Buying/Selling a Day Nursery overview by Christie + Co
Christie + Co
Christie + Co is the UK's leading business property specialist operating in the childcare sector. The company was established in London in 1935 and has successfully expanded to provide professional brokerage and advisory services to clients throughout the UK and Europe. The company has 17 offices in the UK and international offices across France, Finland, Germany and Spain.
Christie + Co's renowned team of childcare specialists handle numerous property transactions, valuations and advisory projects each year.
Some top tips on buying a childcare business:
Do your homework
The best way to familiarise yourself with the children's nursery sector, or to improve your knowledge of it, is to read widely and visit as many children's nurseries as you possibly can. Read brochures and look in directories. At any one time in the UK there may be two hundred nurseries for sale across a range of age, provision, locality and price. You can talk to operators outside the area where you plan to buy, and you can glean a great deal of information by talking to Ofsted and visiting its web site, which holds its database of inspection reports. You can also read social services' reports for a range of nurseries. There is a great deal of information available from organisations such as the National Day Nursery Association, Pre–School Learning Alliance and Professional Association of Nursery Nurses. Currently, the main children's nursery periodicals are Nursery Management Today and Nursery World.
Children's day nurseries are local businesses that are nationally regulated. The Office for Standards in Education (Ofsted) is responsible for regulating and inspecting childminders and daycare providers from eight regional offices. Under the Children Act 1989 as amended by the Care Standards Act 2000, Ofsted inspects all childcare provision. The nature of these inspections varies over time; for example, with the Framework for Inspection of Children's Services issued by Ofsted for consultation in 2005. National Standards set by the Department for Education and Skills cover such things as the following:
- The suitability of adults to care for children
- The ratio of adults to children
- Activities to develop children's emotional, physical, intellectual and social capabilities
- Equipment and toys
- Health and infection control
- Equality of opportunity for all children
- Special needs
- The management of children's behaviour
- Partnership with parents and carers
- Child protection procedures
Any new applications for registration of a childcare business must be made to Ofsted, which provides information for care providers and parents on a range of issues including inspection reports and publications. There are also several affiliated organisations that can be reached through Ofsted.
Know your local market
The crucial statistic which any owner–operator or corporate operator cannot ignore is that usually about 80% of clients of a children's day nursery come from within five miles of the business. It is a vital local business and one that should be fairly easy to assess on local criteria. There are three markets that support children's nurseries:
- The local neighbourhood
- The corporate market (including workplace nurseries, which generate business from both employees and people who work close to the nursery)
- The commuting market (business generated from those who drop their children off en route to work)
Will the childcare sector really suit you?
As a children's nursery owner you need to understand the business and to have a clear sense of what it means for your manager and staff to work with children all day. As an owner–manager you must be rigorous about the qualities you have, those you lack and those you want to acquire. It's worth asking yourself a few simple questions, even if the answers seem obvious:
- What is your professional attitude? What do you think of as professional behaviour? Are you loyal, discreet and circumspect? Are you punctual, enthusiastic and polite? Are you knowledgeable, but ready to add to that knowledge?
- Are you able to work with parents? Can you listen to them, talk to them about their children, and be patient and approachable?
- Can you balance the running of the business with taking care of staff and, of course, looking after the children in your care?
- How are you at dealing with authority? You will need to comply with many regulations and standards that form the legislation governing the business. You will need to form a good relationship with your Ofsted inspector.
- Are you creative and do you have flair? Children consume ideas and you will need to work hard to keep the nursery intellectually fresh and lively.
- What are the ages of the children? Many children's nurseries cater for a wide age range, from as young as a few weeks to 4 or 5 years. You may find that there is a trend for older nursery children to go to school as national education policy encourages younger children to do this, and this may affect your profits.
