How to Start a Foster Home: Legal Requirements and Profit Potential

Consider these crucial factors when launching your foster home:

1. Foster care license — Get a foster care license from your state’s child welfare agency. This involves meeting specific criteria, completing required training, and passing home inspections.
2. Non-profit status (optional) — Consider registering as a non-profit organization to access grants, donations, and tax exemptions. This involves filing with the IRS and meeting specific state requirements.
3. Choose a location — Select a suitable location that meets state requirements for space, safety, and accessibility. Ensure the home is in a safe neighborhood with access to schools, medical facilities, and other essential services.
4. Furniture and fixtures — Purchase high-quality, durable furniture and fixtures suitable for children of different ages. Ensure you have enough beds, dressers, and storage for personal belongings.
5. Register your business — A limited liability company (LLC) is the best legal structure for new businesses because it is fast and simple. Form your business immediately using ZenBusiness LLC formation service or hire one of the best LLC services on the market.
6. Legal business aspects — Register for taxes, open a business bank account, and get an EIN.
7. Educational and recreational supplies — Stock up on books, educational materials, toys, games, and outdoor equipment to support learning and recreation.
8. Daily living supplies — Ensure a steady supply of clothing, hygiene products, bedding, and kitchen supplies.
9. Home setup — Design the home layout to provide a comfortable and nurturing environment. Include bedrooms, common areas, study spaces, and outdoor play areas. Ensure all safety measures are in place, such as smoke detectors, fire extinguishers, and child-proofing.

You May Also Wonder:

Can I start a group foster home in any state?

While it is possible to start a group foster home in most states, each state has its own licensing and certification process. This includes meeting specific criteria related to the physical space, staff qualifications, background checks, and compliance with health and safety standards. It’s crucial to familiarize yourself with the regulations and licensing requirements of the particular state you are interested in.

How much state funding do group foster homes get?

Funding for group foster homes varies significantly by state. Some states provide substantial funding and support to group foster homes, while others may offer limited financial assistance. Funding typically comes from a combination of state, federal, and local resources, and the amount can depend on factors such as the number of children served, the level of care provided, and the specific programs offered. To determine the funding available, you would need to research the policies and funding options specific to your state.

What are the requirements to start a group foster home?

The requirements to start a group foster home generally involve meeting licensing standards, which often include factors such as:

• Adequate physical space and safety features within the home.
• Clearances for all staff members, including background checks and fingerprinting.
• Compliance with health and safety regulations, including fire safety measures.
• Training and qualifications for staff members, including first aid and CPR certifications.
• Policies and procedures for the care and well-being of children in the home.
• Documentation and record-keeping procedures.
• Compliance with any additional state-specific requirements.

Are all group foster homes state funded?

Not all group foster homes are state funded. While some group foster homes rely heavily on state funding to cover operational costs, others may receive funding from private sources, grants, or philanthropic organizations. The availability and level of state funding can vary widely depending on the location and the specific programs and services offered by the foster home.

Step 1: Decide if the Business Is Right for You

Pros and cons

Foster care industry trends

Industry size and growth

• Industry size and past growth – The U.S. orphanage and group home industry is worth $9.9 billion in 2023 after growing .6% for the last five years.((https://www.ibisworld.com/united-states/market-research-reports/orphanages-group-homes-industry/))
• Growth forecast – The U.S. orphanage and group home industry is projected to decline 1.6% in 2023.
• Number of businesses – In 2023, 11,583 orphanage and group home organizations are operating in the U.S.
• Number of people employed – In 2023, the U.S. orphanage and group home industry employs 133,417 people.

Trends and challenges

Trends

• Adoption of children from foster care has increased over the last two decades.
• Fortunately, the number of children who are mistreated has declined slightly in the last few years.

Challenges

• Kids ages 1 to 5 are the largest group of children placed in foster care, and those children require more care and supervision.
• The approval process to start a group foster home in most states is arduous.

How much does it cost to start a foster home business?

