Chapter 1

One of the biggest challenges facing working American parents today is caring for the children. According to the Bureau of Labor Statistics, only 13 percent of all families fit the traditional model of husband as wage-earner and wife as homemaker. In 61 percent of married-couple families, both husband and wife work outside the home. Six out of every 10 mothers of children under age 6 are employed, and the labor-force participation of women in their childbearing years continues to expand. As the number of working parents in America rises, so will the demand for child care.

Another issue that has an impact on child-care issues is the new, 24-hour global market. Occupations with a high number of employees working nights and weekends—such as janitorial, hospitality, customer service and technical support—are experiencing substantial growth, and workers in these fields are finding obtaining quality child care an even greater challenge than their 9-to-5 counterparts.

For many working parents, there is no single solution to their child-care needs. More than a third use more than one option, such as day-care centers part of the time and friends, neighbors or relatives on other occasions. A recent study conducted by the Urban Institute, a nonprofit policy research organization, revealed that about 30 percent of working parents have two child-care arrangements, and another 8 percent are using at least three. The study found that 65 percent of the parents juggling multiple child-care arrangements use a combination of formal day-care centers, Head Start programs, and baby-sitting by relatives and friends. Another 20 percent use two separate day-care centers.

In addition to child care, parents also need transportation for their children. Kids who are too young to drive or take public transportation without supervision still need to get back and forth to school, as well as to places after school, whether it’s to games, museums, libraries, music lessons, doctor’s appointments or whatever. But most parents can’t leave their offices to take their children to these activities, so they’re turning to transportation companies that specialize in schlepping children. All this means opportunity for you. But before you take the leap into your own business, learn how others did it.

How Did They Start?

The successful child-care and child transportation service business owners we interviewed for this book got their starts in a variety of ways.

A dare propelled Lois M. of Toledo, Ohio, into the child-care business. In 1982, through an internal political shake-up, she lost her job as the director of a church day-care center. She had two young children of her own, and if she got a job in a different field, she would need child care for her daughters. When she looked around at the child-care options available to her, she didn’t like what she saw. And in the meantime, a number of parents of the children from the church center were asking her to open her own facility. The idea was appealing, but, she felt, economically out of the question. Her husband got laid off shortly after she left the day-care center, and the only job he was able to find didn’t pay enough to support the family, much less provide start-up capital for a new business. “Financially, we were absolutely at the end,” she recalls. “My parents were making our house payment and giving us money for our living expenses, we qualified for the home energy assistance program, and our older daughter was on the free lunch program at school.”

Lois decided to ask her parents for a loan to open a child-care center. They agreed, but then she found out she was pregnant, and her parents withdrew their financial support for the business, saying her place was at home with her children. She argued, pointing out that running a child-care center was an excellent job for a working mother, but her parents were adamant. They would continue to help with living expenses, but they would not fund her business.

“I pretty much gave up on the idea,” Lois says. “Then I met with one of the parents who was anxious to get his daughter in our program and told him I couldn’t get the funds. He said, ‘I knew you wouldn’t do it. I knew you’d get cold feet.’ ”She took it as a dare, reacting at first with anger, then with determination. In 1982, she took out a second mortgage on the family home and was just one month away from the birth of her third child when she opened the first of six Children’s Discovery Centers in Toledo.

Janet H. started caring for children in her home in Exeter, California, in 1980, when her own daughter was two. She had been working as a bookkeeper but wanted to be at home with her child. She operated on her own for six years before forming a partnership with a friend who also had a family child-care center. Together, the two women leased a building that had housed a YMCA and opened their first commercial center in Exeter. Eventually, that partnership dissolved (amicably; the partner wanted to move to another state), but Janet continued to operate the commercial center and her own center at home. Soon Janet formed another partnership and bought a second commercial center in nearby Visalia. Three centers were more than Janet could handle, so she closed the one in her home to concentrate on the two commercial operations.

Brenda B. opened her family child-care center in 1994 after she moved back to her hometown of Stockton, Illinois, following eight years in Chicago. She and her now-husband were engaged and planning to start a family as soon as they got married. They both wanted her to be at home with their child, and having a family child-care operation was the ideal solution. Brenda became licensed to operate out of her mother’s home until she and her husband bought their own home.

Sherri A. runs a family child-care business in Winter Park, Florida. She had been a house parent (similar to a house parent in a college dormitory) working afternoons and evenings in a care facility for youngsters from 9 to 17 who were in the state’s custody. Her infant son was in child care part time. Then her husband became ill with cancer (he later recovered), and she was struggling with her own job and an employer who was largely unsympathetic to the demands of her personal situation. Her child-care provider encouraged her to start her own family child-care operation. “She said all I had to do was get a license, and she would refer people to me,” Sherri recalls. “I quit my job on July 1, 1993, started my business on September 11, and was full within 30 days.” Yvette B. was working in sales and marketing for a hotel when she realized there was a need for children’s transportation in her community and saw an entrepreneurial opportunity for herself. She incorporated her company in Miami in November 1995 and opened for business the following March.

