CHILDCARE PROCESS FOR BUYING A CHILDCARE CENTRE

If you are looking to enter the Childcare industry for the first time?  Or,  qualified/experienced in the industry and wanting to buy your own Center,  the steps listed below need to be undertaken in the order listed.

  1. Creation – see an accountant – read recommendation below.
  2. If no Childcare qualifications consider enrolling in a Cert IV or Diploma to show ECRU you are serious about learning.  You are not legally required to have qualifications or experience in childcare to apply for a Provider number.
  3. Lodge Provider Application in the name of the “Entity” e.g. Company you have established.
  4.   Study –  The Exam is hard.
  5. Receive your Provider number – have approximately two years to secure/open a business or it may be canceled.
  6. Decide on a business to buy/establish.  Lot less risk in purchasing an existing business for first time business buyers.  Qualified staff/management in place/resourced/has been approved for Childcare by ECRU holds a Service Approval.  No guarantee with a start up you will get a Service Approval.
  7. Complete conditions of Business offer/contract – Transfer of Service etc
  8. Congratulations – You now own a business in the Childcare sector.  One of the, if not the, most in demand business you can Buy in Australia.  Guaranteed Government Funding – Robot proof – High demand – Can be highly profitable.

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 might be a Company,  a Company & Trust or other entity structure.    A company can be organised via ASIC or via your accountant. A company and Trust will require an accountant or a lawyer to establish. What is the best option for you should be discussed with your accountant.

If the Company has 3 Directors ECRU will probably insist  all three Directors  go through the exam/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 sole Director. They will then be the only person required to go through the approval process and will have a better chance of success.  If there are multiple Directors of the Company and e.g. two Directors are required to sit the exam and one of the Directors fails then usually ECRU will fail both Directors.    Shareholders are not required to undertake the approval process, however, they will be vetted. 

Step Two – Enrol Childcare qualification

If you are new to the Childcare industry it may assist the approval process if you can confirm to the approval body ECRU – Department of Communities,  that you are serious about childcare by being able to confirm you are enrolled in and undertaking a Childcare qualification.

It is not a legal requirement to have qualifications or experience in childcare to buy a Centre. However, in recent times ECRU have not looked favorably on applicants (even if they have passed the exam) that cannot demonstrate in some way their dedication to the industry beyond paying for a business.   

Step Three –  Apply for Provider number

To be able to own and operate a childcare business your entity purchasing the business must hold a Provider number.   The persons associated with that entity e.g. Director/s must be ECRU approved.

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 price is $241 for 2022 -2023.

The Provider number once obtained does not last forever.   If you have not purchased/own  a center 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.

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.   Due to the Provider process (exam) being much harder since 01 May 2022 resulting in a higher fail rate,  Sellers are now reluctant to enter into a contract subject to Provider number unless the buyer has experience and childcare qualifications and therefore  has a strong chance of being approved. 

The time quoted by the Department of Communities for Child Care Provider Number is currently 120 days, however, the Provider approval process in July 2022 is taking 180 days or longer.     Refer section 15 of the Act for more information.

Step  Four –  Provider Application Assessment/Examination

Effective 1 May 2022, ECRU ( Education and Care Regulatory Unit)  is now conducting on-line  assessments for Provider Approval suitability in an exam format and subsequent interview.

If you are purchasing a centre and have signed a contract, through Advance Business Brokers, we will assist with this process and provide detailed information on the questions and documents to assist  you if the Seller has agreed as a condition of contract.

The exam comprises 46 multiple choice questions to be answered in 75 minutes and no reading time.   Several applicants/most  have advised they did not finish in time.

You can flag and skip going back to an answer later.

A very thorough knowledge of the Regulations and the ACT is required to be able to identify and know Regulation numbers and information quickly.  Some of the questions relate to multiple regulation numbers e.g. is it  76/22/14  or  42/1/23   etc 

What needs to be displayed for rating assessment

     SQM

     Fencing 

     Ratio

     Healthy eating

     Forms documents how long keep – what need to be in centre – how maintained

     Child protection

     Who responsible what

     Notification of incidents

Applicants sit the exam in the  ECRU offices in Perth.  Usually offer only one date per month.  It is very important participants answer the questions as quickly as possible.

ECRU  provides some reference materials, a pen and some paper. 

A buyer may have their wife/sister/friend/Centre Manger of an existing business,  enroll in the qualification and have that person on the Company as sole Director.  If the Buyer/Company Director can show they are genuine in learning and obtaining qualifications they may be approved.