The costs to start a group foster home are significant, but many state programs and even federal grants are available to cover the costs. The costs can range from $400,000 to $600,000. 

Start-up Costs	Ballpark Range	Average
Setting up a business name and corporation	$100 - $500	$300
Business licenses and permits	$100 - $300	$200
Insurance	$100-$500	$300
Website	$500 - $1,000	$750
Space rental and preparation	$200,000 - $300,000	$250.000
Operating budget for labor and overhead	$200,000 - $300,000	$250.000
Total	$400,800 - $602,300	$501,550

How much can you earn from a foster home business?

Your expenses should be covered by state funding and grants, but again, you can pay yourself a reasonable salary as your budget allows. For a group foster home manager, salaries can range from $35,000 to $45,000.

What barriers to entry are there?

There are a few barriers to entry for a foster home. Your biggest challenges will be:

• Going through the arduous process of getting your home approved and funded
• Having the skills to work with troubled children

Step 2: Hone Your Idea

Now that you know what’s involved in starting a foster home, it’s a good idea to hone your concept in preparation.

Why? Identify an opportunity

Research group foster homes in your area to examine their services. You’re looking for a market gap to fill. For instance, maybe the local market is missing a group foster home that offers psychiatric care.

What? Determine your services

You’ll be providing basic care for the children in your home, but you can offer additional services such as therapy and tutoring. 

Who? Identify your target market

Your “market” for a group foster home is general going to be child welfare agencies and social services agencies. You’ll want to establish a network of relationships with various agencies who will place children in your care.

Where? Choose your business premises

You’ll need to rent out a space for your foster home that has multiple rooms that can be bedrooms, and that also has a kitchen. You can find commercial space to rent in your area on sites such as Craigslist, Crexi, and Instant Offices.

Step 3: Brainstorm a Foster Care Agency Name

Here are some ideas for brainstorming your business name:

• Short, unique, and catchy names tend to stand out
• Names that are easy to say and spell tend to do better 
• Name should be relevant to your product or service offerings
• Ask around — family, friends, colleagues, social media — for suggestions
• Including keywords, such as “group foster care” or “group home”, boosts SEO
• Name should allow for expansion, for ex: “AllHeart Foster Networks” and “FamilyExpand Havens” over “HeartHaven Foster Nest” and “SafeSteps Sanctuary”
• A location-based name can help establish a strong connection with your local community and help with the SEO but might hinder future expansion

Once you’ve got a list of potential names, visit the website of the US Patent and Trademark Office to make sure they are available for registration and check the availability of related domain names using our Domain Name Search tool. Using “.com” or “.org” sharply increases credibility, so it’s best to focus on these. 

Finally, make your choice among the names that pass this screening and go ahead and reserve your business name with your state, start the trademark registration process, and complete your domain registration and social media account creation. 

Your business name is one of the key differentiators that sets your business apart. Once you pick a name, reserve it and start with the branding, it’s hard to switch to a new name. So be sure to carefully consider your choice before moving forward. 

Step 4: Create a Foster Care Business Plan

Here are the key components of a business plan:

• Executive Summary: Provide a brief overview of your foster home’s mission and the type of children or individuals you aim to support.
• Business Overview: Describe the location and facilities of your foster home, emphasizing its welcoming and supportive environment for those in need of care.
• Product and Services: Detail the services you’ll offer, such as shelter, meals, counseling, and educational support for foster children or individuals.
• Market Analysis: Analyze the demand for foster care services in your area, considering factors like the number of children in need and the regulatory environment.
• Competitive Analysis: Identify other foster homes or care facilities in your region, emphasizing the unique qualities and specialized care your home provides.
• Sales and Marketing: Outline strategies for recruitment of foster parents, partnerships with social services agencies, and community outreach efforts to connect with potential clients.
• Management Team: Introduce key team members with experience in child welfare, social work, and caregiving, highlighting their qualifications.
• Operations Plan: Describe the day-to-day operations of your foster home, including intake procedures, care plans, and staff training.
• Financial Plan: Present financial projections, including funding sources, expenses for maintaining the home, and plans for sustainability.
• Appendix: Include any relevant certifications, testimonials from foster parents or children, and success stories that showcase the positive impact of your foster home.

