2018

Key Factors of Childcare Acquisition Process

Childcare industry is booming at a fast pace across Australia, but faster in Victoria & New South Wales. Over the past few years, Victoria & New South Wales have witnessed a consistent increase in the childcare market, resulting in higher dem&s for childcare facility acquisition. To buy a childcare business, consider the points below. These include;

Childcare Acquisition Service Provider

With many vendors enlisting facilities for sale, it becomes a challenge for a novice player to bump into the right choice. Early Learning Management, being one of the most experienced players in the childcare industry, makes a practical decision in many ways. Early Learning Management is a highly regarded provider of early learning & operational & financial forecasting, digital marketing & due diligence for purchasing established services.

Financial Consultation

The right acquisition specialist will always advise you on the matters of value & profitability. The buyer will be interested in all of the businesses’ historical financial accounts & related financial metrics, as well as the reasonableness of the childcare’s projections of its future performance. It is obligatory that as a financial consultant, the buyer must request past profit records of the business as well as expenses, liabilities, revenue & the asset’s current market value. Underst&ing financial terms & figures may seem difficult to the one who’s new into the world of childcare. Therefore, the involvement of a Childcare Acquisition Service professional is imperative. Once the report is understood, the supposed buyer can now decide whether to continue with the proposal of acquisition or not.

A few points to be considered would be;
• What do the childcare’s annual, quarterly, & monthly financial/business accounts for the last three years reveal about its financial performance & condition of the childcare service?
• Are the business’s financial statements audited, & if so for how long?
• Do the financial accounts & related notes set out all liabilities of the company, both current & contingent?
• Is the EBIT / revenue for the business progressing or declining?
• Are the business’s projections for the future & underlying assumptions reasonable & believable?

Legal Advisors

Each buyer will need its solicitor. The seller’s solicitor will prepare the contract for business sale, whereas the buyer’s solicitor will have advice as to its commitments under the contract. Once each term is agreed, both solicitors shall work toward preparing a formal agreement (contracts & exchange) & the successive settlement.

Law & Regulations

Both State & Federal governments play a crucial role in licensing the childcare facility in Victoria, New South Wales & Queensl&, Australia, covering the areas such as staff qualification, physical premises of the facility, equipment & child ratios in the process.
Employee/Management Issues – The buyer will want to review some matters to underst& the quality of the businesses’ management & employee base, including:

• Management organisation chart & biographical information
• Summary of any labour conflicts
• Information concerning any previous, pending or threatened labour issues
• Employment & consulting agreements, & documents relating to other transactions with officers, directors, key employees, & related parties
• Schedule of remuneration paid to officers, directors, & essential employees for the three most recent fiscal years showing payroll, bonuses, & non-cash benefits (e.g., use of cars, property, etc.)
• Summary of employee benefits & copies of any pension, profit sharing, deferred compensation, & retirement plans

In Conclusion

There are some profitability drivers unique to childcare businesses. Daily fees paid to the service determine the revenue, the number of Licensed Places in a centre & occupancy rates. The businesses profits will be most sensitive to movements in occupancy rates. Business expenses are predominantly composed of employee salary expenses & rental expenses. Rental costs are fixed due to the long-term nature of the lease agreements negotiated with l&lords.

Fees levied by child care centres are paid for by families & the Commonwealth Government, through its various funding initiatives (including the Child Care Rebate & Child Care Benefit) & from 2 July 2018, one new Child Care Subsidy will replace the two current child care payments. The industry’s ability to increase its fees is a contributing factor to year-on-year revenue growth.

Key factors which allow a centre to charge higher fees include centre location, staff qualifications, staff to child ratios & the quality level of facilities & tasteful surroundings. Centre occupancy levels & the length of waitlists for new enrolments can also impact the ability of a centre to charge higher fees.

A centre’s occupancy rate is determined as the number of Licensed Places in a centre that are utilised. Maintaining high occupancy rates is a key profitability driver with centre profits most sensitive to underlying changes in occupancy. The length of any waitlists for new enrolments is a fundamental driver of future occupancy levels. Employee expenses are the most significant contributor to the costs of operating a child care business. Employee expenses are variable with the majority of employees remunerated according to hours worked. As such, efficient management of staff rostering & staff to child ratios is key to optimising resources.

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