THE PROCESS FOR BUYING A CHILDCARE CENTRE
Are you looking to enter the childcare industry and buy a childcare business? Or are you already qualified or experienced in the industry and want to own your own center?
The steps below should be followed in the listed order:
- Entity Creation: Consult with an accountant
- Qualifications: If you lack childcare qualifications, consider enrolling in a Certificate IV or Diploma to demonstrate to the Early Childhood Regulatory Unit (ECRU) that you are serious about learning. While not legally required, having qualifications or experience in childcare can strengthen your Provider application.
- Provider Application: Submit your Provider application in the name of the established entity, such as a company or trust.
- Study: Be prepared for the exam—it is challenging.
- Provider Number: Once you receive your Provider number, you have approximately two years to secure or open a business, or the number may be canceled.
- Business Selection: Decide whether to buy or establish a business. For first-time buyers, purchasing an existing business is often less risky. An existing business may have qualified staff, management in place, established resources, and has already been approved by ECRU with a Service Approval. With a start-up, there’s no guarantee of obtaining a Service Approval.
- Complete Business Transfer: Finalize the conditions of the business offer and complete any necessary contract requirements, including the transfer of Service Approval.
- Congratulations: You now own a business in the childcare sector, one of the most in-demand industries in Australia. With guaranteed government funding, high demand, and potential profitability, it is also a sector that is resilient to automation
Step One – Entity Details
The first step in purchasing a childcare business is deciding on the entity under which you wish to purchase it. This could be a company, a company and trust, or another entity structure. A company can be established through ASIC or with the help of your accountant. Establishing a company and trust will require assistance from an accountant or lawyer. The best option for you should be discussed with your accountant.
If the company has three directors, ECRU will likely require all three directors to undergo the exam/interview process. Therefore, if there is someone in the company who is trained in childcare or has educational experience, it is advisable to have that person as the sole director.
This way, they will be the only individual required to go through the approval process, improving the chances of success. If there are multiple directors and, for example, two directors are required to take the exam and one of them fails, ECRU will usually fail both directors. Shareholders, on the other hand, are not required to go through the approval process but will be vetted.
ECRU requires the director (the person applying for approval) to hold shares in the company. The percentage of shares required will depend on the entity structure and should be confirmed with ECRU before submitting the provider application.
Step Two – Enroll Childcare qualification
If you are new to the childcare industry, it may help with the provider approval process if you can confirm to the approval body, ECRU (Department of Communities), that you are committed to childcare by showing that you are enrolled in a childcare qualification.
While it is not a legal requirement to have qualifications or experience in childcare to purchase a centre, in recent times, ECRU has not looked favorably on applicants (even those who have passed the exam) who cannot demonstrate their dedication to the industry beyond merely purchasing a business.
Step Three – Apply for Provider number
To own and operate a childcare business, the entity purchasing the business must hold a Provider Number. The individuals associated with the entity, such as the directors, must be approved by the Education and Care Regulatory Unit (ECRU).
The Provider Number is obtained through the Department of Communities – Childcare Section in the state where you live or where you are purchasing the childcare business.
Once approved, the Provider Number is valid across all of Australia, allowing you to own multiple businesses nationwide under a single Provider Number.
The Provider Number is linked to the entity (e.g., company or company/trust) that will own the childcare business or businesses.
The application fee for the Provider Number is $241 for the 2022–2023 period.
Please note, the Provider Number is not permanent. If you do not purchase a center within approximately two years from issuance, the Department may cancel the number.
The application process includes credit checks into the company’s history and on all the company’s directors.
Sellers rarely accept offers from buyers without a Provider Number due to the time required to obtain one and the risk of the buyer not being approved. The process, which includes an exam, has become more difficult since May 1, 2022, leading to a higher failure rate.
While the Department of Communities currently quotes a 120-day processing time for Provider Number approval, as of July 2022, the process is taking 180 days or longer. For more information, refer to Section 15 of the Act.
Become an Approved Childcare Provider
In Australia, early childhood education and care providers must be approved to operate a service and administer the Childcare Subsidy (CCS).
The approval process has recently changed. Prior to 1 July 2023, applications for CCS were managed through the Provider Entry Point. To simplify the process, all applications are now submitted via the National Quality Agenda IT System.
Existing providers are now required to use the National Quality Agenda IT System to add new services to their current approvals. Learn more about adding a new service.
This information is relevant to:
- Prospective providers who intend to apply for CCS approval.
- Existing providers who want to add or remove a service from their approval.
- Prospective or existing providers who have purchased a service.
- Existing providers who have undergone a restructuring of their legal entity.
Please carefully review the following information before applying. You may also complete an e-learning course on the approval process available on the ACECQA website.
If you need assistance during the application process, contact: CCSassessments@education.gov.au.
For technical issues with the National Quality Agenda IT System, email nqaits@acecqa.gov.au.
Families wishing to apply for the CCS should visit the Services Australia website.