If you’ve never created a business plan, it can be an intimidating task. You might consider hiring a business plan specialist to create a top-notch business plan for you.

Step 5: Register Your Business

Plus, registration is exciting because it makes the entire process official. Once it’s complete, you’ll have your own business! 

Choose where to register your company

Your business location is important because it can affect taxes, legal requirements, and revenue. Most people will register their business in the state where they live, but if you are planning to expand, you might consider looking elsewhere, as some states could offer real advantages when it comes to foster homes. 

If you’re willing to move, you could really maximize your business! Keep in mind, it’s relatively easy to transfer your business to another state. 

Choose your business structure

Business entities come in several varieties, each with its pros and cons. The legal structure you choose for your foster home will shape your taxes, personal liability, and business registration requirements, so choose wisely. 

Here are the main options:

• Sole Proprietorship – The most common structure for small businesses makes no legal distinction between company and owner. All income goes to the owner, who’s also liable for any debts, losses, or liabilities incurred by the business. The owner pays taxes on business income on his or her personal tax return.
• General Partnership – Similar to a sole proprietorship, but for two or more people. Again, owners keep the profits and are liable for losses. The partners pay taxes on their share of business income on their personal tax returns.
• Limited Liability Company (LLC) – Combines the characteristics of corporations with those of sole proprietorships or partnerships. Again, the owners are not personally liable for debts.  Here’s how to form an LLC.
• C Corp – Under this structure, the business is a distinct legal entity and the owner or owners are not personally liable for its debts. Owners take profits through shareholder dividends, rather than directly. The corporation pays taxes, and owners pay taxes on their dividends, which is sometimes referred to as double taxation. Read how to start a corporation here.
• S Corp – An S-Corporation refers to the tax classification of the business but is not a business entity. An S-Corp can be either a corporation or an LLC, which just need to elect to be an S-Corp for tax status. In an S-Corp, income is passed through directly to shareholders, who pay taxes on their share of business income on their personal tax returns.

A foster home is best registered as a non-profit organization with the state so that you can get state funding and grants. You’ll also need to apply for 501(c)3 tax status.

Step 6: Register for Taxes

The final step before you’re able to pay taxes is getting an Employer Identification Number, or EIN. You can file for your EIN online or by mail or fax: visit the IRS website to learn more. Keep in mind, if you’ve chosen to be a sole proprietorship you can simply use your social security number as your EIN. 

Once you have your EIN, you’ll need to choose your tax year. Financially speaking, your business will operate in a calendar year (January–December) or a fiscal year, a 12-month period that can start in any month. This will determine your tax cycle, while your business structure will determine which taxes you’ll pay.

It is important to consult an accountant or other professional to help you with your taxes to ensure you are completing them correctly.

Step 7: Fund your Business

Securing financing is your next step and there are plenty of ways to raise capital:

• Bank loans: This is the most common method but getting approved requires a rock-solid business plan and strong credit history.
• SBA-guaranteed loans: The Small Business Administration can act as guarantor, helping gain that elusive bank approval via an SBA-guaranteed loan.
• Government grants: A handful of financial assistance programs help fund entrepreneurs. Visit Grants.gov to learn which might work for you.
• Friends and Family: Reach out to friends and family to provide a business loan or investment in your concept. It’s a good idea to have legal advice when doing so because SEC regulations apply.
• Crowdfunding: Websites like Kickstarter and Indiegogo offer an increasingly popular low-risk option, in which donors fund your vision. Entrepreneurial crowdfunding sites like Fundable and WeFunder enable multiple investors to fund your business.
• Personal: Self-fund your business via your savings or the sale of property or other assets.

