Family Child Care Business Toolkit

Table of Contents

Business Structure

Business Plan

Start by creating a business plan.

Your business plan will outline the many details of operating your child care business. Planning for business means being informed about the demand for child care in your area and knowing about your space and material needs. You will want to think about your approach to early care and education, working with families and your overall hopes and goals for your business. You will need to plan for administrative details, including budgeting, marketing, billing and payment processing, record-keeping, systems for child and staff records, on-going professional development and time management! 

Visit our toolkit’s Creating a Business Plan page or consider resources from the Small Business Association, where you can access business plan templates.

Business Structure

Your next consideration is business structure. Your business structure affects how you file your taxes, your personal liability, the paperwork you file and whether you are considered for profit or not for profit. It would be unusual for a family child care program to register as a nonprofit. More commonly, home based child care programs are established as sole proprietorships or LLCs.

Different legal structures are outlined below, or you can explore different types of legal structure and get a custom business checklist with the NYS business wizard. Tom Copeland also has a video that explores business structures for family child care providers that may be useful to help identify the best business structure for your business.  Although your legal structure can change, it’s great to get it right from the start… If you choose any structure other than sole proprietorship, you may want to consult an attorney to help you complete filing details.

Sole Proprietorship

Sole proprietorship businesses are the simplest and most common form of business structure. They are easy to establish and the costs are low. A sole proprietor is the sole business owner, and the owner and business are the same, making it a common business type for family and group family child care. All business responsibilities and decisions are those of the single owner and the owner assumes all risk and liability for debts of the business. Income and expenses of the business are included on the owner’s own tax return and the business owner pays a self-employment tax that covers Social Security and Medicare on any profit made. Business ownership can be sold or transferred. If not included in the owner’s last will and testament, the proprietorship will automatically end at death.

General Partnerships

A general partnership is the simplest business form for two or more partners who own and operate a business. They are easy to create and flexible to manage. General partners share in responsibilities of business management, its expenses and profits and are personally liable for all business debts or claims. At year end, each partners’ predesignated share of profits or losses as outlined in a partnership agreement, are included on their individual tax returns. Although they are not required in New York state for general partnerships, a partnership agreement documents how much each person will contribute to establish the business and is a place to identify business responsibilities, outline reasons for expulsion of a partner and stipulate any designated period of time for the life span of the business. If one partner wants to leave and dissolve their interests and liability for the business, the exiting partner will need to be bought out or the partnership will have to be dissolved and restructured.

Limited Partnerships (LP)

Limited partnerships (LP) are formed by two or more people who establish a business. Like general partnerships, profits and losses are reported with each Partner’s individual tax return. A limited partnership must have at least one general partner and one limited partner. The general partner is responsible for business management and operations and has the sole discretion for making business decisions, in addition to full personal liability for any partnership debt. In contrast, limited partners are silent partners, participating in the business as investors only. Limited partners are not usually involved in making business decisions and their liability is limited to the amount of money or the value of property they invest. To understand tax implications of LPs, consult a tax advisor.

Limited Liability Partnerships (LLP)

Limited partnerships and limited liability partnerships are formed by two or more people who form a business. Like general partnerships, profits and losses are reported with each Partner’s individual taxes.

Limited liability partnerships are often formed to help professionals share resources and individual skills add to the business as a whole. Each partner essentially serves as a general partner with respect to responsibilities of business management, but each partner is protected from liability for the actions of the others. One partner in a limited liability partnership can own a different percent of the business than other partners, based on how much time or money each invests in the business.

