What Type of Business is a Daycare?

There are many different ways to structure your business from a legal standpoint. There may be different options based on your area, so check your government websites for information they provide on business structures.

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For example, common options in the United States that you may wish to open as include a Sole Proprietorship, General Partnership, Limited Liability Company or Corporation. Each option has different pros and cons for liability, taxes, profits and several other factors.

Let’s go over what each of these mean:

Sole Proprietorship

Definition

Owned by one person and there is no legal distinction between the owner and the business.

Advantages
  • Simplest to get started.

  • Full control over company and earnings.

Disadvantages
  • Personally responsible for any debts or losses.

  • Higher tax rates.

General Partnership

Definition

Two or more individuals who agree to contribute resources and share ownership of a business.

Advantages
  • Simple to get started (if partners work well together).

  • Each partner shares the profits and responsibilities of the business.

Disadvantages
  • A written agreement needs to be drafted.

  • Each partner is personally liable for debts and other losses.

  • Higher tax rates.

Limited Liability Company

Definition

Owned by one or more individuals or entities through a written agreement. This combines elements of Sole Proprietorships and General Partnerships with Corporations, where the owners pay taxes individually (rather than as an organization) but have less personal liabilities.

Advantages
  • Owners are not personally responsible for debts or losses.

Disadvantages
  • Depending on the State, might have to be dissolved in the event of death or bankruptcy of an owner.

Corporation

Definition

An organization that is separate from its owners.

Advantages
  • Limited liability for owners.

  • Can continue existing without original owners.

  • Can go public and offer shares or stock options.

Disadvantages
  • Expensive and complicated to set up.

  • Original owner might lose control depending on the evolution of the company.

  • Tax filings can be more complicated.


Additionally, rather than opening as a brand new business, you may wish to become part of a child care agency or as a franchisee of a larger child care business. This would mean more help starting up and getting children enrolled, but less profit overall because the agency or parent company will take a commission of sales.

Franchising or Starting From Scratch

Sometimes starting a brand new business from scratch is too overwhelming for some entrepreneurs. This does not, however, mean that your dreams of opening a child care center or home daycare are over. In fact, this is precisely why franchises exist!

Opening a franchise location of an existing child care business means that most of the heavy lifting has already been done for you. Rather than starting from ground zero, you will essentially be buying a “business in a box.” 

Advantages of purchasing a franchise include:

  • Less trial and error because all of the logistics are already sorted out.

  • Training on how to run your business will be provided.

  • You will have a support system of head office and other franchisees.

  • A built-in reputation before you even get started.

  • Advertising support.

Disadvantages of purchasing a franchise include:

  • Your profits will not be 100% yours and will need to be shared.

  • Less room for creativity or trying new things outside of the established model.

  • If the business’ reputation suffers for something outside of your control, your business’ reputation will be impacted as well. 

  • A franchiser may choose not to renew your agreement when it is up for renewal.

If this is your very first time starting a business, then the franchise model may be a great ticket into entrepreneurship. If, however, you want to build a business from scratch and retain 100% control over its vision, operations and profits, then it may be better to not be a franchisee.

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