Your best bets for funding are state programs and grants, as well as donations from charitable organizations.

Step 8: Apply for Foster Home Licenses/Permits

Starting a foster home business requires obtaining a number of licenses and permits from local, state, and federal governments.

You’ll have to follow the group foster home licensing requirements in your state. 

Federal regulations, licenses, and permits associated with starting your business include doing business as (DBA), health licenses and permits from the Occupational Safety and Health Administration (OSHA), trademarks, copyrights, patents, and other intellectual properties, as well as industry-specific licenses and permits. 

You may also need state-level and local county or city-based licenses and permits. The license requirements and how to obtain them vary, so check the websites of your state, city, and county governments or contact the appropriate person to learn more. 

You could also check this SBA guide for your state’s requirements, but we recommend using MyCorporation’s Business License Compliance Package. They will research the exact forms you need for your business and state and provide them to ensure you’re fully compliant.

If you feel overwhelmed by this step or don’t know how to begin, it might be a good idea to hire a professional to help you check all the legal boxes.

Step 9: Open a Business Bank Account

Before you start making money, you’ll need a place to keep it, and that requires opening a bank account.

Keeping your business finances separate from your personal account makes it easy to file taxes and track your company’s income, so it’s worth doing even if you’re running your foster home business as a sole proprietorship. Opening a business bank account is quite simple, and similar to opening a personal one. Most major banks offer accounts tailored for businesses — just inquire at your preferred bank to learn about their rates and features.

Banks vary in terms of offerings, so it’s a good idea to examine your options and select the best plan for you. Once you choose your bank, bring in your EIN (or Social Security Number if you decide on a sole proprietorship), articles of incorporation, and other legal documents and open your new account. 

Step 10: Get Business Insurance

Business insurance is an area that often gets overlooked yet it can be vital to your success as an entrepreneur. Insurance protects you from unexpected events that can have a devastating impact on your business.

Here are some types of insurance to consider:

• General liability: The most comprehensive type of insurance, acting as a catch-all for many business elements that require coverage. If you get just one kind of insurance, this is it. It even protects against bodily injury and property damage.
• Business Property: Provides coverage for your equipment and supplies.
• Equipment Breakdown Insurance: Covers the cost of replacing or repairing equipment that has broken due to mechanical issues.
• Worker’s compensation: Provides compensation to employees injured on the job.
• Property: Covers your physical space, whether it is a cart, storefront, or office.
• Commercial auto: Protection for your company-owned vehicle.
• Professional liability: Protects against claims from a client who says they suffered a loss due to an error or omission in your work.
• Business owner’s policy (BOP): This is an insurance plan that acts as an all-in-one insurance policy, a combination of the above insurance types.

Step 11: Prepare to Launch

As opening day nears, prepare for launch by reviewing and improving some key elements of your business. 

Essential software and tools

Being an entrepreneur often means wearing many hats, from marketing to sales to accounting, which can be overwhelming. Fortunately, many websites and digital tools are available to help simplify many business tasks.  

Accounting

• Popular web-based accounting programs for smaller businesses include Quickbooks, Freshbooks, and Xero. 
• If you’re unfamiliar with basic accounting, you may want to hire a professional, especially as you begin. The consequences for filing incorrect tax documents can be harsh, so accuracy is crucial.

Create a website

Website development is crucial because your site is your online presence and needs to convince prospective clients of your expertise and professionalism. You can create your own website using services like WordPress, Wix, or Squarespace. This route is very affordable, but figuring out how to build a website can be time-consuming. If you lack tech-savvy, you can hire a web designer or developer to create a custom website for your business.

Your customers are unlikely to find your website, however, unless you follow Search Engine Optimization (SEO) practices. SEO will help your website appear closer to the top in relevant search results, a crucial element for increasing sales. 

Make sure that you optimize calls to action on your website. Experiment with text, color, size, and position of calls to action such as “Contact Now”. 

