of the United Way’s local services and will not end any time soon.

If you want your childcare operation to be part of this program, you must have a registered or licensed center or home in Fort Bend, Harris, Waller, or Montgomery County. Visit the Bright Beginnings site to sign up for more information about applying to this program.

Early REACH

Early REACH is a pilot program with a limited span of two to four years and only available to Harris County facilities. For qualifying providers, the program covers the full cost of childcare, paid in advance. Additionally, your center goes onto a list of high-quality sites that families receiving benefits can choose to take their children to.

To qualify, a center must be a Texas Rising Star two-star or higher or otherwise show commitment toward raising its quality, increase classroom space for children between 0 and 4 , and meet minimum compensation for staff. The full list of requirements appears in the policy manual for Early REACH.

Centers for Excellence

Collaboration for Children has a goal of opening 125 high-quality childcare Centers for Excellence across the Houston area. Qualifying centers can get assistance through mentoring, building business development skills, access to Collaborative for Children’s curriculum, and help with improving parent engagement.

To qualify, your childcare operation must serve children from 0 through 5, be located in a childcare desert in one of the 22 priority Super Neighborhoods, serve children who receive CCS subsidies, and have no more than 10 deficiencies with licensing in the last year.

Visit the Centers for Excellence page on the Collaborative for Children site to learn more or to apply.

Early Learning Quality Network

The Early Learning Quality Network is an initiative focused on helping to meet the need for high-quality childcare in underserved communities. Fill out the interest form to learn more about this program, which may include getting priority access to funds and free resources for improving your business.

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Boosting Your Business

Starting your childcare business is only part of what you need to do. You must work toward promoting your childcare operation to help it to thrive. Marketing, finding a business coach, and making connections can be important steps toward keeping your childcare business moving forward.

Tap into Local Needs

You need business for your childcare operation to grow and thrive. Look into the needs of area parents and do what you can to meet them.

Offer Non-Traditional Hours

Non-traditional hours for childcare include offering care before 6 AM, after 8 PM, or on weekends. Between 2015 and 2019, Texas had 2,386,100 children under six and of those, 503,100 had parents who worked non-traditional hours (about 21% of children). However, the availability of childcare offering non-traditional hours across the state does not match this need.

Since 2018, the percentage of childcare centers in Texas offering non-traditional hours has fallen. Fewer than 4% of childcare centers offer non-traditional hours. More childcare homes offer non-traditional hours, but the percentages for each category are all below 6%.

If you offer non-traditional hours at your childcare home or center, you may be able to increase the number of parents who choose your facility for their children.

If you are interested in opening your childcare business to non-traditional hours, Texas A&M AgriLife Extension has a course for childcare providers, titled Adding Nighttime Care to Your Early Childhood Program, to help you with that.

Curriculum Needs

Depending on your location and offerings, area parents may have different opinions about the curriculum that you use. For example, if you offer an after school program, some parents may prefer their children get active play instead of a rigorous curriculum because the kids spent the last eight hours in the classroom. However, other parents may request that you have educational experiences and activities for the children to keep them learning after school while having fun.

Talk to area parents and find out what other childcare providers in your area offer to find out more about the specific needs of the parents and children in your area before choosing a curriculum.

Marketing and Recruiting Parents to Your Business

Marketing is a way of letting people in your area know about your business. Your marketing plan should include ways to target area parents.

Tips from the Texas Workforce Commission

The Texas Workforce Commission (TWC) offers some valuable tips to help you in creating your marketing plan. Find out more from that page about how to create your childcare business’s identity and brand, recognize the marketplace, budget for marketing, and create measurable goals. You will also find information on how and to whom to promote your business.

Marketing Tips from Area Childcare Providers

You don’t have to spend a lot of time or money marketing your childcare business. Some of the ways that area childcare providers market their businesses include the following:

• Parent referrals: These cost nothing and don’t require you to do anything other than encourage parents to refer your business to others if they like the care their children get from you.
• Google/Yelp/Other Online Reviews: Parents can leave reviews of your business online. Many people will look over online reviews before choosing a business. The more positive reviews your childcare business has, the greater the chances are that someone will choose your operation over another.
• Updating Google Maps/Yelp Pages: You should take the initiative to ensure that the information on Google, Yelp, and other review sites is accurate for your business, especially if you want parents to use these sites for reviews. Keeping these sites updated will ensure that prospective parents have the latest information.
• Facebook Marketplace: This is another chance to advertise your childcare business online. Even if you don’t spend a lot of time on social media, you can still use the Marketplace to let others know about your business.