Choosing the right children's day nursery for you
Buying a children's day nursery means that you are buying a business which should produce income from the moment you take over. You have access to all the expertise, experience, knowledge and contacts of the business and its staff. However, you should look closely at why the business is for sale, calculate the cost of any changes you may wish to make, and think carefully about whether the business itself, or the market in the area, could be expanded. If you buy a childcare business, communication will be vital to its success – for example, with the following:
- Other children's nurseries
- Regulatory bodies
- Training colleges
- Local community businesses, services, libraries, charities, social groups
The location of the nursery is of paramount importance, given that most of its business will come from nearby. Safe parking is vital. The site must be accessible and the buildings must be visible. There should be safety and security measures in place.
Children's nurseries can be converted domestic space, purpose–built or of modular construction such as Portakabins. Whatever the type, you should make sure that you have a professional survey of the buildings and a valuation of the business made. The buildings should be in good order, and ideally have spacious and warm rooms. Most important to the business are its staff. They should be friendly, professional and qualified. Equipment such as toys should be in good order and designed for different types of play and to improve co–ordination and muscle strength. An outdoor play area is essential in the summer, although children need fresh air all year round, of course. Ask about day trips and outings.
As you look around the business, look for signs that the children there have fun and enjoy themselves; look for a calm, welcoming and friendly atmosphere which derives from a sensible routine. Take into account the ages of the children. Ask yourself if a large proportion of them are about to leave for primary or infant school. Also ask about the style or concept of care and education provided (eg Montessori).
A good children's nursery might provide, or have plans to provide, the following facilities for its children:
- Book corner
- Craft and woodwork
- Dressing up
- Home corner
- Investigative area
- Malleable materials
- Music and sound
- Physical play
- Table–top games
- Water play
Behind these physical provisions there should be a well–thought–out curriculum, and behind that a set of principles and a commitment to a range of standards in the nursery. Historically these standards derive from public national guidelines such as Desirable Outcomes for Children's Learning on Entering Compulsory Education or from other sources such as Local Authority guidelines or professional literature. However, these standards are now regarded by some early learning experts as bad practice. Current thinking on early learning development and curriculum is encapsulated in the Foundation Stage Six Early Learning Goals (September 2000) in the following areas:
- Personal, social and emotional development
- Communication, language and literacy
- Mathematical development
- Knowledge and understanding of the world
- Physical development
- Creative development
From September 2001 the legal standards have been set and enforced by Ofsted, which issues information and national standards on the full range of regulatory matters.
The accounts will give you the fees, income, profits and costs for the business. You will have to pay business rates and, in due course, your valuer may be able to renegotiate with your Local Authority how much you pay. You should also ask for details of staff salaries and contracts, employment records and qualifications. There should be a good system in place to manage the cash flow of the business, collect fees, and pay both staff and suppliers on time.
A valuation should be based on the business's accounts, with all personal expenses and allowances removed. These accounts should produce a figure for the earnings before any interest payments, income tax and depreciation.
The business may be offered as a freehold but many nurseries are operated from leasehold properties. This means that you will be taking on the tenancy of the buildings. Your solicitor should make clear your responsibilities under the lease and your liabilities over time. You should calculate for rent increases if these are part of your lease arrangement, and you should be clear about what repairs you must do and what repairs you may leave for the landlord.
Service, marketing and publicity
Bear in mind that this is a local business, and that both children and parents are your clients. You will need to make sure that you are personally engaged with all aspects of the business, and particularly with the children in your care and their parents. Provide the kind of informed and intelligent service you might expect of anyone looking after your own children.
An important part of your marketing will be through word of mouth and personal recommendation, and you will need to take the following steps:
- Keep the nursery areas bright and clean inside and out.
- Welcome prospective clients (parents) and give them as much of your time as they need.
- Write a short brochure setting out the advantages of the nursery, your particular approach to childcare and where to find you.
- Build relationships with local businesses who may need your services and with people such as residential sales agents who are frequently asked about local schools and nursery facilities.
- Build relationships with local schools.
- Make the nursery day flexible and consistent with school schedules.
- Get involved in local events that are appropriate and safe for the children. Join in the community whenever you can; for example, have open days, garden parties and fêtes.
- Listen to parents and act on their views whenever you can.
- Appoint good staff, train them well and re–train them.
- Market the business to the referring agencies and through surgeries, libraries, churches and charities.
