Thinking of buying a creche

fisher8181

I have a new born baby and will have to put him in a creche in a few months time as myself and my wife work full time.

We hope to have 3 kids in total.

With creches costing approx €12,000/year/kid if you have 3 kids at discounted rate thats approx €30,000/year.

They seems to sell (based on just one exa,ple I saw) at 3 times the net profit. Saw one for sale at €150,000, turnover 150,000 and net profit 50,000.

instead of 30,000 dead money per year it seems like a good idea to invest into buying a creche, especially with the current baby boom going on.

anyone have any experience with this sector or any thoughts on the idea as a whole?

Gloomtastic!

I've heard of people doing this but thought it was an urban myth. :rolleyes:

I think if you were to manage it yourself (or your wife) then there may be profit in it but if you have to employ a manager then their salary will affect profit.

Plus if you are not paying 30,000pa towards the turnover then it will eat into your profits further.

Maybe find a manager who is looking to be an owner manager and back her with 15,000 up front on the understanding that you would pay 50% of normal fees. Let her do all the day-to-day worrying, because running a creche there's going to be plenty of that1 :P

TylerIE

fisher8181 wrote: »

anyone have any experience with this sector or any thoughts on the idea as a whole?

Love the idea, and the particularly the way your turning a financial liability into an asset.

I know somebody going through the process of setting up a creche in the UK. They were a little surprised at how much there is to it, so I imagine you or your wife will really need to either give it your undivided attention OR hire and pay accordingly for an experienced manager. The parties I know setting it up in the UK have third level qualifications that would assist them greatly (Both are HPC registered Healthcare Professionals with post graduate qualifications), but are still finding it harder than they expected.

DubTony

Having a qualified manager is vital, but you'll need to know all the rules and regulations yourself to ensure the manager is up to the job and is complying with the law. All staff need to have the appropriate training as well

You'll get a lot of info here

www.ippa.ie

BenEadir

There's zero chance a creche turning over €150,000 is making €50,000 in net profit. Either the full time working owner isn't taking any wages or they aren't paying any rent for the building or both!

Does the €150,000 purchase price include the property?

Ben

ScouseMouse

Briefly, I don't believe one word of your figures. Whoever gave them to you is having you on.

My Mrs was a deputy manager in two creches and is still in childcare. She has told me some of the day to day issues.

There are regulations about everything.

Depending on the childs age, you have maximum ratios of staff to kids. Do you have to feed them? What premises are you going to use? What about the rates, electricity, etc etc. Staff are the most expensive outlay for any business. You MUST have a qualified childcare worker(s). They are not cheap, sixteen and seventeen year olds are not allowed or acceptable. Insurance is another issue. Young children have to be watched, they wander off, they hurt themselves. All issues to be considered.

Sit down and think this out. You will need to budget strictly for these costs and others.

Best of luck and if you need anymore general info about this let me know, I will ask the wife.

And if you do find its viable, let me know, might do it myself:D

neris

Can tell you for definite that your figures are way off at 50k profit on 150k.

Do you know the regulation on adults to child ratios? Staff costs in a creche are the biggest expense even more then rent.

150k is not great income for a creche either and would indicate that there would hardly be any children in the creche aswell if a full time fee is in the region of €800-1000 per month.

fisher8181

thanks for all the replys guys.
Just to update.
I visited a creche for sale and had a look at the books and yes, the figures for turnover and profit i quoted above seem to be way off.

i am still undeterred! The thought of €12,000 dead money per year per child is too much to take!

If i were to buy i think that as Gloomtastic said the best i could do is pay 50% of the fee for my own child(ren) as otherwise due to the child staff ratio there would not be enough cashflow to cover wages.

any other ideas of how i could ease the burden?
was think also of just letting a creche for a few years.

JCDUB

fisher I'm not sure that you've thought about anything other than the financials (read potential saving per child) in this scheme of yours.

Running a creche requires hard work, determination, commitment to very long hours, stress and everything else that goes along with running your own business.