Creating a Business Website

An important part of marketing in today’s business climate is creating an online presence. TWC gives childcare business owners information on how to create a business website and what information to include on it. They also have tips to build your business website using low- or no-cost tools.

The most important part of marketing your childcare business is getting your name out there. Tell your friends, family, social media groups, and everyone you meet about your childcare business and how they can find out more information on your website.

Verifying Registration with Texas Child Care Connection Availability Portal

Make sure that your business is listed and has updated information in the Texas Child Care Connection Availability Portal. If you need assistance in using this site, view the video for providers from TX3C. Use the quick reference cards for providers and refer to the frequently asked questions for more information about this site.

Partner with a Business Coach and Accelerator Programs

Business guidance websites provide you with valuable information for running your business. Texas Workforce Commission offers free resources to help you to run your childcare operation. However, the information provided only gives you generalized tips.

If you have specific questions concerning the running of your business, you need a business coach to provide you with customized assistance. You have several options for finding a business coach, most of which cost you nothing but your investment of time.

Accelerator programs are another option if you already have a childcare business that you want to grow and expand.

Check out the following sources to partner with a business coach or accelerator program:

• Stimulating Urban Renewal Through Entrepreneurship (SURE) program through the University of Houston: This in-person, one-semester course provides entrepreneurs with information on all aspects of starting, running, and growing a business. Plus, each entrepreneur has the chance to get one-on-one guidance for their business. If you are new to running a small business, this program can help you learn all the basics of getting your childcare operation off the ground and keeping it viable. COOGS is a partner of the SURE program and the information in COOGS compliments that in the SURE course. The SURE program combines the best of business accelerator programs and personalized business coaching and is free for entrepreneurs.
• Texas Workforce Commission 1-on-1 Business Coaching: The TWC offers childcare providers for homes or centers the chance to speak with a business coach for several sessions. You must have a childcare license number to sign up for this type of coaching. Sessions are offered over the phone or through online meetings on one of several topics, including:
  • Creating a budget
  • Setting best rates for childcare
  • Attracting, hiring, and retaining quality staff
  • Identifying revenue streams and making the most of grants or other government funding
  • Reducing business risks
  • Marketing your childcare business to boost enrollment
  • Connecting with support systems across the state of Texas
• Texas Workforce Commission Business Webinars: Attend live webinars to learn more about the business side of your childcare operation or view recordings of previous events from TWC. Many of these live events also include open Q&A sessions or group coaching. You do not need a license number to attend these webinars. Topics covered in these sessions include:
  • Retirement
  • Paying yourself
  • Managing enrollment
  • Marketing strategies
  • Employee benefits and pay
  • Staff retention
  • Incorporation and business structures
  • And more
• Texas Rising Star: When you join the Texas Rising Star program as an entry-level childcare business, you have access to a mentor who will help you through the process of creating a quality improvement plan to increase your star level in the program.
• Collaborative for Children: Collaborative for Children provides Business Accelerator trainings. Attending one of these virtual courses will add you to the email list that will inform you of future opportunities. Other opportunities the Collaborative for Children offers include:
  • Online courses that allow you to learn at your own pace
  • Summit trainings to network and learn in person with other providers
  • Virtual think tank sessions to interact with other providers and trainers
  • An online source for informative documents on improving stronger business practices (B.U.I.L.D.).
• University of Houston Texas Gulf Coast SBDC Network: The Small Business Development Centers (SBDC) serve 32 counties in the Texas Gulf Coast region through 14 locations. These sites provide small business owners with free advising at all stages of business development – prelaunch, establishment, expansion, growth, and leaving. While not specific to childcare providers, this service still offers essential information on creating and operating a well-run business. Services available from SBDC include:
  • Free individualized business advising
  • Low-cost in-person events
  • Free weekly webinars and recordings of past events
• AVANCE Quality Child Care Matters: The AVANCE Quality Child Care Matters (QCCM) program gives home-based childcare providers monthly training and professional development, mentoring, and peer support. This program helps providers to improve care quality and operations with a supportive team of peers and mentors.

