Buy a Childcare Business or Start from Scratch?

Given the limited supply of Childcare businesses available to purchase in the current market, we are often asked why people buy a business rather than just starting one from scratch. The reasons are many but there are three key benefits of buying existing :

1.      Failure

No one likes it.  This is probably the single biggest concern when it comes to either buying or starting from scratch and for good reason.

The time taken to find a good site to build a new centre can take an enormous amount of time, energy and money. There are often barriers to getting the Resource Consent approved. This can result in high costs before the Consent is granted or worse, where the consent is not granted and the developer is left with a property they cannot build a centre on and an expensive bill for their efforts.

While there are success stories with childcare businesses making a profit early on, you still have to ask how much money, time and energy has been invested into the business to achieve this return. A quick look at the balance sheet will show you the scary facts.

2.      Uncertainty

Starting a business is very exciting. Optimism will have you believing your business plan is an absolute winner. Are you certain? As we know there are no guarantees in life.

Established businesses have been tested and proven. Someone else took the risk of not knowing whether the business would work or fail. You then have the opportunity to build on their successful model.

It is not uncommon for a new business owner to drastically redraft budgets after six months of operation when the occupancy does not meet expectation or wage costs are climbing beyond the benchmark 48% to 53%. How many of these owners would have taken the risk had they known the reality that was to slowly appear through their Profit and Loss accounts?

3.      Cost

With the risk of a new start up childcare business, and the high capital investment for establishment, what advantages in starting up compared to buying? None in many cases.

Considering you will often only be paying between three and five times the net profit when buying an existing profitable childcare business, it is likely the cost will be considerably less to buy an existing business, than to establish a new one.

When you rigorously assess the risk of failure, the costs, time and energy and the uncertainty, starting up a business is rarely the right decision, especially if you have the opportunity to buy an existing business instead.

If you do decide to start up a business from scratch, we will certainly admire your courage!