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How to Start a Child Care Referral Agency

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According to the most recent census data, approximately 11 million children age four or younger are in some type of child care program. However, for many parents, finding an affordable child care provider that is near work or home can be a difficult task. To help solve this problem, parents can often find help through a child care resource and referral agency.

In most cases, child care referral agencies help low- to medium-income parents find affordable day care services for their children and connect them with programs that can offer financial subsidies to meet these expenses.

Before You Start Your Child Care Agency

Before starting a referral business for parents looking for child care, you will have to ask yourself many questions and find the right answers. Most of these answers should be detailed in a comprehensive business plan. Even if you are not intending to make money from this venture, your business plan should be viable to ensure that you're not losing money.

Who will be your clients? If you plan to help low-income families or single parents find affordable child care, your business structure, financing options and the day-to-day operations of your agency will be much different than if you are helping affluent families get child care.

What child care resource and referral services are currently available? If there are already similar services from a local organization or government, you will need to determine how your service will be different or how your services may supplement what is already being offered. In California, the state's department of education lists referral services that are currently available in each county.

How will you fund your organization? If you are planning to charge parents for your services, you should first do some market research to determine what fees you may be able to charge. Most referral agencies help low-income families who are not in a position to pay you. In this case, you will probably need donations from the community or local service organizations, or you will need to apply for grants from the state or local government, provided these are available.

What will your organizational structure be? Before determining what your business structure will be, such as an LLC or a corporation, you should consult with a lawyer. If you plan to fund your agency through donations, you will probably want to register your agency as a charity with your state and the IRS.

How will you staff your organization? This will depend on your funding. You may be able to hire staff, or you may have to find people willing to volunteer their time.

Will you offer day care yourself? Some referral agencies only act as an intermediary between parents and day care providers. Other agencies offer day care to parents themselves, even if it's just on a temporary basis until a permanent solution has been found. If you do offer day care to parents, you will have to first ensure that your day care meets state and local requirements, such as zoning bylaws, health inspections and, in some cases, having certified staff to watch the children.

Getting Connected in Your Community

Once you have identified a need for a child care referral agency in your community and have determined what kind of services you want to offer, the first thing you should do is thoroughly understand what services are currently available, particularly at the local and state level. This includes licensed child care providers, licensed at-home providers and available subsidy programs.

Karine Deschamps, MSW, is a site coordinator with the Communities in Schools of Philadelphia’s ELECT program. A large part of her duties involves day care referrals, primarily for young parents in high school. “There are a lot of ways to help get child care that’s needed,” Deschamps explains, “but there are a lot of steps involved, and it’s a pretty bureaucratic process.”

For anyone planning to start a day care referral business, she said that the first step should be research. “A lot of this is online,” she said, "so start with Google. Find out what’s available.”

In Pennsylvania, Deschamps recommends contacting your local county assistance office, which manages benefits for low-income families. "They should have resource lists of what child care services are available in your area," she said.

Before sending parents to a child care provider, you will probably want to visit the location first. Things to look for, Deschamps suggests, are the number of staff in proportion to the number of children, whether or not they provide food or diapers to the children and whether or not they have a fenced play yard.

When working with low-income parents, however, she warns that the most important questions may simply be whether or not the provider has room for new children and if it's relatively close to the parents' home.

Finding Subsidy Programs for Parents

Subsidy programs for parents may be available from any level of government. These programs vary with each state and community. They can also change from year to year. If a government recognizes a need for day care subsidies, it may offer a new program. However, if a government needs to make budget cuts, an existing program may be reduced or eliminated.

In 2018, the federal government offers child care subsidies to some federal employees. However, the availability of these programs and the requirements vary depending on where the parents work. Those who work in the General Services Administration may be eligible for financial assistance through a program administered by the USDA, provided their adjusted family income is $68,100 or below. Those who work for the National Park Service are eligible for another program, also administered by the USDA, if their adjusted family income is below $70,000.

To further illustrate how complicated and different these programs can be, the USDA used to administer the U.S. Customs and Border Protection (CBP) Child Care Subsidy Program. However, this was transferred to FEEA Childcare Services, Inc. in November 2018. Employees of the CBP must now enroll through the FEEA rather than the USDA.

Many state governments offer subsidy programs to parents, but these programs vary. As an example, parents living in Kansas may be eligible for assistance through the Kansas Department for Children and Families if they receive Temporary Assistance for Needy Families benefits, if they are designated as low income, if they are attending school or career training or if they are teen parents in high school or completing a GED.

Regardless of where you are located, it will be important to always keep abreast of what programs are available and how they may change from year to year. Consider subscribing to news alerts for day care and child care in your state and in your community.


A published author and professional speaker, David Weedmark has been a hiring manager and recruiter for several companies and advises small businesses on technology. He has started three successful businesses, and has written hundreds of articles on careers and small business trends for newspapers, magazines and online publications including, Re/Max and American Express.

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