Some things to consider:

1. Reputation.
This is huge in childcare, and if you are found out as being in it to earn a few quid for a few years to see your kids through their own childcare years, with no commitment to the future, forget about it. Long term committment must be there and visible. Nobody wants to have to change their children's childcare, as this is disturbing and counter-productive. If it looks like you may not be there in a couple of years, potential clients will not entertain you, and rightly so.

2. Staff.
As mentioned before, staff are key. High turnover is an issue in childcare, and getting the right staff and keeping them is massive. This will cost money, but is worth it when you have good staff.

3. Insurance.
Obviously this is also a massive overhead. Do your sums on this one and make sure you have the right cover. Also put procedures in place so that you never need it!

4. Regulations.
Childcare is heavily regulated, and rightly so. You will have to comply to all regulations thoroughly, as will your staff, food etc. Everything has to be tip-top, including training, first aid, staff/child ratios etc.

5. Maintenance.
Creches have heavy traffic, and need the proper flooring, wall coverings etc. This all costs money. Also investment in outside/garden facilities all cost, and are vital.

6. Unforeseen.
As with any business, unforeseen costs will arise, and you must have contingency in place for this. If the heating goes and you can't afford a new boiler/heating system what do you do? Tell the children to wear an extra coat?

7. See 1 again ^^^^^;)

Hope this helps in some way!

littleredspot

I like your thinking outside the box, but imo you're ignoring some basics.

You're hoping to have 3 children, but there's no guarantee that you will, also you have no idea when they will be born, it's unlikely that you'll have 3 kids in creche at the same time. You may also find that you or your partner may decide that you would like to give up work to be a full/partime carer.

You may find cheaper options than €1000 per child, child minders or au pairs for example.

You seem to think that owning/running a business is simply a matter of paying the cash for it.

Lastly, you use the term dead money. Paying for a nurturing, happy, enriching, and safe environment for your children to be raised in, you consider a waste of money?

Cianos

If the main motivation behind opening a creche is because you'd feel fleeced giving someone else money to look after your kids, then I'd never send my child to be minded by you. I'd be thinking you'd skimp on everything, including the staff. No thanks.

neris

fisher8181 wrote: »

thanks for all the replys guys.
Just to update.
I visited a creche for sale and had a look at the books and yes, the figures for turnover and profit i quoted above seem to be way off.

i am still undeterred! The thought of €12,000 dead money per year per child is too much to take!

If i were to buy i think that as Gloomtastic said the best i could do is pay 50% of the fee for my own child(ren) as otherwise due to the child staff ratio there would not be enough cashflow to cover wages.

any other ideas of how i could ease the burden?
was think also of just letting a creche for a few years.

Im sick of parents refering to creche fees as dead money. Do you think creches should mind children for nothing and pay their staff in fresh air and platitudes? There are creches out there cheaper then €1000 a month you need to phone around.

I agree with what JCDUB has said and I really hope for the sake of the childcare sector you dont get involved because you dont seem to understand the business or whats involved in operating a creche. Childcare is a long term business commitment for any operator based on relations and reassurances with the parents. Its not a business that can be fliped or set up for a year or two ust to ease your childcare issues

Bandara

You think €12,000 is dead money?

Wait till you see €100,000 stone dead money when you take over a business that you have no experience of, or desire to run !

BenEadir

fisher8181 wrote: »

i am still undeterred! The thought of €12,000 dead money per year per child is too much to take!

Fisher, you need to familiarise yourself with the concept of "Opportunity Cost".

Let's assume you are currently working and earning €30,000 net of tax etc. You see the €12,000 you will pay the creche as a cost leaving you with only €18,000 net income after creche costs.

What will your net income be when you are running a creche? Creche costs for your kid will be FOC but I'll bet you'll bring home less than €18,000 and, based on your apparent determination to plough ahead in blissful ignorance of the hard facts in front of you and advice you're getting here, I'd say not only will you earn less than €18,000 a year but you'll probably end up stressed out of your head with money worries, staff management worries, working much much longer hours than you currently are and you may even end up borrowing and then losing whatever you pay for the Creche.

When you get to that point (and I hope you never do) you'll look back at the days when you were a simple employee bringing home €18,000 a year net of Creche costs (which will only be payable for 3-4 years anyway) and working 40 hours a week with no worries about staff or financing a business with great great fondness.

