CHILDCARE PROCESS FOR BUYING A CHILDCARE CENTRE
Step One – Entity Purchase in
The first step in purchasing a childcare business is deciding on the entity you wish to purchase the business in. That could be a Company or a Company & Trust. A company can be organised via ASIC or via your accountant. A company and Trust will require an accountant or a lawyer to establish.
If the Company has 3 Directors all three Directors will be required to go through the interview process. Therefore, if there is a person in the Company who is childcare trained or has Education experience it is best to only have them as a Director. They will then be the only person required to go through the interview process and will have a better chance of being successful. Shareholders are not usually asked to attend interview.
Step Two – Apply for Provider number
To be able to own and operate a childcare business you must hold a Provider number.
This Provider number is applied for via the Department of Communities – Child Care section in the State you live in or the State you are buying the Childcare business in.
The Provider number is attached to the entity e.g. Company – Company/Trust you have set up that will ultimately own the Childcare business or businesses.
The application – PA01
must be completed on line and you must attach:
- Police Clearance certificate not more than 90 days old. Takes around three weeks to be Should be applied for as soon as contracts have commenced so lodgement of Provider application is not held up
- Working with Children card. Approximately three weeks to be issued. It may be possible to lodge your Provider application without this document being attached and forwarding to ECRU as soon as received.
The current price is $231 at July 2020
The Provider number once obtained does not last forever. If you have not purchased/own a centre within a period of approximately two years from time of issuance the Department may cancel the number.
The application will require credit checks into the Company history and ALL the Directors of the Company.
If a person is considering purchasing a Child Care Centre and is not currently holding a Child Care Provider number, it can be advantageous to secure this number as early as possible. It is not a requirement that a person/company/entity own a childcare centre or have childcare qualifications to apply for or retain a Child Care Provider Number. By securing in advance, it can reduce the settlement process time by three to four months.
Sellers are more willing to accept an offer from a buyer with an existing Child Care Provider number, knowing settlement can occur a lot quicker and the risk of not being approved is not applicable. The time quoted by the Department of Communities for Child Care Provider Number is currently 90 days. Refer section 15 of the Act for more information.
Full details about the Childcare Provider process are in the document below.
Buyers will need to complete the following forms to be approved by the Department of Communities prior to applying for transfer of service of the Centre being purchased. Current forms can be obtained from the Department of Communities WA website
Interview for Provider Number
All Directors of the Company will be required to attend an interview. Shareholders are not usually required to attend interviews.
The interview is usually two to three hours and is a panel interview of usually three to four personnel. To pass the interview, a thorough understanding of Childcare legislation, policy and procedures will be required. If you are purchasing a centre and signed a contract, through Advance Business Brokers, we will assist with this process and provide detailed information on the questions and documents you will need to be proficient in.
The interview is usually conducted about 6 – 8 weeks after lodgment of application. If you have been successful, an indication is often provided on the day. Notice of approval or decline is provided in writing around 7 – 10 days after the interview. Nationally around 70% of applicants fail.
Receipt of Provider Number
Once you have received your Provider number, you can then look for a childcare business and advise the broker/buyer you are already in possession of your Provider number which puts you in a stronger position to purchase.
Or, if you have already signed a contract to Purchase a centre and Provider number is a condition of contract you can move onto lodging the other applications.
Step Three – PRODA/CCS – Funding for parents with children in Childcare
If the buyer has a contract in place to purchase a business, and have applied for and received their Provide number, then as soon as their Provider number is issued, they should also lodge their application for CCS funding. This application can also take 42 days or longer.
CCS/PRODA application requires a business plan and financial information on the applicant. It will also require the Policies & procedures that the Buyer will be implementing in the centre as per regulations. If available from Seller for an existing business the Seller may be able to provide if in electronic format.
If it is recommended this application form be downloaded at the same time as the Provider Application if you are a new childcare buyer, so you can work through and prepare all the information required well in advance. Then you will be able to have all the documentation ready to be lodged with the application as soon as you receive your Provider number.
Links below to PRODA for new applicants buying their first childcare centre to receive CCS funding for parents.
