7 things you probably need to know when buying a childcare centre.
All states require prospective centre operators to apply and be granted a Provider Approval before they can own or operate a childcare centre. On purchase of a centre an application using the Provider Approval is used to transfer the Service Approval (attached to the centre). A Service Approval identifies that the centre is Approved for use as a child care centre and it’s terms of operation.
State bodies will notify an applicant within 60 days of making their application for a Provider Approval. This process has been known to take longer than that for an application to be granted.
Benchmark Childcare4sale brokers are willing to discuss the purchase process with non-approved Providers, however, specific centre data will not be provided until a buyer either has their Approval or have attended the seminar and completed the assessment. At all times they will be required to complete a Confidentiality document.
The most appropriate site for information on the Provider Approval application and process is www.acecqa.gov.au
2. Where to Get More Information
Contact the Child Care Owner’s Association in your State or Territory where you intend to buy. Owners Associations usually have annual conferences and offer regular training days for prospective childcare owners.
State owners associations can offer great assistance to new owners of childcare businesses, and it is wise to contact these associations before you buy a childcare centre.
The Commonwealth Government website ACECQA is a great source of information.
All State and Territory Governments control licensing, staff ratios and qualifications, building and playground requirements via statoritory acts and regulations.
Child Care Centres are typically priced/valued on a multiple of earnings based of normalised sustainable EBITDA. Multiples will vary depending on fees, sustainability, presentation, capital expenditure requirements, occupancy, competition, oncoming supply, tenure etc.
The return (ROI) you can expect depends asset type, primarily whether the business is a leasehold, freehold going concern, or passive investment.
Leasehold ROI 18% to 25%
Going Concern ROI 12% to 16%
Passive Investments ROI 5.5% to 8.5%
As a guideline, most banks will lend 40% to 50% (LVR) of the purchase price towards the purchase of a leasehold childcare centre. Around 60% to 70% (LVR) of the value on a freehold childcare centre.
Benchmark can assist buyers to source the best finance deals, and maximum LVR, through a network of banks and brokers that are familiar with the specific needs and requirements associated with buying and funding the acquisition of a childcare centre.
Specialist child care management companies offer tailored management services, these services typically cover, KPI’s, staffing, quality, compliance, training, payroll, rebates, financial reporting, budgets, marketing, and the general administration of the centre. Do you homework before engaging a management company, they are not all the same!
Business owners have a right to feel confident that their private information is being treated in confidence by parties looking to acquire their business. Therefore, all potential buyers are required to sign an adhere to a strict Confidentiality Agreement/Non Disclosure Agreement before receiving any information about the business, or information that may reveal the identity of the child care centre being offered for sale.
7. Due Diligence
The contract for the sale of a childcare centre will usually allow a period of time for legal, financial and operational due diligence, and finance approval.
Due diligence refers to the process by which a buyer (and their advisors) are given access to all financial and other records, to determine the profitability and the suitability of the investment for the buyer. This can be completed either before or after signing a contract. It is often preferred that the due diligence be conducted after the contract has been signed to allow the buyer to conduct enquiries whilst the business is ‘off the market’. Purchasers will be required to perform as per the terms and conditions of the contract, with time of the essence.