When opening a childcare centre in Ontario, one of your first major decisions is choosing between a for-profit or a not-for-profit (NFP) business model. The differences are significant, affecting everything from your daily operations to your long-term exit strategy.
1. Governance and Structure #
A not-for-profit organization does not have owners or shareholders. Instead, it is governed by members who elect a Board of Directors.
- Minimum Requirements: You must have at least three directors to incorporate a non-profit.
- CWELCC Requirements: In many Ontario regions, if you wish to qualify for the Canada-Wide Early Learning and Child Care (CWELCC) program, you may be required to have at least five directors.
- Arm’s Length vs. Non-Arm’s Length: Depending on the CWELCC region, a certain percentage of the directors must usually be at arm’s length which means they are not related to you by blood, marriage, or close personal business ties.
2. Financial Implications #
The primary distinction lies in how money is handled at the end of the year:
- No Dividends: You cannot take profits out of the organization to pay yourself or your members. There are no “dividends” in a non-profit.
- Tax-Exempt Status: Generally, not-for-profit organizations do not pay corporate income tax.
- Reinvestment: Every dollar of surplus must be reinvested back into the organization, whether through improving the facility, buying new equipment, or increasing staff wages.
- Ownership: Technically, no one owns a non-profit. You are a steward of the organization, not the proprietor.
3. Funding and CWELCC #
If you are enrolled in the CWELCC program, the funding math changes slightly between the two models:
- Allocation: Both models typically receive similar funding for operations.
- Surplus-in-Lieu: For a non-profit, the “surplus” that would typically be profit is instead spread across various “spending buckets.” This ensures that the budget remains balanced while providing better resources for the centre.
- Approval Odds: Currently, the Ontario government and local municipalities often prioritize not-for-profit applications for CWELCC expansion as many regions have a mandate to provide 80% funding to not-for-profit organizations while 20% funding going to the for-profit organizations. While being a non-profit offers a slightly better chance of approval, it is not a guarantee. Regions also heavily weigh criteria like “Special Needs” support, “Francophone” services and others.
4. The Risks: Control and Exit Strategy #
Before choosing the not-for-profit route, you must consider the long-term personal risks:
- Zero Resale Value: Because there are no shares, you cannot sell a not-for-profit. If you run a for-profit daycare for 20 years, you can sell the business as a retirement asset. With a non-profit, there is no “payout” at the end of the road.
- Loss of Control: Since the Board of Directors holds the ultimate power, they can technically vote you out. Even if you started the organization, the board could decide you are no longer the right fit for the role and terminate your employment. In a non-profit, the collective board has more legal authority than the founder.
Comparison at a Glance #
| Feature | For-Profit | Not-for-Profit |
| Ownership | You (the Shareholder) | The Board |
| Income Tax | Required | Generally Exempt |
| Profit | Distributed as Dividends | Reinvested into the Centre |
| Exit Strategy | Can be sold for profit | Cannot be sold |
| CWELCC Preference | Lower (Capped in many regions) | Higher priority for expansion |
Summary: Is the Not-for-Profit Model Right for You? #
Choosing to start a not-for-profit is a philanthropic move that requires a specific mindset. It may be the right choice if:
- You don’t intend to “cash out”: You view the daycare as a community service rather than a personal investment.
- You want CWELCC priority: You want to maximize your chances of getting government-subsidized spots.
- You have a trusted team: You have five or more “arm’s length” individuals who share your vision and are willing to serve on your board.
- You are comfortable with employment: You are okay with being an employee of the board rather than the “owner” of the business.
If your goal is to build equity and eventually sell a business you fully control, the for-profit model remains a better fit.
