How to explain to a parent when their child is not ready to join the dance class

Few parents welcome the news that their child is not ready to join the dance class. To some this may feel like a personal failure especially if their friends have children who are joining the class.
After a trial lesson if the teacher finds that a child is not ready to join the class it would not be appropriate to say so within ear shot of other parents. If there is another class waiting as is often the case there would not be the time for explanation anyway.
Perhaps, yet again, if it were made clear at registration that the teacher would contact the parent by phone after the trial lesson to give feedback this would reduce expectation by the parents of confirmation on the day.
Preparing what to say is important.Be polite and courteous but firm. Emphasise the child's strengths eg

"I could see that Emily has lots of energy and enjoys being in a large space and loves running and jumping. She is not comfortable however in the quieter more controlled elements of the class. At the moment I think that the class that I'm offering is too restrictive for her. I think she would be much happier doing gymnastics or swimming or an activity which uses lots of energy and is not as controlled. At this point therefore I don't think that she is ready to join the class. In another 6 months this could change. I could then register Emily for another trial lesson. In my experience if children do join the class before they are ready they don't enjoy themselves and it can put them off dance for a long time. When I make an assessment based on the trial lesson I consider very carefully the needs of each individual child and decide what is best for them................"

Try it! And let me know if it works.
I would just add that offering a maximum of 3 trial lessons would be reasonable. If it doesn't work after 3 then it is unlikely to work at all and the child would be much better pursuing another activity better suited to their personality and physicality.