Once the decision has been made to expand a business or childcare investment portfolio, the first challenge lies in choosing whether to purchase another existing centre or build a new centre. One thing is certain when it comes to the Buy vs Build decision, there is no one size fits all approach.
Expansion in the childcare industry can be a challenging task, allocating sufficient resources whilst also maintaining profitability is a balancing act. There are many highly important elements to take into consideration regarding your current business situation and decisions that need to be made early-on to assist you in selecting the profitable new site.
Situational environments are a circumstance that will hold high influence on how you proceed with your expansion. The choice of location and its surroundings will have a significant impact on the success or failure of a new childcare centre and therefore there are a few things which are essential to ask yourself when considering potential expansion locations. Is a centre in this location feasible? Is there sufficient demand in this suburb? Who are the current competitors in this market? Will this location provide access to the necessary resources needed to operate daily? Is there access to other facilities that attract my clients (e.g. Schools)?
There are a number of important things to contemplate when entering into the process of purchasing an existing childcare centre. When acquiring a previously owned childcare centre, you must ensure previous management arrangements are taken into account when creating a new organisational structure for the business. Additionally, other things to consider when choosing to purchase an existing childcare centre include:
- Speed of cash flow; the ability for the business to turn a profit in the short term
- Limited development costs; most infrastructure is already established
- Less resistance when gaining licences; as the business is already operating, many licenses required are already in effect
- No furniture expenses; typical centre purchase as turnkey
- Established client base; many current enrolments are likely to stay with the centre
- Clear fixed costs; no surprise purchases or money to be outlaid unlike when building a new centre
- Access to previous management strategies; the purchaser has the ability to assess and implement based on evidence reports
- Not tailored to individual requirements; the purchaser may have to compromise on wants
- Quality of existing structure; building may be subject to wear and tear and may need repairs/renovations sooner than a new structure would
- Specific revenues; existing clientele could be resistant to a change in fees charged
Making the decision to develop a new centre from the ground up it requires high capital contributions. The financial feasibility is a key component to establishing if this option is a viable business choice. To ensure the development of a new childcare centre is executed to sufficient standards it is important that the highest quality resources are utilised. Resources such as qualified licensed contractors, site control and the punctuality of architect’s design will all be a reflected as financial assets. Other important things to consider during the development of a new childcare centre include:
- Completely tailored to individual wants; gives the purchaser creative control and there is no need to compromise
- More energy efficient and environmentally friendly; new structures are built from new materials and with new appliances which are typically more energy efficient than older in buildings
- Higher ROI in the long term; building has the potential to be a better investment
- Lower maintenance costs; less likely to have problems or need for repairs in a new building
Higher acquisition costs:
- Design Permits
- Contingency Costs
- Legality Costs
- Construction Costs
- Purchase New Furniture and Contents
- Loss of income; if existing program is forced to close during construction
- Zoning and land restrictions; difficult to find land to build on in established areas
- Construction time; construction of a new building can often be a lengthy process
- Build client base from scratch; additional costs associated with business start-up, such as building a client base and advertising the business
Childcare Concepts are the leading industry experts in the procurement and brokerage of Childcare Centres throughout NSW and Queensland. With industry knowledge and 30+ years experience, Childcare Concepts are able to assist in the areas of freehold and leasehold sales, leasing, new centre site development, location sourcing and centre appraisals.
For further advice and guidance, contact Childcare Concepts.
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