Making Connections with Other Operations

Connecting with other providers gives you a network to get advice and assistance from. As a childcare provider, you can also create connections with local small businesses or public schools. These partnerships may help you to establish a stable source of income or grow your influence.

Partnering with Small Businesses

One way to establish a childcare business is by offering your services within a small business to the employees who work there. By partnering with a small business, you have less overhead in starting and running your operation because you will have fewer regulations to adhere to than if you opened a center. Additionally, the business benefits by having a place for its employees to get reliable childcare.

To qualify as a small business-based childcare operation, the business must adhere to the following:

• Is located on the small business employer’s premises.
• The small business employs fewer than 100 people.
• Offers care to no more than 12 of the small business’s employees’ children.
• The employer holds a permit to operate the small business-based childcare operation.

Additionally, the facility should have ready access to parents at the worksite. For parents who keep their children in a small business-based childcare facility, they must:

• Work in the same building with the childcare facility.
• Not be away from the work building for more than four hours a day or more than 10 hours a week.
• Be physically capable of seeing the child throughout the day with exceptions for meetings, training, lunch, or short times away from the building.
• Be in the building for most of the time the child is in the childcare facility.

Small businesses that have adequate space for a childcare operation help themselves and the childcare providers.

Benefits to Small Businesses of Hosting a Childcare Facility

A small business gains valuable benefits by hosting a childcare facility on-site. The most important benefits for most businesses are financial. Small business owners have monetary incentive to allow a childcare operation to start on their property.

For your federal taxes, you can take a tax credit of up to $150,000 for providing childcare services to your employees. This total comes from 25% of the expenditures toward either setting up and hosting a childcare facility or partnering with a qualifying outside childcare provider. If your business instead opts to offer referrals for childcare to your employees instead of or in addition to providing on-site or contracted childcare services, you can take 10% of the expenditures from using a referral service.

Childcare businesses can also use this employer-provided childcare tax credit. The facility must have at least 30% of the total children as employee children to qualify for the tax credit.

Businesses must use tax Form 8882 to claim the tax credit.

Small businesses also have the advantage of providing on-site childcare for their employees. Those who take advantage of childcare on-site have peace of mind knowing that their child is close and well cared for. Plus, they do not have to make additional stops on their way to work to drop off their child at a daycare center.

Employers can use the presence of an on-site childcare operation as a perk to mention when enticing new hires to the company and for retaining existing staff.

Advantages for Providers of Childcare in Small Business-Based Operations

In return for running a childcare operation in a small business, the facility itself:

• Does not have a minimum standard to meet, but Child Care Regulation (CCR) will suggest the facility follows the minimum standards for childcare facilities.
• Does not have routine CCR inspections after the initial inspection unless a report alleging abuse or neglect occurs.
• Has an initial inspection that evaluates the site to ensure that it meets local fire and sanitation standards.

Childcare providers enjoy several perks of having their operations within a small business.

First, they have less business overhead since they don’t have the cost of rent or utilities for a standalone facility. They also have a guaranteed number of children to care for from the business’s employees without needing to market their businesses. Finally, they have fewer regulations to adhere to.

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Applying for a Small Business-Based Childcare Business Permit

To have a small business-based childcare operation, the business must apply for a permit. This application process includes the following steps:

• Fill out the Small Business-Based Child Care or Temporary Shelter Child Care Application, Form 2841, and submit it to the local Licensing office
• Conduct background checks and criminal history checks by submitting names of caregivers and directors of the childcare facility to the Licensing office
  • These individuals may need to submit fingerprints
• Undergo an initial inspection of the childcare facility by the Licensing office. This inspection only looks for violations of local fire and sanitation regulations. Licensing does encourage small business-based childcare facilities to meet the minimum standards of licensed childcare facilities.