Deborah B. had heard about children’s transportation companies and was intrigued by the concept. After she lost her job (a job she didn’t like anyway), she decided to give it a try and formed her business in Front Royal, Virginia, in 1996.

Who’s Running The Centers?

What are the characteristics of a person who would do well operating a child-care center? Lois M. answers, “The person needs to be energetic, business-minded, a competent leader, have a pleasant personality, be professional, be willing to take calculated risks, be a good role model, have strong financial resources, be consistent in expectations of the staff, and be consistent in the delivery of service.”

If you’re going to be running a family child-care center, Brenda B. adds, “You have to really like kids.” Janet H. agrees; she says, “A person who is going to own a child-care center needs to love children, be a people person, have a high tolerance for stress, have good insurance, and have some management skills.”

A child-care business can easily be started in your home with just a few weeks of planning and a modest amount of start-up cash. A commercially located center takes a greater investment of time, energy and money. The size and type of business you choose will depend on your start-up resources and goals for the future. Many child-care providers are satisfied with a one-person operation in their home that generates a comfortable income while allowing them to do work they enjoy (and possibly even care for their own children). Others may start at home and eventually move to a commercial site as the business grows. Still others begin in a commercial location and are either content with one site or have plans to expand.

A special note if you’re planning to care for children in your home: Homebased child-care centers are known as family child-care businesses, and they have changed significantly in recent years. As recently as two decades ago, most providers charged by the hour, and they didn’t get paid if a child didn’t show at the last minute. Fees were the same for children of all ages, and there were few written contracts and no paid holidays or vacations. Even the providers didn’t view their work as a professional service. Today, family child-care providers are increasingly likely to see their work as a business. They love children and enjoy what they do, but they are taking a more professional approach to how they manage their operations. By reading this book before you open your business, you will be starting off on the right foot, and you won’t face resistance down the road if you try to upgrade your operation and implement new procedures.

Who Is Your Market?

Prime candidates who need full-time child care are parents with infants to 5-year-olds. Parents with children over 5 are good prospects for after-school care programs. The market segments most likely to use child-care services are dual-income families and single-parent households in most income brackets. A number of government programs help low-income families pay for child care so the adults can stay in the work force. Within this very broad market is the more narrow group of clients you will serve. Use market research to figure out who these people are and how you can best attract them to your center. Lois M. says the primary market at four of her six locations is parents who are upper-income working professionals; the other two centers serve a number of middle-income families as well as those being subsidized by public funds. Janet H. says about half her clientele consists of dual-income families, and the other half is single mothers who receive government assistance as they work through programs designed to get them off welfare.

The goal of market research is to identify your market, find out where it is, and develop a strategy to communicate with prospective customers in a way that will convince them to bring their children to you. The “Conducting Market Research” chapter in Entrepreneur’s Start-up Basics explains where to find the information you need. When Lois opened her first center, her demographic research revealed that there were 9,000 children from infant to 5 years old within a 5-mile radius of the site; half the preschool children in the area were in day care of some sort because their mothers (or both parents) worked; and the number of households in the area was expected to double within a decade. Contained in that 5-mile radius were six child-care centers serving approximately 800 children.

Brenda B.’s research was not as sophisticated. Living in a small town, she knows just about everyone and is well aware of the lack of child-care services. “There’s such a need for day care,” she says. “I go through periods where I will get as many as five calls a week from parents needing care, and I don’t have room for them. I’ve had families on my waiting list for up to two years.”

When Yvette B. started her children’s transportation service, she realized no other company was targeting that market. “Even with all its problems, Miami is a high-growth area, and quality transportation for children was completely lacking,” she says. “The whole focus of [my business] is quality and safety.” She called local bus companies to see what they offered. Then she called schools to see if they had their own transportation and, if not, she asked if they were referring to any private companies. Her target market is upper-income families who send their children to private schools. “You must target people who can afford your service,” she says. “For people who are already sending their children to schools that are very expensive, the concept of spending $200 a month in transportation is not a big deal.”

Though Deborah B.’s first reaction to a children’s transportation service was “what a cool idea,” she decided to study the demographics before moving forward. Using Census data, she found that 25 percent of her county’s population was under age 18 and that 60 percent of the workers who commuted were traveling 90 minutes or more each way. “I knew there was no way for them to get their kids here, there and everywhere,” she says. She also found that some parents did not want their very young children riding on a school bus with high school students and were willing to pay for private transportation.

Before 9 And After 5

A growing market segment for child-care providers are parents who work nontraditional hours, including evenings, nights and weekends. There are no statistics on the number of child-care centers that operate in the evenings and on the weekends, but experts say supply doesn’t meet demand.

There have been documented cases of workers at round-the-clock manufacturing facilities using their cars as “child care” of last resort. At one food processing plant in Western Idaho, young children were put to sleep and left unattended in cars in the plant’s parking lot.