Marketing

Here are some powerful marketing strategies for your future business:

• Community Outreach Events: Organize events at local community centers, schools, and churches to raise awareness about your foster home, emphasizing its positive impact on children’s lives.
• Local SEO — Regularly update your Google My Business and Yelp profiles to strengthen your local search presence.
• Collaborate with Local Businesses: Partner with local businesses for sponsorships or donation drives, fostering a sense of community involvement and creating mutually beneficial relationships.
• Educational Workshops: Host workshops on foster care, parenting, and child development, positioning your foster home as an educational resource and attracting individuals interested in making a difference.
• Social Media Campaigns: Utilize social media platforms to share success stories, testimonials, and regular updates, creating an engaging online presence that highlights the positive aspects of fostering.
• Public Relations (PR): Develop relationships with local journalists to feature your foster home in human-interest stories, showcasing the heartwarming narratives of successful foster care experiences.
• Targeted Brochures and Flyers: Design visually appealing materials to distribute in strategic locations such as pediatrician offices, schools, and community centers, providing concise information about your foster home and how people can get involved.
• Church Partnerships: Connect with local religious organizations to spread the word during services, asking if you can share information about your foster home in their bulletins or announcements.
• Collaborative Events with Other Foster Homes: Collaborate with other foster homes or child-focused organizations to host joint events, amplifying your reach and fostering a sense of unity within the foster care community.
• Local Government Engagement: Attend community meetings and engage with local government representatives to discuss your foster home’s mission and explore potential partnerships or support.
• Testimonials and Success Stories: Compile and share compelling testimonials from foster parents, children, and community supporters, providing real-life examples of the positive impact of fostering through your home.

Focus on USPs

Unique selling propositions, or USPs, are the characteristics of a product or service that sets it apart from the competition. Customers today are inundated with buying options, so you’ll have a real advantage if they are able to quickly grasp how your foster home meets their needs or wishes. It’s wise to do all you can to ensure your USPs stand out on your website and in your marketing and promotional materials, stimulating buyer desire. 

Global pizza chain Domino’s is renowned for its USP: “Hot pizza in 30 minutes or less, guaranteed.” Signature USPs for your foster home business could be: 

• A nurturing haven where every child finds a family-like environment
• Creating a sense of belonging through personalized care and support
• Empowering children to thrive through individualized education and life skills programs

Networking

You may not like to network or use personal connections for business gain. But your personal and professional networks likely offer considerable untapped business potential. Maybe that Facebook friend you met in college is now running a foster home business, or a LinkedIn contact of yours is connected to dozens of potential clients. Maybe your cousin or neighbor has been working in foster homes for years and can offer invaluable insight and industry connections. 

The possibilities are endless, so it’s a good idea to review your personal and professional networks and reach out to those with possible links to or interest in foster homes. You’ll probably generate new customers or find companies with which you could establish a partnership. 

Step 12: Build Your Team

You will need workers to fill various roles. Potential positions for a foster home business include:

• Social Workers – work with children to meet their needs
• Attendants – care for and supervise children
• Cooks – prepare meals for children

At some point, you may need to hire all of these positions or simply a few, depending on the size and needs of your business. You might also hire multiple workers for a single role or a single worker for multiple roles, again depending on need. 

Free-of-charge methods to recruit employees include posting ads on popular platforms such as LinkedIn, Facebook, or Jobs.com. You might also consider a premium recruitment option, such as advertising on Indeed, Glassdoor, or ZipRecruiter. Further, if you have the resources, you could consider hiring a recruitment agency to help you find talent. 

Step 13: Run a Foster Home – Get Started!

Starting a foster home can be one of the most rewarding pursuits that you can choose. Thousands of children, unfortunately, suffer from abuse and neglect and need a healthy environment in which to live and hopefully thrive. By starting a foster home, you’ll have the chance to make a positive impact on these children.

Now that you understand what’s involved, you’re ready to contact your state agencies and get the process of launching your foster home started.