This application can only be lodged once a Buyer is in receipt of a Provider number. It should be lodged immediately upon receipt of the Provider number to ensure in place prior to settlement.
It is a detailed application and will take several weeks to be processed.
CCS – Child Care Subsidy from Department of Education –
Application information link below.
Applications to CCS and Service Approval are lodged at the same time on different websites.
If you are an existing Childcare operator already holding PRODA approval and operating/receiving CCS funding, then an additional form will need to be completed for the new service and set up by PRODA for funding to be received as soon as settlement has occurred. This form should be lodged at same time as Transfer of Service to ensure there are no delays after settlement.
Step Four – Transfer of Service
Transfer of Service can only be lodged with a Provider number.
The current price is $112 at July 2020
Transfer of Service takes 42 days from the date of lodgment.
The form above PA 09 is completed by the SELLER current owner of the Centre. It is then emailed to the Buyer who attaches the document to the on-line SA 04/05 application.
To lodge the SA04/SA05 the Buyer has to log into the NQA log in portal using their provider number via SEQWA website. The SA04/05 forms can only be lodged Online.
For a leasehold business the Buyer must also provide landlord letter as attachment stating the landlord property owner has approved the Buyer as a new leasehold tenant.
If Freehold centre the Buyer must provide Contract of sale of Property as attachment.
These documents are to confirm you have the right to operate the Childcare business in the property it is located.
Three forms need to be completed for Transfer of Service. PA09 (Seller) and SA04 and SA05 Buyer.
Any questions contact the Department of Communities ECRU in your home State.
The Department of Communities/Child Care may choose to inspect the centre. This does not happen every time. If they do undertake an inspection, a list of items may be issued to the Seller to complete. All of those items should be completed prior to settlement.
See boxes to be ticked below –
Nominated Supervisor – on SA04 application
The box below should be completed with current nominated supervisors’ details if available and if the supervisor is aware of the sale at this stage.
If not, the Buyer as new owner of the business can nominate themselves as Nominated Supervisor until such time as the business settles. The new owner (Buyer) can then advise ECRU of a change of NS details if necessary and have the new NS sign applicable forms and forward to ECRU after settlement.
Under the Regulations Childcare – the Department has 14 days from receipt of complete documentation to intervene. If the department does not intervene within this time period the centre is deemed to be unconditional.
The 28 days after the 14 days, making up the 42 days is to allow for paperwork/process to take place. It is possible once the 14 days have expired and the Buyer and Seller have received a letter to say the Department has not intervened in the 28 days prior to the proposed settlement date, to request in writing to the Department for settlement to be brought forward if the Buyer and Seller wish to settle earlier.
The legislation is based on the anticipated settlement date entered into the Service Approval application, the 42 days being prior to that date. The settlement date in the application cannot be less than 42 days from the day of lodgement.
If ECRU has chosen to “intervene” then a letter stating the same, will be received by Buyer and Seller within the 14-day period from lodgment. It is then incumbent on the Buyer/Seller to establish why the intervention occurred? Fix the problem/issue and apply to ECRU to lift the intervention. Once lifted the process starts again.
The letter below is the letter sent at the end of the 14 day period referred to above.
Step Five – Settlement
Settlement on a childcare business usually occurs on a Friday (due to Government funding going Monday to Friday) usually one week after Transfer of Service 42 days has expired.
ECRU must be notified after settlement that settlement has occurred.
Step Six – Finding a centre
Please note childcare centres are hard to come by. They are in high demand and to enter the industry will require flexibility on the part of the Buyer in regard to location and price.
If the centre has been operational and profitable for over two years a Buyer may be able to secure finance at 50% of the business price. Or, 70% of the business & property price if purchasing both property and business at the same time.
The price of childcare centres can range from $100,000 to $4,000,000 + for an individual centre depending on net profit, location, size and age.
Currently centres are selling in the Perth metro area from 3 to 4.5 x net profit on average. Groups can achieve 6 – 7 x net profit. Country locations e.g more than two hours from Perth CBD usually sell for 2 – 3 x net profit.
Are you buying a business in Perth? Do you have a Perth business for sale? For more information on how you can get the best results, contact Angela at Advance Business Brokers today.