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The National Day Nurseries Association recently published a gloomy report into the sustainability of the nursery sector, revealing that 13 per cent of nurseries expect to make a loss this year.
However Andrew Steen, managing director of Redwoods Dowling Kerr (RDK), which specialises in buying and selling nurseries, believes the sector is very resilient and is full of optimism for the future. He describes it as a very fluid market with RDK selling at least one nursery setting a week.
“Whatever happens there will always be movement in the market and there are always people willing to consider opportunities. It is a very good time to buy or sell in 2013, we have plenty of new buyers who are missing out on opportunities to buy in hot areas. Some of these nursery settings are receiving multiple offers in a short space of time,” he says.
This is backed up by data showing the market which is worth £1.4bn grew by one per cent last year.
In terms of activity this year, Mr Steen believes it will largely come from the smaller nursery chains that have from five up to around 15 early years settings.
“My forecast is that these operators will double in size during the next five years, these operators usually have strong track records and will find funding for growth easier to access. With regard to the banks, they are listening to operators with a proven history and it is now also getting easier to secure funding if you have a good track record and experience in the sector.”
He also believes single site settings will reduce in number in the larger population areas.
First time buyers will continue to come into the market. “I find that these are either professionals who have been working in the childcare sector and now have the funding to enable them to buy or people who are looking to invest from another sector, eg. care home operators wishing to invest in another sector. For first time buyers, there is a huge opportunity for people as from a finance view point it makes sense to invest equity into a business that makes money rather than receive low interest from the bank.”
Innovation is key to Mr Steen, as in 2007 and 2008, Redwoods Dowling Kerr did struggle and suffered from the down turn in property sales like the majority of property agents in the UK.
The position was compounded for RDK, says Mr Steen “as the business was not being managed in an innovative way”.
“When we acquired RDK out of administration, we focused heavily on innovating the way that nursery settings are sold. Historically most nursery settings had been sold on a freehold basis, during the banking crisis this became very difficult due to the squeeze on credit liquidity in the market place. As part of the RDK innovative approach we worked with our vendors to introduce the multiple methods to sell a nursery. One example which proved very successful was when freehold owners sold the lease to their setting and retained the freehold. This allowed the vendors to benefit from the rental income whilst retaining the bricks and mortar asset for sale in the future.”
Many people dream of setting up a nursery, without realising the full implications of running a childcare business. In fact, Sarah Steel, founder of the Old Station Nursery chain said: “If I had a pound every time someone has told me they would like to run their own nursery, I would be a millionaire.”
Mr Steen suggests all potential nursery owners should go into it fully genned up on what running a nursery entails.
He advises: “If you are thinking of buying a nursery, make sure you do your research, it is one thing being a practitioner in childcare, it is another thing running a business. Talk to successful nursery owners and find out what they are doing which has resulted in a successful business.
“Once you have found a potential setting make sure you mystery shop the competitors, what are they doing which you like? What are they doing which you can improve on? What will your unique selling points be? – when you have the answers to these questions then you can produce your own marketing plan and start to set yourself three, six, nine and 12 month targets. These targets will help ensure that you are on the right track to deliver the goals which you set yourself.”
In terms of selling, plan ahead, if you want to exit in 2014, you really want to be coming onto the market six to twelve months before and make sure you talk to a good agent. It is also vital to have your accounts in order.
He has found RDK is getting more and more involved with giving advice to people wishing to buy a nursery and would like to see the Government offering more of this type of support.
Mr Steen now has a personal interest as well as a professional interest in the nursery sector as his four-year-old daughter is at nursery so he has been keeping up on the latest childcare reforms put forward by the Government in its recent report ‘More Great Childcare’.
In terms of the hot topic of the moment which is the proposal to reduce staff to child ratios, he says: “In addition to my role in the sector and speaking as a parent, I firmly believe that cutting the ratios of staff to children would not benefit the sector, the parents or the nursery owners and staff. Furthermore, I would be surprised if it led to nursery fees being reduced for parents, as the nurseries would have to increase their staff training budget to train staff to work to different ratios. A nursery setting is very different from out of school clubs as they only have children for circa 2.5hours a day which is workable on different ratios, but working on reduced ratios in nurseries for circa nine hours a day puts huge pressure on the staff. I personally think the ratio change will be difficult to push through and believe nursery owners may choose not to reduce their ratios in favour of providing high levels of care.”
Mr Steen believes the future for Redwoods Dowling Kerr is “incredibly positive” and certainly the nursery market is being helped by the fact that the Coalition Government has taken on board many of Labour’s spending pledges for the early years particularly extending three to four-year-old funding to 15 hours and increasing funding for disadvantaged two-year-olds.
He concludes: “2013 will be a fantastic year for both Redwoods Dowling Kerr and myself, on a business level we have a number of interesting projects which we are working on and on a personal level I am looking to push the boundaries and undertake a Tough Mudder Challenge in October.”
The Tougher Mudder Challenge is a gruelling endurance race created by the British Special Forces, and described as “probably the toughest event on the planet”. It includes the Electroshock Therapy challenge which involves running through live electric wires, the Fire Walker challenge which is running through flaming bales of hay and The Gauntlet challenge, which involves going up a steep ski slope while being sprayed by high-pressure hoses.
Running Redwoods Dowling Kerr will be like child’s play after that!
What was your first job: I had a morning paper round. Following a trip to Florida when I was 13, I acquired a pair of rollerblades which enabled me to complete two paper rounds each morning, the downside was I looked a bit daft!
What is your favourite book: ‘Anyone Can Do It: My Story’ by Duncan Bannatyne
What is your favourite film: Top Gun
What is your favourite piece of music: Gypsy Kings
What has been the best present you have received: A handwritten card from my daughter when she was three
What was your last holiday: Disneyland, Florida