Though the facility does not have minimum standards, caregivers do. The requirements for caregivers of small business-based childcare operations are:

• Be 18 years old or older
• Have a high school diploma or equivalent
• Complete a background check
• Get CPR and first aid training
• Do 8 hours of pre-service training before being part of the child-caregiver ratio
• Finish orientation with the following topics before becoming part of the child-caregiver ratio:
  • How to recognize and report child abuse or neglect
  • How to handle emergencies
  • Location of fire extinguishers and first aid kits
  • Operational procedures about check-in and out, discipline, and guidance,
• Complete 15 clock hours of training each year
• Hold one of the following current credentials:
  • Child Development Associate
  • Daycare administrator credential
  • Certified Childcare Professional credential

Finally, the facility should have enough qualified caregivers to maintain a  ratio of four children per caregiver.

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Opening a Childcare Franchise

Childcare franchises are locally owned and operated branches of a state or nation-wide chain. As a franchisee, you operate a childcare business under the name and rules of a larger company. With this legally-binding agreement, also comes several pros and cons.

Advantages of Opening a Childcare Franchise

If you opt to open a childcare franchise location, you will have the benefits of having a large company with people available who can help you with starting and running your business. For those new to the childcare industry, this extra help with running the business may increase the chances of success.

Another perk of using a franchise is the name recognition that comes from working with a regionally or nationally known brand. By having a known brand, you may need to do less marketing to get your business’s name to the public than if you opened a company of your own with your own branding.

Childcare franchises often have manuals on how the company requires you to operate the business and the policies you need to have. They provide you with the branding to use, rules you must follow, the curriculum to teach, and the marketing strategies to use. If you want to have clear guidelines for how to run a business, a franchise might be a good option for you.

Disadvantages of Opening a Childcare Franchise

Despite the many perks of running a childcare franchise, this is not a perfect business plan for some people.

First, as part of a larger company, you will likely have to pay higher startup fees. These fees pay for your use of the company’s branding and resources and often cost tens of thousands of dollars or more, depending on the company.

Even after you have your franchise established, you won’t get to keep 100 percent of the profits. You must pay royalties to the larger company that can range from 5% to 7% plus advertising fees.

While you get big-business benefits by operating a franchise, you also lose some of the freedom to choose the direction you want to take your business in. Depending on the company, you may have rules dictating your location, building design, classroom management tactics, curriculum, marketing, pricing, decor, and hours of operation.

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How to Find a Childcare Franchise to Partner with

When looking for a childcare franchisor to partner with, look for well-known companies that cater to your area. Some of the most well-known include The Goddard School, Children’s Lighthouse, and Primrose Schools.

Compare the required initial investments, required royalty fees, and what each franchisor requires of its franchisees. This research phase will be the most important because once you choose a franchisor, that company will regulate every aspect of your childcare business operations.

Find out more information on childcare franchise opportunities at NerdWallet.

Public-Private Prekindergarten Partnerships

Some school districts are partnering with private childcare centers to gain space for their prekindergarten classes. These programs create informal or formal relationships between public schools and private childcare centers. The schools use classroom space in the childcare centers for their preK classes, and the centers offer before and afterschool care for the preschool participants.

The Texas Workforce Commission expanded preK partnerships in 2021 to extend the reach of the program to help more three- and four-year old children get high-quality education. To qualify to participate, childcare centers must not have any actions taken against their licenses and be one of the following:

• Texas School Ready! Participant
• Texas Rising Star participant with a three-star rating or higher
• Have accreditation through a nationally recognized, universally accessible, research-backed program
• Have accreditation through an organization the Texas Private School Accreditation Commission recognizes

The connections between childcare centers and public schools may be formal or informal.

Formal Partnerships

In a formal relationship, the children who participate have enrollment in the school’s prekindergarten program and in the childcare center. The center offers before and after care for the preschoolers, and the pre-K classes take place in the center, usually taught by one of the public school’s pre-K teachers. In some cases, the teacher works for the childcare center. Regardless of their employer, the teacher must meet Texas preschool teacher requirements.  