Limited Liability Company (LLC)

A limited liability company (LLC) is an unincorporated business organization offering flexibility and protection to one or more people who generally have limited liability for the contractual obligations and liabilities of the business. There is no limit on who may be a member of an LLC or how many LLC members there are in a business. Limited Liability Company Law governs the formation and operation of LLCs in New York. The LLC provides limited liability and flexibility, allowing the “members” to shape the LLC to meet the needs of the business. An LLC can have any number of members and a member may be an individual, a silent partner, a corporation, a partnership, another limited liability company or any other legal entity. Non-managing owners, like silent partners, may share in LLC profits even though they don’t participate in direct management of the program. Although members may be liable for unpaid wages that are due to employees, the personal assets of LLC owners are protected from liability for business debts and claims, except in cases of fraud or illegality. An LLC can have perpetual existence or be dissolved on a specified date as identified in the company’s articles of organization or operating agreement. Ownership interests in an LLC in New York can be sold or transferred if all other members of the LLC agree. An LLC can elect its classification for federal tax purposes; LLCs with one member can be a corporation or be treated as a sole proprietorship. It is important to speak with an attorney when thinking about establishing an LLC.

Corporations

Corporations, also known as C-Corporations, are legal entities, established by any number of people. The most common form of business entity for larger companies, corporations are distinct from the person or people that establish them and enjoy most of the rights and responsibilities individuals enjoy. They can be the legal name on a contract or loan, sue and be sued, hire employees, own assets, and pay taxes. Shareholder liability is typically limited to the amount invested and ownership comes with limited liability, enabling shareholders to benefit from profits of the business without being held personally liable for business debt beyond wages due to employees of the corporation. A board of directors is elected annually to manage the corporation and notes must be taken at all meetings. The number, composition, qualifications and terms of board members are designated in the articles of incorporation and/or bylaws that outline business operations. Although they are not generally responsible for any corporate debt, they are responsible for responsible oversight and it is possible they incur personal liability. Corporations may be eligible for funding opportunities that other business types cannot access. Corporations exist indefinitely and are far more complicated and expensive to set up than other business structures. Corporations can sell stock and remove tax liability from shareholders, but there is an issue with double taxation because profits taxed at the corporate level are taxed on a personal level when distributed in dividends. C-Corporations file their own tax returns. There are many tax and other implications to consider when establishing a corporation, incorporators should certainly seek Counsel.

S Corporation

An S-corporation is a C-corporation or LLC established in New York that has elected to be treated as an S-corporation for tax purposes. S-Corporations can issue stock, but the business is generally exempt from federal income tax other than tax on certain capital gains and passive income. Shareholders have the same rights to profits, distributions and any asset distribution. All shareholders agree to include their share of the corporate income on their individual personal tax returns. Personal risk is limited to investment as with any corporation, and s-corporations must abide by board of director and meeting requirements. An S-corporation can be more affordable to form than an LLC and provides a structure that can help reduce self-employment taxes as neither the salaries of shareholders who work for the business, nor dividends are subject to self-employment tax. S-corporation shareholders enjoy the limited liability of a corporate shareholder, while paying taxes like a sole propriety or partner. Income or loss is shown on the shareholder’s personal income tax form. As if they were employees, shareholder salaries can be deducted from the corporation’s tax return as an expense.

Not for Profit or Nonprofit Corporations (NFP)

Non-profit organizations are set up to operate exclusively for educational, literary, scientific, charitable or religious purposes. Generally this includes all organizations that qualify for exemption under section 501©(3) of the Internal Revenue Code. Nonprofits benefit from corporate status and are exempt from sales and property taxation, except payroll tax and could be exempt from property tax. One particularly appealing benefit of obtaining nonprofit status is that nonprofit corporations can access grants and donations, making them a common business structure for child care centers. Center based programs can use grants and donations to support sliding fee tuition scales or to meet non-federal match requirements, providing increased access to children and families while providing the needed income to sustain the business. Nonprofits the most complex organizations to start and have a high administrative burden to maintain.

Cooperatives

A cooperative business is owned and operated by people who us its products and services, providing a cost saving to the group. There are four types of cooperatives that area used in child care: consumer cooperatives, worker cooperatives, purchasing cooperatives and shared services cooperatives.

