It's a tricky one and I can see what 5LM is saying but don't necessarily agree....

5LM you mention...
I don't term one client because a better one comes along
That isn't what is happening here and I too do not do this.

also...
I wouldn't want parents scared to come here because they've heard I term early to fill potential empty spots
This would make sense, but in this particular instance, they aren't potential spots, these children ARE leaving.

If the tables were turned and the provider was expecting and gave a lengthy amount of notice, a huge amount if not the majority of parents would look for a replacement daycare provider and would leave as soon as they found an open spot, out of fear of not finding a suitable placement closer to the time. This makes good sense when the parent is looking out for THEIR best interests even if it leaves the provider suddenly down on numbers. It sucks but they have to look after their best interests not the other way around. I see this situation as similar.

Looking out for the best interests of your business should be your number one priority. I understand word of mouth is important, but you aren't giving notice because someone with shorter hours comes along, or you can charge a higher rate etc you are advertising to fill spots that are coming up and are faced with the option of replacing a family earlier, who are now a short term family, with someone who is more long term and from a business perspective are more financially sound as best as anyone can predict. They will provide you with more financial stability and certainty, versus the possibility of not filling those spots later on down the line which is when you may kick yourself.

I don't have a sure yes or no on what I would do. It would depend greatly on the individuals involved, my financial situation and my gut feeling.