Childcare centers with this type of partnership receive full-day payment for each participating child. With payment made by Child Care Services (CCS). Schools have the option to share their funds from their Average Daily Attendance and Early Education Allotment to help pay for costs.

Childcare providers interested in joining this program should refer to the statewide preK partnership calculator recommended by the Texas Education Agency. This calculator offers insights into the revenue and costs of the program for participating centers. For instructions on how to use the calculator, watch this provided video.

Informal Partnerships

When schools and childcare centers have an informal relationship, the entities share information and resources, not money since children do not have dual enrollment.

While informal partnerships do not provide monetary benefits for childcare centers, these connects can become formal partnerships in the future.

School Districts That Partner with Childcare Centers

The following Gulf Coast region school districts have existing or are willing to have Private-PreK partnerships:

• Alief Independent School District (ISD)
• Houston ISD
• Tomball ISD

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Shared Services Alliances

Another way to help cover the costs of running your childcare business is by partnering with other providers in a Shared Services Alliance. These systems combine multiple providers with those of a Hub agency to improve the availability of financial or educational resources to those providers. In many cases Shared Services Alliances require participating providers to pay membership fees that help to cover the costs of the shared resources.

A source to find Shared Services Alliances for childcare providers is the Opportunities Exchange.

Shared Services Alliances take on many forms.

• Web-Based Platform: Connects providers across a state to offer links to classroom activities; license and compliance training; negotiated rates for food, beverages, and office supplies; discounted access to payroll systems; state guidelines and rules; and administrative tools.
• Web-Based Platform that Coordinates with State Services: These alliances connect users of the website platform directly to multiple agencies and requirements, such as quality rating and improvement systems (QRIS such as Texas Rising Star in Texas), subsidies, and licensing.
• Sharing Some Resources: These systems provided shared resources, such as substitutes caregivers; negotiated rates for marketing, utilities, food, and beverages; or best practices. These alliances may reach across a state or region.
• Sharing Back Office Support: This type of regional alliance offers providers extra help in monitoring enrollment, tracking per-child costs and revenues, and collecting payments. Back-office support can make the business side of the childcare business more robust.
• Sharing Staff and Leadership: A group of providers share their staff and the staff’s skills amongst themselves to enhance operational efficiencies. The administrators of these facilities work together to ensure the most effective use of the staff from all childcare operations in the alliance.
• Multi-Site Childcare Centers: A multi-site childcare center often has a larger entity overseeing it. By focusing on improving efficiency and staff, these centers can become even more efficient.

Shared Services Alliances and Other Resources for Texas include:

TXChildCareTools: The only website-based alliance in the state provided by Child Care Associates. You must register for the site to access the information and tools on it.

EmergentED: Texas childcare providers who accept CCS subsidies and part of Texas Rising Star have the chance to be part of the Shared Services Alliance with EmergentED. This program offers member discounts, business and licensing support, access to early childcare resources, and bulk pricing.

AVANCE Shared Service AllEmergentED: Texas childcare providers who accept CCS subsidies and part of Texas Rising Star have the chance to be part of the Shared Services Alliance with EmergentED. This program offers member discounts, business and licensing support, access to early childcare resources, and bulk pricing.iance: This SSA is specifically tailored to help home-based childcare providers to save money and operate more efficiently. Members may access professional development courses, assistance with technology, lessons in business skills, and peer support through an advisory group.

Children at Risk page on Shared Services: A site that gives an overview of Shared Services that includes video clips from Early Learning Ventures and an email link to Neomi Fletcher find out more about Children at Risk trainings about aspects of Shared Services Alliances.

TXAEYC Shared Services Alliance: The Texas Association for the Education of Young Children (TXAEYC) offers a Shared Services Alliance that offers member providers a source for employee benefits at a shared cost. Providers in this alliance can attract and keep high-quality caregivers without sacrificing exceptional care. Visit TXAEYC to see if you meet the qualifications to apply to be a member of this SSA.

Improving the Quality of Child Care Through Economies of Scales: A Look at Shared Services Approaches for Texas by Children at Risk: This booklet goes through the many types of Shared Services Alliances used by childcare providers across the country and how Texas providers could benefits from similar models.