Consumer Cooperatives

Consumer cooperatives are established as nonprofit organizations. A parent cooperative preschool is an example of a consumer cooperative. Parent cooperative preschools are administered and maintained by the parent/guardians whose children attend the program. Parent/guardians assist professional teachers in classroom and program operations and benefit from reduced cost child care by participating in the classroom and administrative duties of the program. By doing so, they benefit from insights they gain about child behavior. Parent education is also an important element of parent cooperatives, helping with interactions in the preschool and with parenting in general. Adult education programs that are sometimes operated by school districts and offered as adult education often function like parent co-ops.

How Do Providers Pay Themselves?

How do home-based child care providers pay themselves? Watch Tom Copeland’s video that explains the difference between being a sole proprietor and a corporation in regard to how providers get paid.

Business Name and Branding

The name you choose for your business can tell a lot about you and may your program standout. Choosing a name that is descriptive helps distinguish your program from the start. You can use your own name, or a created name (“trade” name). Some names identify the area in town where care is provided, identifies the program philosophy or the age of children served, like Main Street Early Care & Education. If you use a trade name, it needs to not be in use by anyone else in New York. Visit the NYS name reservation page to see if the name you’d like to use is available or you can do this in person when you go to file your form.

Creating a brand for your business includes your name, logo and consistent colors. After deciding on a name, start thinking about what design will become your logo – you’ll need all this for advertising: brochures, social media, a sign, your letterhead, forms, materials… If you need some ideas, look around as you go, give yourself some time to think about it… Color schemes can be found on houses, other advertising, within templates in computer programs and online at https://coolors.co/. Similarly if you are inspired, draw your own graphic, use clip art as a base, or get help online at https://hatchful.shopify.com.

Business Name Registration and “DBA”

If you are using a trade name for your program, you will need to register as “Doing Business As” (DBA) with NY State at a county office in your county of residence. (If using your own name for your business name, you do not need to register a DBA). Having a DBA will enable you to accept tuition payments under your program name.

Tompkins County

Forms and fees must be filed in persona and can be found at http://tompkinscountyny.gov/cclerk/buscerts. Assumed name (DBA) information is contained within each of these forms. The Tompkins County filing fee is $25.
Tompkins County Clerk
320 North Tioga Street
Ithaca, NY 14850
(607) 274-5431

Cortland County

Business certificates can be found at https://www.cortland-co.org/174/Doing-Business-Corporations-Business-For
You can search online to see if your business name is in use (https://www.cortland-co.org/659/Search-Public-Records) and go into the office to make payment.
The Cortland County filing fee is $30.
Cortland County Clerk
46 Greenbush St., Suite 105
Cortland, NY 13045
(607) 753-5021

Employee Identification Number (EIN)

An employee identification number (EIN) is a 9-digit number that is used to identify your business and employee information to the Internal Revenue Service (IRS) for tax purposes.
Sole Proprietors who do not have any employees can use their personal social security number for tax purposes, however you will need an EIN with a DBA for your business in order to obtain a business banking account.

It is easy and free to obtain an EIN. The IRS has an EIN Assistant tool at https://sa.www4.irs.gov/modiein/individual/index.jsp where you can affirm your need for the EIN and apply online. If you would prefer completing your application by mail, download the Application for Employer Identification Number Form SS-4 at https://www.irs.gov/pub/irs-pdf/fss4.pdf or call the IRS at 800-829-4933 from 7am-10pm (PST), Monday-Friday.

References/Resources

Alternatives Federal Credit Union (AFCU)

AFCU offers a business training series in collaboration with Business Leaders of Colors. Staff are also available for 1:1 consultations and more: https://www.alternatives.org/community-programs/business-cents

Small Business Association (SBA)

The SBA business publishes a guide about choosing a business structure.

Local support can be found by contacting the Small Business Development Center (SBDC) offers one-hour complimentary sessions by appointment to help you determine your business needs/next steps. To schedule a counseling session, call (607) 273-7080. To learn more about their programs, visit the Chamber’s Start a Business page.

Tom Copeland

Tom Copeland has many resources to read about operating a family child care business. Read his thoughts about incorporation.

SCORE

SCORE has many business resources available online that are worth exploring.

New York State

NYS business resources can be found in their entirety on their start a business page online.