Linda Harley The purchase of a childcare business or Passive Investment can be a daunting process filled with emotion and uncertainty; for many buyers it is a once in a lifetime transaction – so it is important to start the process with confidence.
Buying a Childcare
1. How is Confidentiality managed?
The sale of a childcare business is sensitive for owners, staff and parents. Throughout the sale process information about the business is treated in the strictest confidence. The release of this information is carefully managed to protect the interests of all parties, including you as a buyer.
All buyers must sign a confidentiality agreement providing their personal and financial details before any information is provided. Where ever possible the information is provided in a face to face meeting rather than just emailing out information.
2. What return on my investment can I expect when buying a child care centre?
Leasehold Childcare businesses are generally sold based on a market multiple factor that ranges from 3 to 4 times EBITD. (Earnings Before Interest Tax and Depreciation).
The size of the factor used is determined by a number of things, including but not limited to:
location, occupancy, demographics, age and presentation, compliance history, financial performance, lease and operating systems.
The Return on Investment (ROI) will depend on whether you are buying a freehold going concern, leasehold or investment centre. The Return on Investment varies for a Freehold Going concern between 12% to 18%, and for Leasehold, returns of 20% to 25% can be expected depending on the term of the lease and other features of the business.
If purchasing the freehold property as a passive investment the return will range from 8.5-10% depending on the property, location, size , presentation and lease terms and conditions.
3. How much can I borrow to purchase an established Childcare Centre?
The amount will depend on the bank you are working with, the centre location and your personal business plan. As a general guide most banks will lend up to 40% of the purchase price for a leasehold childcare centre, and approximately 60% of the value on a freehold childcare centre. We work closely with Banks; we can provide introductions to their specialist childcare relationship managers to assist you to get approval and fully understand the funding early in the process of your search.
4. What is the time frame for purchasing a centre?
The time frame from putting forward an offer through to settlement will vary depending on the terms and conditions in the contract. As a general guideline allow for 15 to 20 business days for due diligence and finance, and then a further 30 to 60 days for the transfer of the childcare centre licence.
If finance is required the Bank will usually require a business plan and valuation of the business and/ or freehold property. They recommend leaving at least 3 - 4 weeks from initial application through to settlement so making contact with your bank early will avoid delays in settlement.
5. How do I find out more about the Government Funding and Regulations?
The Ministry of Education provides a lot of support for the Childcare Sector.
The Following websites provide a lot of information to assist a new owner and parents.
- www.lead.ece.govt.nz for legislation.
- www.minedu.govt.nz for funding and other ECE information.
6. How can I find out about what is for sale?
As a childcare specialist Linda Harley has a large network to source new build sites or existing centres. Whether you are searching for bare land for Greenfield development or want an existing centre register for the regular newsletter and you will be kept up to date with opportunities. Better still give Linda Harley a call to discuss your specific needs, you never know what opportunity will turn up.