It is possible for a buyer with none of the above, to employ under their Company as Director a person with those skills, experience, qualification.   Advance Business Brokers have started keeping names of persons with qualifications and experience,  wanting to own a center,  but don’t have enough capital  to buy a center fully in their own right.  

Or, if there is a good manager in place at the center, who is willing to come on board as Company Director and hold the Provider, that is another option.   Once you own the center and gain experience, there is a far better chance you will pass the exam and be approved by ECRU in the future.

If you receive a pass mark which is above 80% then you will be called in for an interview.  

The interview takes place around 4 weeks after the exam.   The interview around an hour will again be on your knowledge of childcare.

Business Plan

A business plan is required from buyers for ECRU.  

A business plan is usually required to be submitted prior to sitting the exam.  Where an applicant does not currently own a business or started to build a centre, then they will need to base their plan on what would be their ideal centre that they are hoping/planning to operate.

The business plan needs to incorporate:

  • Costings
  • Financial expectations
  • Budget
  • KPI’s

There is a business plan template available via the ABB website under resources. There are also advisors on the ABB website that specialize in creating business plans for a fee.  I would therefore recommend that all provider applicants   commence their business plan as soon as they have lodged their Provider application, to ensure that it is ready to be submitted as soon as requested.

A Business plan will also be required by CCS when a centre has been purchased or about ready to open.  The CCS business plan should be an extension of the Provider business plan.

“Study study and study” in the words of a successful applicant. Make sure you are very very familiar with the Regulations and the Act. 

Approval by  email is sent approximately one week after the Business Plan has been submitted.           A panel interview may be required prior to approval being granted.

The Provider certificate will arrive in the post.

See resources below:

Applications and notifications forms – https://www.acecqa.gov.au/resources/applications

Childcare Process for Buying a childcare Centre – https://advancebusinessbrokers.com/listed-articles/childcare-purchase-process/

Business Plan Template – https://advancebusinessbrokers.com/wp-content/uploads/2021/03/Buyers-Series-Business-Plan-Template-A.pdf 

Step  Five – Receive Provider Certificate with number

If the interview is successful you will be advised approximately 3 – 4 weeks later and receive your Provider number certificate in the mail.

Step  Six – Buy a Business

Once you have received your Provider number, you can then proceed with your purchase or look for a childcare business and advise the broker/owner 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 center and Provider number is a condition of contract you can move onto lodging the other applications.

Step  Seven –  Conditions of Business Contract

Child Care Centres – Existing Child Care Providers 

An existing Child Care Provider will already have a Child Care Provider Number.  Therefore only a transfer of the Existing license of the Centre being sold is required.

Finance must also be approved in writing by a finance provider prior to lodgement of license transfer.

The transfer of Service is legislated to be 42 days from receipt of correct application with the  Department of Communities.  

If the buyer is purchasing the Centre in a New company they will need to apply for a NEW provider number for that particular Company and may be required to complete the whole Provider process mentioned above, including sitting the exam.

CCS – Funding for parents with children in Childcare

If the buyer has a contract in place to purchase a business, and has  applied for and received their Provider 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.

If you are an existing Child Care operator already holding an approval and operating/receiving CCS funding, then an additional form will need to be completed for the new service and set up  for funding to be received as soon as settlement has occurred.   

For an existing Child Care operator who already is  approved to add their service for CCS funding, please ensure as the Buyer of a Childcare Service you have this completed in advance of settlement so there is no disruption in CCS payments to parents.  This form to PRODA should be lodged at the same time as Transfer of Service.

Any questions need to be directed to the relevant Government department.

Transfer of Service can only be lodged with a Provider number. 

The current price is $116 2022-2023.

Transfer of Service usually takes 42 days from the date of lodgment unless intervention has been lodged by ECRU.

Step Eight  – 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. 

Please note childcare centers 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 center has been operational and profitable for over two years a Buyer may be able to secure finance at 50% of the business price or 60% –  70% of the business & property price if purchasing both property and business at the same time.  Finance brokers who specialise in finance for Childcare centers are under Resources on ABB website.

The price of childcare centers can range from $100,000 to $4,000,000 + for an individual center (no property)  depending on net profit, location, size and age.

Currently centers are selling in the Perth metro area for a multiple of  3 to 4.5 x net profit including add backs.   Group sales  can achieve 6 to  8  x net profit.  

Regional  locations e.g more than two hours from Perth CBD usually sell for multiples of  2.5  – 3 x net profit.

We hope you have found the above useful.

Click HERE to access the PDF version of the Childcare Process!

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.