This is a hard thing to do no matter what method you decide to use. I prefer, as Judy suggested, to give them the termination in wrinting, but as I give it to them I let them know that I am suggesting they find another caregiver and that the letter will explain the reasons.
The reasons I give are that the child does not fit in emotionally, physically or mentally or that I feel the parents are unhappy with the care that I am providing. I do not feel intimidated by the parents, I have been offering this service too long to feel intimidated and I will not let a parent get away with bullying me. I am assertive in a polite way and I will let them know how I feel.
Do not send an email, as it is easy to miss understand what is written.
You don't need parents like this in your daycare. You are offering a quality service and above all this is your business. You have worked hard to start up and support the families needs.
Good Luck