With rules and regulations changing rapidly, financing for kindergartens and playgrounds is a common request that we get through our website and network of clients. WeCanFinancial and our associates helped many entrepreneurs over last 7 years to close purchases of similar operations. In this article we will discuss major issues in funding kindergartens, and will give some pointers that could prepare entrepreneurs for a future acquisition of kindergartens or even start-up.
Typical kindergarten size in Toronto from our experience is from 30-60 kids. Market still shows a shortage of locations in many busy Toronto residential hubs, making this business attractive investment with a fairly low risk profile for owners operators, or experienced enterprisers with a proven team behind them. When entrepreneur is looking to purchase a location there are several major factors that we suggest to research and review prior to making and final decision. First important factor of course is the price. Typical dirty method of pricing a kindergarten purchase in our experience is $10k-$12k per kid per license. So if the kindergarten is licensed to have up to 30 kids, than the average market price of such business should be between $300k-$360k. If location in question is priced not within this range, we advise entrepreneurs to go into additional research and see why the pricing is different. Possible variations of the pricing might include recently renovated premises, additional value added equipment on premises, premium for the location. Nevertheless this should be the first step in the analysis of such business for the acquisition purposes, as business financing or small business loan will be much easier to obtain with proper explanations and comparable.
Another important factor and issue to consider when purchasing a kindergarten is the location and parking availability. WeCanFinancial team reviewed dozens of kindergarten acquisitions in 2015, and as in previous years we see a large dependence between the vacancy rates and locations of the businesses. Since your business plan will have to include target vacancy rate, based on historic figures and comparable, location plays a very important part of the process. Since not every building could be licensed as a kindergarten, the ones that are licenses normally stay in the business for extended period of time. Also since it is a long term investment, development of the location, improvements and marketing, should be clearly defined in financial plan and the business plan, with a 5 year planed use of funds and reinvestment. Entrepreneurs that are serious about their business and expansion of the business, will spend a substantial amount of time and resources properly planning the acquisition once the price and location items are cleared and are within the expectation of the purchaser.
After initial research, planning and financing stage of the acquisition begins. WeCanFinancial associates have a fast experience in writing proper industry standard business plans for kindergarten start ups and acquisitions. Properly planned opening day balance sheet should include enough capital for initial 3-4 months after take over. Well financed acquisition is the key as in any other business and business plan should account for that from day one. We typically advise the following formula for enterprenours planning to purchase a daycare, in order to be confident that there will be no short falls post the acquisition. Initial 30% of the purchase price should come as cash or equity investment from the purchaser. 70% of funds will be financed by WeCanFinancial through our EBL underwriting program, supported by one of the major banks. Additional funds on closing to make the acquisition well financed would include, 3 months rent reserve, 2 months salaries reserve, and approximately $1,000 in operating reserves per kid per license. Once the funds above are accessed and secured, we strongly suggest the future business owner, to prepared the plan and financial schedules with knowledgeable WeCanFinancial associate, prior to applying for any small business loan programs or financing. The key in this process is to get everything right from the first time.
We will continue discussing financing for purchases of daycares and playgrounds in future articles, in a meantime happy financing every one!