Having a carnival party is actually a lot of fun and with a little imagination can be as good as the real thing. This is a good party choice for the smaller crowd.
Your first plan of action is to recruit as many helpers as you can. The more help you have, the more activities you can plan. You can see about recruiting some teenagers from the local high school for some help.
At this point you also want to set the theme of the party by sending out carnival party invitations.
Anything brightly colored is going to work. Balloons should be everywhere and if you can stand it, clowns are perfect for the theme. If money is not an issue, consider hiring a clown for the day, or at the very least, renting a clown suit and have the clown make balloon animals.
Set up activities throughout your yard, just like at a carnival midway. Have ring toss games, duck ponds and other carnival games. Make sure that the games are just hard enough for a challenge but not so hard that little children are wailing all over your yard. Everyone is a winner, and everyone gets a prize.
Some more ideas for carnival activities could be:
A small plush animal for each can work well for a carnival theme party favor. Some other favor ideas include mini gumball machines, rubber duckies, miniature game sets, pinwheels, yo-yos or a sand art craft that they made at the carnival.