The issue of child care during nonstandard hours is growing in importance due to a number of major trends. The long-term trend toward a service-based economy has led to the operation of more businesses during early mornings, evenings, nights and weekends. Employers in all sectors are changing their schedules for reasons ranging from increased flexibility to enhanced customer satisfaction to reduced air pollution. A significant percentage of employees working nonstandard hours are women and mothers. Neighbors and grandmothers, the traditional sources of informal child care when the parent is not available, are also less likely to be found at home. They, too, are increasingly in the labor force.

Does this mean you should open a 24-hour child-care facility? Not necessarily. Though the demand is certainly there, many parents needing such care earn low to moderate incomes and cannot afford to pay a lot for child care. Providers also find that extended hours cut into their own personal time, and that it is difficult to recruit and retain staff for nonstandard hours. But if you can figure out a way to overcome the obstacles, offering care during nontraditional hours can provide a valuable service while allowing you to maximize your facility.

First Things First

Many start-up businesses are challenged by a lack of information and resources, but that is not the case for child-care providers. You have a wealth of public and private resources to turn to for advice, support, training and even funding.

Most communities have child-care resource and referral agencies (R&Rs) that can help you with a variety of issues, such as licensing, setting rates and even lending you toys and equipment. Once you’re in business, these agencies will also refer families to you for your services. Make finding that agency your first priority after you finish this book. If you are not familiar with the agency nearest you, check with the National Child Care Information Center or the National Association for Family Child Care (see Appendix) for assistance.

Your next step is to identify the various government agencies that oversee child-care providers. A good place to start is with your state’s information department (look in the government section of your telephone directory). In most cases, you will find yourself dealing with multiple agencies with different and sometimes overlapping responsibilities. These agencies will tell you what is required to get your doors open. Consolidate their information and create your own start-up checklist like the one on page 8.

Buying An Existing Child-Care Service

Owning a child-care center doesn’t necessarily require building the company from scratch. You might want to consider buying an existing child-care center, which is how Janet H. acquired her second commercial center. If the appeal of being in business for yourself is in running the company rather than starting it, this route to business ownership is an option worth investigating. It allows you to bypass all the steps involved in creating a business infrastructure because the original owner has already done that. You can take over an operation that is already generating cash flow—and perhaps even profits. You will have a history on which to build your forecasts and a future that includes an established customer base. And there’s generally less risk involved in buying an existing concern than there is in creating a whole new company.

Of course, there are drawbacks to buying a business. Though the actual dollar amounts depend on the size and type of business, it often takes more cash to buy an existing business than to start one yourself. When you buy a company’s assets, you usually get stuck with at least some of its liabilities. And it’s highly unlikely that you’ll find an existing business that is precisely the company you would have built on your own. Even so, you just might find that the business you want is currently owned by someone else.

Why do people sell businesses—especially profitable ones? For a variety of reasons. Many entrepreneurs are happiest during the start-up and early growth stages of a company; once the business is running smoothly, they get bored and begin looking for something new. Other business owners may grow tired of the responsibility or face health or other personal issues that motivate them to sell their companies. Some of the most successful entrepreneurs go into business with a solid plan for how they’re going to get out of the business when the time comes.

If you decide to shop around for an existing child-care center, look at every service provider in the area that meets your requirements. Just because it isn’t on the market doesn’t mean it isn’t for sale. Use your networking skills to find potential companies; let friends and professional colleagues know what you’re looking for. You might even consider placing a “wanted to buy” classified ad.

Evaluating A Company

One of the most challenging financial calculations is figuring out what a business is worth. Research the selling price and terms of recently sold child-care centers in your area, and use them as a guide. You may value the company based on its after-tax cash flow or on the value of the company’s assets, if they were liquidated, minus its debts and liabilities. You should call on your financial advisors to assist you with these calculations.

The figures are only part of the equation. Elements that are not as easy to assign a value to include the center’s reputation and the strength of the relationship the current owner has with parents, suppliers and employees.

Thorough due diligence is an essential part of the acquisition process. This includes reviewing, auditing and verifying all relevant information regarding the business, so you’ll know exactly what you are buying and from whom. Have your accountant assist you in evaluating the financial statements, your banker help with financing issues, and your attorney guide you in researching the legal aspects of buying the business. And remember that you can walk away from the deal at any point in the negotiation process before a contract is signed.

Outlook For The Future

Child-care center operators agree the future is bright. The need for services is going to continue to increase, and the options and opportunities should also expand. Lois M. is seeing an increase in the number of corporations that contact her looking for a center that is unique to meet the needs of their employees. While they don’t want to subsidize a center as they may have done in the past, they are willing to make some concessions, such as with the land or building, to get a center in operation near their offices. “There will be more opportunities to move into some business parks, but the enticements will probably not be as big as they were at one time,” she says.

Of course, there will always be challenges. Labor will continue to be tight, and this is definitely a labor-intensive business. Depending on individual market conditions, very small operators may find it tough to compete with larger chains for both employees and customers. And if you build a solid, profitable commercial center, you may find yourself the target of takeover attempts. “I’ve been approached by several companies that wanted to buy me out,” Lois M. says. “They figure if they can buy a successful operation, that allows them to immediately pick up another 10 percent in volume and keep on growing.”