Child Care / Day Care / Child Education Business

March 01, 2024

by a searcher from The University of Chicago - Booth School of Business in Calgary, AB, Canada

Has any one looked at acquiring Child Care / Day Care / Education business? I would be interested in finding out on profitability, pros and cons, pitfalls, operatability and things to look at for these businesses. Difference in nursery vs Montessori vs other type of education.

Any suggestions and feed back would be appreciated.

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Reply by a searcher
from Morehouse College in Washington, DC, USA

My wife and I are in the childcare business. We started a daycare years ago from scratch. We've purchased one distressed daycare and are in the process of buying a successful 10+ year old center at full capacity with a waitlist. Happy to share my experience with you. I can say it is a great business from a cashflow standpoint but it has very high cost and takes over a year to go from 0 to breakeven. Your location and your lease are very large factors in your success but are not the only factors. Parents are willing to drive out of there way if they perceive your value higher than other centers. Here are a few pros and cons in short form.

Pro
- Predictable Cashflow
- High Demand
- Strong Profit Margins (20%+) if organized correctly
- Rewarding Business working with families and children
- Modest to high barrier to entry when looking at center based daycare (not including home based)
- Lenders like the business model and will look favorably at a successful program

Con
- licensing is a difficult process
- staffing is critical and requires specific certifications / education
- high labor cost accounting for nearly a third to 2 thirds of your overall cost
- The spaces you operate need to be large 4000+ square feet with nearby outdoor space for a playground
- Steep learning curve for owners not familiar with the education space
- Reputation is critical and a couple negative reviews can derail a business
- Risky business (working with children comes with add attention and scrutiny. One incident can become national news.)
- Can't scale the business without growing the number of locations.

Sorry for all the cons 😅 I genuinely do love the business and it has changed the life of me and my family for the better. I just want you to know what you're getting into!

Best wishes on your endeavors. Oh and if anyone sees this post and is looking to sale a daycare or wants coaching when buying a daycare feel free to message me.

Reply by a lender
from University of Florida in Dallas, TX, USA

We have financed several private day cares and are holding several in our portfolio. While I am limited at what I can disclose, they have been successful ventures in the past. Certainly identifying an underserved market/growing area is an important factor. We also prefer the branded locations (Primrose, Montessori, Goddard, Children's Lighthouse, etc.). These are nice because you also own the real estate in most instances.

The big negative to the industry since 2020 is the massive cost increase. A typical ground-up construction private daycare was roughly $4.5MM in###-###-#### Now, I am seeing these same deals start at $6MM - $6.5MM. Even though a significant portion is CRE, banks are requiring real strong personal guarantors to make these happen. A significant number are going the 504 route due to increased costs with a companion 7a note for Working Capital.

All in all, I certainly prefer private daycares to say a gym or restaurant. People will always be moved to spend money on their children. I think a key is ensuring you have a good operator lined up, if you are not the operator yourself. A key differentiator in these businesses as opposed to others is you have 2 true leaders in the business - CEO and Director. The Director is typically the individual holding all of the state-required licensing. The CEO is the true operational executive of the company and is almost never in the classroom.

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