The grass is rarely greener on the other side

BTW, why is the owner of this great business selling up?

Ben

fisher8181

thanks guys.
Just to be clear, I have not decided whether I am going to go down this route or not, I'm just thinking out loud and I do appreciate all the advise.

What I was thinking of doing is to go into partnership with a creche manager where i would be a silent partner.

The creche i viewed the other day had 20 kids, a turnover of around 250,000 and a net profit of approx €20,000.
The asking price was €70,000.

My idea, and its still just an idea, is that I take out the full business loan and pay the deposit. I then make a directors loan to the company so that the loan repayments can come from the net profits after coporation tax.
I leave the complete running of the business to the creche manager, as this is her area of expertise and she is entitled to take a dividend on top of her wage if any is left from the net profit after loan repayments. -

For example, say we have a net profit again of 20,000 after corporation tax that leaves 17,500. Loan repayments/year = 8,000. This leaves a dividend available for the manager to take on top of wages and I could get a 50% discount for my child for the year.

Toughts?
Be nice!

friendlylady

Contact your local County Childcare Committee, they are a not for profit organisation funded by the Dept of Children and Youth Affairs, there is at least one in every county, 4 in Dublin alone. They offer impartial advice and literature for start ups. Here is a web link to the childcare committee for Dun Laoghaire Rathdown area for example:

http://www.dlrccc.ie/

They are usually split by county council area, i.e. Fingal, South Dublin County, Kildare, Wicklow etc etc. Please chose your manager if you go ahead with this with care.

BenEadir

I don't think it would work out like that. If you buy the Creche why not just employ a full time manager to run it without complicating the situation with a formal partnership? Pay her/him a good market salary and manage her/him whilst keeping your current job. You can always throw in a profit/performance related bonus for the manager if pre agreed targets are met.

The main problem with this is it's very unlikely a paid manager will run the business in the same way an owner manager would i.e. pushing sales, keeping costs down etc and you could end up in a situation where you are micro managing the Creche manager in which case you might as well be running it yourself!!

Partnerships are dangerous structures as they frequently go wrong and can be complicated to dissolve.

Why is the current owner selling the business? Do the accounts fully capture all the overheads that you'll incur going forward e.g. a full salary for the current owner manager? If the existing owner manager is taking no salary or a below market salary it may wipe out the 'reported profit' as you will have to pay in excess of €20,000 to hire a professional Creche manager.

Seriously, get some professional advice and tread carefully.

Ben

fisher8181

thanks benthere, great advise, i appreciate that.

just trying to figure out if its doable but if i were to go ahead with it i would indeed get professional advise.

ninty9er

I was involved in tying up some stuff on creche audits a few years ago, of the few that I saw, they weren't paying rent as the buildings were owned by a relative of the manager and they still weren't turning a 5 figure profit.

You'd be nuts to get into that sort of business. Better off finding 4 more parents families and have one parent in each go on a 4 day week and staying at home with all 5 families' kids. No liability as there's no business going on, just friends doing each other a favour.

BenEadir

OP,

YOu must must must get an Accountant to scrutinise the P&L to ensure all operating costs are being captured. It's very easy to report a profit if you're not paying all the costs e.g. an owner manager not taking any salary or a below market salary, paying no or less than market rent, not paying commercial insurance etc etc.

If having had the historical business performance properly scrutinised (called due diligence), including a review of all employment contracts and the lease (is it upward only???) and you still want to buy this business bearing in mind the warnings you've had about how hard it can be to run on a profitable basis then at least you're going into it with your eyes wide open and I wish you the best of luck.

If you really understand the financials, hire and motivate a professional Creche manager, are prepared for a lot of work and don't over pay for the business you will have a much better chance of success.

One way to mitigate your financial risk in purchasing the business is to pay 50% of the agreed price on completion of contracts and the remaining 50% out of profits over the next 2 years. Even better, if you can get the seller to agree to the deferred payment being subject to certain targets being hit e.g. the number of babies/toddlers doesn't fall below X or Y% of the current babies/toddlers remain for 12 months after the change of ownership. If the targets are met you pay the agreed balance, if they are not you pay a reduced amount on a pro rata basis. This is called an earn out or vendor finance and is very common in the sale of small businesses.

