How would you respond?

[mom-in-alberta]

I would just let her know that you have a personal policy not to mix business and pleasure/friendship/homelife, and prefer to have clients that are "arms length". I would hope that she would understand.
Assure her that it's not her, or her child (even if it is, LoL). And maybe offer to help her find another great dayhome?
I think honesty is the best policy here, though.