Childcare Centre Purchasing Considerations
The childcare industry is more than a business providing a service. Childcare centres involve a relationship between the business owner, staff, parents and children. The inter-relationship is important in achieving positive outcomes for a successful business in a competitive environment. National Regulations and Standards need to be applied in undertaking a childcare business operation.
Therefore, purchasing a childcare business or passive investment property can involve some complex issues that should involve professional advice and guidance from lawyers and accountants. Thes advice and guidance should also include engaging a professional and experienced childcare agent.
Dealing with an experienced childcare agent who can guide you through the process of purchasing is paramount to a successful conclusion of the transaction. Satisfaction for the seller and buyer in a short and seamless transition of ownership is our goal.
Factors to Consider During Purchasing
Purchase of a childcare centre business can involve the freehold property (land and building) and the business operations including goodwill and equipment. This type of purchase is referred to as a Freehold going concern.
The purchase of a childcare centre business, excluding the freehold property, involves the business operation with staff, clients, plants & equipment, goodwill and lease obligations. This type of business is referred to as a leasehold business.
Purchase of a passive investment involves the investor (lessor) buying the freehold land & building excluding the business operations which are owned by the business operator. The premises are leased to the business operator (lessee).
Freehold Business
Purchase of a Freehold Business will involve a significant increase in the purchase price plus stamp duty on the value of the freehold. As a result this may require increased borrowings and equity input by the purchaser. Banks generally lend up to 60% of the registered valuation. Consideration need to be given to the building structure, age and condition, internal fit-out and any refurbishment that may be required. The current business operations as assessed for a leasehold business need to be taken into account. Local Authority Approvals for the building and zoning need to be confirmed.
Leasehold Business
Purchase of a Leasehold business includes the goodwill, chattels, business operations and employment of existing staff. Standard of the building, fit-out, chattels, equipment and outdoor play areas need to be assessed. Importantly, the existing Lease terms, remaining period and options, current rent and annual increases should be taken into account. Banks may only lend up to 50% of the registered value of the business which will require a greater equity input by the buyer.
Childcare Development
Factors to consider include the Local Authority Development Approval process, building cost including car parking and outdoor fixtures, time frames, location/position, competition and consultants costs.
An understanding of the amount of existing competition in the general area, demographics and socio-economic factors also need to be included in the assessment.
Investment Properties
Lease conditions including term, annual rent, increases and outgoings required of the tenant need to be considered. The tenants business acumen, childcare business success, competition and standard of service provided for the parents and children also need to taken into account.
Legal Consultantancy
It is important to have all legal matters explored and provided for in contracts and legal Due Diligence undertaken. Council searches for approvals/zoning need to be undertaken. Special and Standard conditions are included in purchase and sale contracts.
Accounting Consultants
Funding of the purchase price from loans and equity funds and the tax implications of funding such types need to be considered. The allocation of various classes of assets i.e. capital and operating expenses to be assessed. Accounting systems required such as MYOB, Qikkids software and Banking need to interphase.
Property Appraisals
Market assessment appraisals take into account such factors as current sales, location/position, demand, demographics and socio-economic input, operational data including occupancy and profitability, competition and fees.
Marketing
Communicating with your client base and surrounding residential area can be achieved via advertising in local newspapers, school newsletters, Facebook, software for centres to communicate with parents such as Educa childcare system.
Areas Included in Purchasing Assessment
Appraisal of a childcare business usually is referred to as Due Diligence. Due Diligence can be referred to in 3 forms:
General Due Diligence
This involves the process of analysing public available data to form an initial assessment of whether to proceed or not with a childcare business purchase. Factors included in the due diligence process include but not limited to:
- Position, location, accessibility, services and schools
- Demographics, socio-economic factors and competition
- Building age/structure, condition, fencing, play area, car parking
- Size of site, building size, floor plan/layout, fencing, landscaping
- Assessment rating under the National Standard, Food licence
- General lease terms, rent & outgoings
Operational/Accounting Due Diligence – Accountants Involvement
Full data is not usually made available until contracts are agreed and signed by both buyer and seller. Factors included in this area of due diligence include but not limited to:
- Accounting system data – MYOB
- Profit and Loss statements; 2 to 3 years
- Utilisation reports; 6 to 12 months, Qikkids
- Revenue (fees) reports; 6 to 12 months, Qikkkids
- Government Grants included in Profit and Loss (parents & teachers)
- Daily fees, discounts, fee increase dates
- Staffing details, hours/roster, pay rates, service period, entitlements
- Personal and capital expenditure included in Profit and Loss
Legal Due Diligence – Lawyers Involvement
- Contract preparation including special conditions
- Specific Due Diligence requirements not disclosed in initial assessment
- Full council searches for approvals to building, additions and any outstanding requirements, zoning, car parking requirements
- Property survey
- Asset leasing details
- Property lease details
- Provision for Provider Approval and transfer of licence approval – Police check
- Property settlement date/conditions
Things to Consider Before Investing in a Childcare Center
If you are planning to buy a childcare centre then you need to include the following points in your research of the childcare centre:
Location of the centre
This is the first thing to look into because the demography of the area plays a very important role in determining the success of the centre. The population of the area should include quite a few young children who can be potential candidates for the centre. Also, you need to find out whether there are upcoming housing projects in the area which can lead to a growth in your revenue in the future.
Other centres in the area
It is always better to be updated about your competition so that you can prepare your centre development and marketing plan accordingly and attract more clients to your centre.
Legal formalities
You need to hire a reputable lawyer and a childcare broker who can guide you through the legal requirements and laws for investing in a childcare centre. The broker can also help you evaluate the current status of compliance of the centre as well as the licenses it holds. All the negotiations are carried out by the broker on your behalf.
Property valuation
This is an important factor which can give you a complete idea as to how much money you need to invest in buying or leasing the property. This valuation should be carried out by a professional valuer.
Number of children
You can gauge the popularity of a centre by the number of children enrolled in the centre. If the centre has a waiting list then it indicates that the centre is a well-managed one.
Staff of the centre
Assess the qualifications and compliance with government regulations of every staff member to see whether they are up to date. It is a good idea to carry on with the old staff at least in the beginning because parents and children are used to them. If you feel the need to add a few more people to the staff then this cost should also be calculated.
Services and curriculum
Review the services offered and the changes that you would like to make. The effect of such changes should also be estimated beforehand.
Cost incurred
The asking price of the property and the rent should be checked to see whether you can afford it or not.
10 Questions To Ask Before Hiring a Realestate Broker
- What experience do you have?
- Can you supply testimonials from past buyers and sellers?
- What experience can you provide?
- What selling price do you think I can achieve?
- Is your commission negotiable?
- What is the state of the market?
- What is the best method for selling my property?
- Do you have membership to childcare associations or agency?
- What amount of Childcare centres have you sold?
- Can you provide a general location appraisal or recommend a registered valuer
Lastest Listings
Freehold and Business Childcare Centre for Sale
Location: Arana Hills Number of Places: 80 LDC Sale Price: Expressions of Interest
Freehold and Business Childcare Centre for Sale
Location: Marsden
Number of Places: 134 LDC Sale
Price: $4,250,000
Leasehold Childcare Centre for Sale
Location: Nerang
Number of Places: 78 LDC
Sale Price: Expressions of Interest. All offers considered
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