You'll need an Accountant and Solicitor to help you facilitate the purchase and they should be able to help you structure the best terms for the deal.

Best of luck.

Ben

Bandara

Sorry this is just a bad idea and you need to bin it

Am I wrong in that your going to borrow 70 grand to save 6 grand a year? First off I can't see any bank giving you the funding, you'll be lucky to get 50% of it with you putting the rest via unencumbered cash/assets

Your going to buy a business that not exactly setting the world on fire, which is currently run by a very experienced owner operator and still makes relatively very poor profit.

You know nothing whatsoever about the business so these profits will plummet, and your going to introduce a wage into the business in the form of a manager, who you won't be able to recruit correctly as you wont have a bulls notion is they are good or bad as you have no experience to bench mark them against.

This manager will not be close to as motivated as an owner would be, and in the creche business if the parents get a sniff of this they'll be gone.

Also your intention to be a silent partner is a myth, when someone breaks into the premises, when the boiler blows up and floods the place, when a parent goes insane because their child slipped and broke his arm - do you think your manager is going to be dealing with this ? No, you are.

And when the day comes that you get a phone call, in the middle of the school year, from your manager on Friday evening telling you that he/she is leaving for another job / emigrating and is giving you a weeks notice etc what are you going to do then? I'm no expert but I'm guessing that a crèche requires a suitably qualified or trained person on duty at all time in order to trade?

And finally, the current owner is leaving this business because its not making enough money/or they have had enough, and I'll bet you any amount of money the place needs an overhaul as you can be sure the current owner hasn't exactly pumped money into it for the past 2 or 3 years if they are getting out now.

I know you said 'be nice' and I hope this doesn't come across as not nice, I'm just giving you my thoughts on it with any of the sugar coating that most people seem to do.

Good luck either way ! And if you do decide to do it, I'd suggest taking a month off work, and approaching a well respected crèche and asking can you work there for free for a month, the experience would be beyond invaluable to you.

Regards
HT

p.s. I'd believe the accounts about as far as I'd throw them.

neris

you say the creche has turn over of 250k a year on 20 children. Thats 20 children attending the creche full time paying over 1k per month. I find that utterly impossible to belive. Firstly 20 children is a tiny number in creche and secondly trying to get full time children now a days is extremly hard.

Having a full time manager and being silent in the operation is a sure way to have the business perform poorly or go belly up. you need to keep an eye on a manager and the business. Generally creche managers are very capable of running the childcare side of things but when it comes to things like money your better off having control and telling them what you want.

Also have you researched the are the creche you are looking at is in? what the competition and is theer room to expand or get in more children?

BenEadir

I'm out of here!!!

Chet Zar

OP, I'm sure with all the great feedback here, you are already reconsidering. You clearly have no affinity with this line of business, and the *worst* reason to get into business is to solely make or 'save' money! Go into something only because you are passionate about it first off, the money comes second.

And 250k revenue?! I hope you don't actually believe that. As for 20k profit...?

It seems obvious why they are selling up.

arbitrage

3 kids, each in childcare for 4 years fulltime @ e12,000/year = e144,000.

As someone with that ahead of me that is a worrying figure.

As people have highlighted the cold facts you are looking at a 50% reduction in your own childcare costs (at best).

Assuming your wife wont be getting pregnant as soon as possible after the previous child and you have 3 children you are looking at about 8 years give or take from the first day your first kid goes to the creche to the last day your third kid goes to the creche. Factoring in your 50% discount you are spending e9,000 a year over 8 years.

If the creche you looked at was owner managed and clearing 20k you would be doing well to break even.

So, are you willing to put 8 years off work into a creche and miss out on other opportunities due to money tied up in the creche on top of working a full time job yourself and spending your evenings with the wife at the kitchen table stressing over figures and unforseen expenses to save e9k a year (at best!)?

There has to be a part time business ye can run from home with a fraction of the risk & stress that will match that figure and ye may even enjoy doing.

fisher8181

thanks everyone for the advise.
Its clearly a non-runner.
penny has dropped!