The statutory requirements
As with any business that offers goods and services to the public, there are statutory obligations concerning planning, environmental health, safety, fire regulations, building regulations, checks with the Criminal Records Bureau, public liability insurance and employees' rights. As a children's day nursery is subject to public scrutiny, it is particularly important to have all the legal checks and balances in place.
The legislation that governs most of what you can do and how you must run your nursery is the Children Act 1989 as amended by the Care Standards Act 2000 and the Regulations and National Standards issued under it. The 2000 Act specifies requirements about matters such as space per child, staff ratios, administration, access to a safe outdoor area, hygiene, furniture, types and quality of toys and so on. These requirements may vary regionally because the 1989 Act was, until 2001, enforced by local authorities, which applied the Act through visits by their registration officers. It may still be some time before the National Standards become properly consistent.
Any childcare business should have historical records and policies on the following:
- Admissions and attendance records
- Waiting lists
- Health and safety
- Accident reporting and procedure
- Child welfare (including suspected child abuse)
- Rules for delivering and collecting children
- Information and filing of reports
- Behaviour and special needs
- Health records
- Contact and general practitioner details
- Records of staff vetting by the Criminal Records Bureau
- Current Fire Certificate
- Ratio of turnover to net profit – approximately 35% pre–rent
- Ratio of staff costs to turnover – approximately 45–50%
Top tips for ongoing success
- Assess things before you change them
- Maintain a good relationship with your Ofsted inspector
- Meet all staff, clients and suppliers, and develop good working relationships
- Handle all new enquiries personally
- Keep the nursery areas bright, clean and well maintained
Some top tips on selling a childcare business:
Put your business in order
Having decided to sell, there is certain ‘housekeeping' that should be dealt with before you even contact an agent. This covers the spectrum from ensuring the business is shown at its best (anything from a "tidy up" to a refurbishment) to ensuring all relevant paperwork will be available for both the agent and any prospective buyer (for example latest accounts, copy of lease, copy of any relevant planning consent etc). Professionally prepared material can help to secure a decent sale price — and a quicker deal for all parties.
Do your homework
Do your own research. Study the trade press, local press and agents' websites for trade related articles which may highlight who is actively selling your type of business in your region. Just as importantly, pick up the phone and talk to the agent, preferably the person who will be visiting you. This will enable you to assess who you feel is most likely to achieve the right deal at the right price.
Consult the experts
Seek advice from at least two or three different agents. If you are seriously considering a sale this is time well spent. At your meeting with the agent you will have the opportunity to establish a rapport (or not), establish the level of professionalism and success, ascertain what costs are involved and find out what type of service you can expect. You can also ask to review the quality of marketing material and assess the agent's presence in the specialised field of selling childcare businesses. Don't be afraid to put the agent on the spot. Any reputable agent should be able to provide examples of childcare businesses currently available for sale, which compare to your business, and more importantly examples of what he/she has sold. This is the acid test — the agent who lists plenty of care homes available for sale is not necessarily the agent achieving the most sales.
A meeting with an agent should take up to two hours because the sale of a business is significantly more complex than the sale of a house. A diligent agent will need to have a detailed look over the property and have a lengthy discussion regarding the history of the business, number of children registered and future prospects for an incoming buyer. This will give you the opportunity to decide whether you can work in tandem with this agent/individual over the coming months to achieve a successful sale. It is crucial that the individual who visits you will be the person handling the sale from start to finish. Make sure he/she is based in your region, so that, if necessary, subsequent face–to–face meetings can be arranged whether it be to discuss how the sale is progressing or simply to take updated photos.
It is important to note that one of the most crucial considerations for the prospective seller is which agent has the track record in their region for selling similar–style businesses and has the ongoing market presence, professionalism and personnel to inspire confidence. Do your research rather than make a hasty decision!
For reference: Much of the content in this article was based on the book How to Buy A Business by Andrew St George, published by Christie + Co, and is available for sale via our website at £15.45 (inc VAT and P&P)
For further information on buying or selling a childcare business, please contact Christie + Co