The decision to acquire or develop a childcare centre is, at its core, a property decision layered over a business decision. Most of the serious financial mistakes in childcare acquisitions happen before settlement — during (or because of inadequate) due diligence.

The five questions below are not a complete due diligence checklist. They are the questions that, when answered poorly or not at all, cause the most significant post-settlement problems.

1. What does the demographic catchment actually support?

A childcare centre's natural catchment is typically a 3–5 kilometre radius for long day care. Within that radius, you need to understand the number of children aged 0–5, the rate of families where both parents are in the workforce, and the growth trajectory of the residential population.

ABS Census data (updated every five years, with the most recent from 2021) provides a foundation, but it can be supplemented with local council demographic projections, which are often more current and reflect approved development pipelines. A site in a greenfield residential corridor may have poor current demand but strong forward demand — and vice versa in an ageing suburb.

The question to ask is not "are there children in this area?" but "are there enough children in this area, with working parents, who are not already enrolled somewhere else, to fill this centre at a price point that makes the business viable?"

2. What is the competitive landscape, and how entrenched is it?

The number of competing services within your catchment matters less than their quality, occupancy, and pricing. A high-occupancy competitor with a long waitlist and an Exceeding NQS rating is a validation of demand. A struggling competitor with low fees and vacancies is a warning about the local market's capacity.

Check ACECQA's published quality ratings for all services within the catchment, and cross-reference with visible waitlist information (many services publish this or will confirm it on enquiry). Where possible, understand the pricing environment — a catchment where existing services are charging fees well above the CCS hourly cap may indicate a premium-tolerant market, or may indicate services are struggling with occupancy and compensating with higher per-child revenue.

3. Does the property meet regulatory requirements — and can it be adapted?

The Education and Care Services National Regulations prescribe minimum physical standards that are non-negotiable. For centre-based long day care:

  • Indoor space: 3.25 square metres of unencumbered indoor play space per child
  • Outdoor space: 7 square metres of unencumbered outdoor play space per child

A practical rule of thumb is approximately 10–15 square metres of total site area per licensed place. A 90-place centre typically requires a site of around 1,000–2,000 square metres, depending on the building configuration (single vs. multi-storey).

For existing operating services, check the current licensed capacity against the physical space. If the service has been operating above capacity, you will inherit a compliance issue. If the space is constrained relative to the licence, there may be upward capacity potential — but confirm this with the state regulator before assuming it.

4. What are the real financial numbers — not the presented ones?

Financial statements for childcare services offered for sale are frequently presented on an optimistic basis. Common adjustments required include:

  • Owner operator salary addback: many small centres reflect little or no market-rate salary for the owner/director. The addback needs to be the full market cost of replacing that person.
  • Related party rents: where the property is owned by a related entity and leased to the service at below-market rent, the true lease cost needs to be reflected
  • Occupancy run rate: confirm that presented occupancy figures are sustained, not a peak period. Quarterly averages are more reliable than single-week snapshots
  • Deferred maintenance: childcare premises are heavily used. Understand what capital works are outstanding on the building, playground equipment, and fit-out before pricing the deal

The key financial metric for a childcare centre is EBITDA margin on revenue, after a market-rate director/manager salary. Benchmarks vary by size and location, but services below 15% EBITDA margin warrant careful scrutiny.

5. What does the current approval and compliance history look like?

Every childcare service has a regulatory file with the state regulatory authority. This file includes the history of compliance notices, improvement notices, prohibition notices, and whether the service has ever been suspended or cancelled.

Before acquisition, obtain a copy of the current Assessment and Rating report and any outstanding regulatory notices. A service that has been issued multiple improvement notices — particularly for health and safety or staffing compliance — is carrying regulatory risk that will transfer to the new operator.

Check also whether the current Provider Approval and Service Approval are transferable or whether the acquisition requires fresh applications. The process and timeline for this varies by state and can affect settlement conditions and operational continuity.

A note on professional due diligence

None of the above replaces specialist legal, accounting, and childcare operational due diligence. For a transaction of any material size, engaging advisors with specific ECEC sector experience — not just generic commercial advisors — will identify issues that generalist advisors typically miss.

The Department of Education publishes guidance on provider and service approvals. ACECQA publishes service quality ratings and assessment history at acecqa.gov.au/resources/national-registers.