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Considerations Before Expanding Your Business

Over time, as your business increases, you may find a need to build out and expand the existing space on your property or to have a new location built. You will need to consider several things before taking the plunge and expanding your childcare business.

Physical Construction Considerations

If you build a new structure or add to your existing site, you’ll need to know the area zoning laws and building codes specifically as they pertain to childcare facilities. Since local laws will vary based on jurisdictions, which may include county, city, and state requirements, you’ll need to talk to your area governments to find out more.

Knowing the building codes and zoning laws for childcare facilities in your area will help you to find contractors and architects who have the same knowledge. Your research into area requirements will allow you to quickly spot a contractor who doesn’t know about the childcare structure requirements for the area.

Director Requirements for Larger Centers

Once your center has 13 children or more, you have a new set of building requirements. Plus, your director will need higher minimums for education and experience compared to those for a director of a center with 12 or fewer children.

If you have a larger center, you may introduce transportation, which has more requirements for training staff.

Refer to the staff and building requirements for centers of 13 or more.  Use this information to decide if you are ready to accept the new requirements for a larger center. If you are, you can take steps to increase your childcare center capacity.

Understanding Licensing Changes

If you have a significant increase or decrease in your childcare operation, you may need to let the licensing department know, especially if it will impact the type of license you have. Other changes that may require you to have your permit changed include:

• Change in infant capacity
• Change in total capacity
• Change in the amount of indoor or outdoor space for children
• Decrease in the number of sinks or toilets
• Change in the age range of children served
• Change from a school-age program to a before or after school program, or the reverse
• Change of location

If your facility undergoes any of the above changes, contact licensing to find out whether you need a new inspection and license.

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Increasing Infant and Toddler Capacity

The state requires a minimum ratio of no more than four infants 11 months or younger per qualified caregiver. For infants between 12 and 17 months, the ratio is five children per caregiver. Children 18 to 23 months can be in a ratio of nine children per caregiver. And children two-years old have an 11 to 1 ratio. Consequently, if you want to increase your infant/toddler capacity, you will need to increase the number of qualified caregivers on staff.

Why You Should Increase Capacity

There is a high demand across the United States for infant and toddler childcare. If you have the space at your facility, you should consider expanding your capacity for caring for these younger children. To determine if your childcare operation can sustain growth or more infants and toddlers, use the Expansion Checklist from TWC.

Making Space in Your Building for Infants and Toddlers

Depending on the type of facility you have and your total capacity, you may need to increase the space you have dedicated to infants and toddlers.

If you run a center with more than 13 children, you can only have infants 17 months and younger with older children if the difference in ages of the youngest and oldest is no more than 18 months. Consequently, you likely may need to have more physical space for young children and infants in your facility.

If you have a center that cares for no more than 12 children, you may combine all ages into groups without regard for the ages of the children. In this situation, you may not need to add space to an infant room.

Your facility needs an infant care area that older children don’t pass through to get to other areas of your building. In that space, you’ll also need:

• An adult-sized rocking chair
• A crib for every child under 12 months
• Space to allow cribs to be at a distance so children cannot reach each other from their cribs
• A crib, cot, mat, or bed for each walking infant or any infant over 12 months
• Handwashing sink in the diaper changing area
• Space for caregivers to walk throughout the room and between cribs

If your building does not have enough space in the infant care area to accommodate more cribs or beds, you may need to consider a second infant care room or to remodel to increase the space of your existing infant care area.

Adding Staff for More Infant/Toddler Capacity

You need more qualified caregivers at your facility if you will increase your infant and toddler capacity. First, you’ll want to check your finances to make sure that you can afford more staff members.

A more profitable childcare operation gives you the funds needed to expand and increase your capacity. Therefore, you should reevaluate your rates and reconsider your marketing tactics to enhance your profitability.

To reduce your hiring and training costs, consider applying for grants, such as the Skills for Small Business grant that pays for the education at local community colleges of employees. Also, use the numerous free and low-cost training resources found on the Human Resources page on this site.

Careful planning can make increasing your infant and toddler capacity possible, but start slowly and make sure that you have a profitable enough business to accommodate additional employees.

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