Steps to Become an Approved Childcare Provider
- About the Approval Process
To operate a service and administer the CCS, you must receive approval from both the Australian Government and your state or territory government. This page outlines the approval process. - Check Your Eligibility
You must meet specific eligibility criteria to administer the CCS at your service. This page explains who the Australian Government will approve for CCS administration. - Get Ready to Apply
When applying for CCS approval, you’ll need to provide various information and evidence. Preparing this information beforehand can help speed up the application process. This page outlines what you’ll need to do before applying. - Submit Your Application
Once you’ve gathered all necessary documents and information, you can submit your CCS approval application. This page explains how to complete and submit your application. - After You Apply
After submission, your CCS application will undergo a detailed assessment. This page provides information on what to expect during the assessment process and what to do once you receive a decision. - Add, Remove, or Relocate a Service
Once approved, providers must notify authorities of any changes to their services, including opening, closing, or relocating a service, or if the provider’s legal entity changes. This page outlines the required steps in these cases. - Suspension of Approvals
Your National Law or CCS approvals may be suspended if you fail to meet obligations or submit a voluntary suspension request.
Step Four – Provider Application Assessment / Examination
Effective from May 1, 2022, the Education and Care Regulatory Unit (ECRU) now conducts online assessments for Provider Approval suitability, consisting of an exam followed by an interview.
The online knowledge assessment (OKA) includes 46 multiple scenario-based questions for each center-based care or family day care provider application, with a time limit of 75 minutes.
Several applicants have reported not completing the assessment within the allotted time.
You have the option to flag and skip a question, allowing you to return to it later.
Exam Details:
- The duration for the online knowledge assessment (OKA) is 75 minutes
- There are 46 multiple scenario-based questions for each centre based care or family day care provider applications
You will have online access to the necessary documents for the assessment. The setup includes two screens, making it easy to navigate and use.
Most questions are scenario-based and require you to reference the relevant laws and regulations.
Confidence in navigating these documents is crucial. If uncertain about a question, you can flag it and return to it later.
Below is an overview of the documents and information that should be studied.
A thorough understanding of the Regulations and the Act is essential, as some questions may reference multiple regulations (e.g., 76/22/14 or 42/1/23).
Key Areas to Know for the Rating Assessment:
- Space requirements (SQM inside and outside)
- Fencing requirements
- Child-to-staff ratios
- Healthy eating policies
- Document retention and maintenance requirements
- Child protection responsibilities
- Notification of incidents
Some applicants may have their spouse, sibling, friend, or the Centre Manager of an existing business appointed as the Company Director to obtain the Provider number, serving as the company’s sole director. Alternatively, if the center has a capable manager willing to take on the role of Company Director, they may hold the Provider number. Once you own the center and gain experience, you will have a much better chance of passing the exam and being approved by ECRU in the future.
If you score above 80%, you will be invited for an interview.
The interview typically takes place around four weeks after the exam and lasts about an hour. It will again assess your knowledge of childcare.
Resources are available in the ACECQA website
To prepare for the assessment, PMCs are encouraged to read the information provided in the links below:
- Australian Children’s Education & Care Quality Authority (ACECQA) (website)
- Education and Care Services National Law (WA) Act 2012 (the National Law)
- Education and Care Services National Regulations 2012 (WA) (the National Regulations)
- Guide to the National Quality Framework
- My Time, Our Place: Framework for School-Aged Care in Australia
- Belonging, Being and Becoming: Early Years Learning Framework for Australia
The National Law & Child Care Subsidy Approval Course is designed to help you understand your responsibilities as an approved provider/PMC. The course has 5 modules (detailed below) which are available to view on the ACECQA website via the ‘Opening a new service’ page.
Business Plan Requirements
A business plan must be submitted to ECRU, usually prior to sitting the exam. If an applicant does not currently own a business or has not yet started building a center, they should base their plan on their ideal center.
The business plan should include:
- Costings
- Financial projections
- Budget
- KPIs (Key Performance Indicators)
A business plan template is available on the ABB website under “Resources.” Additionally, advisors specializing in business plans are available for a fee. It is recommended that provider applicants start working on their business plan as soon as they submit their Provider application to ensure it is ready when requested.
A business plan will also be required by PRODA once a center is purchased or is about to open. The PRODA business plan should be an extension of the Provider business plan.
As a successful applicant once advised, “Study, study, and study.” Be very familiar with the Regulations and the Act.
The Provider certificate will arrive in the post.
See resources below:
- Applications and notifications forms
- Business Plan Template
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.
Step Seven – Conditions of Business Contract
Childcare Centres – Existing Childcare Providers
Once you have a Provider number, the next step is to transfer the existing Service Approval for the Centre being sold.
Finance must also be approved in writing by a finance provider before lodging the Transfer of Service Approval.
The transfer of service must be completed within 42 days from the receipt of a correct application by the Department of Communities.
If the buyer is purchasing the Centre under a new company, they will need to apply for a NEW provider number for that company. This may require completing the full Provider process mentioned above, including passing the exam.
CCS – Child Care Subsidy (Funding for Parents with Children in Childcare) – PRODA
If the buyer has a contract in place to purchase a business, has applied for and received their Provider number, they should immediately lodge their application for CCS funding upon receiving the Provider number. This application can take 42 days or longer.
If you are an existing childcare operator with a PRODA account and already receiving CCS funding, your new service/business must be added to your existing PRODA account.
Whether you are an existing operator or a new applicant, as the buyer of a childcare service, ensure this process is completed before settlement to avoid any disruption in CCS payments to parents. The form for PRODA should be lodged at the same time as the Transfer of Service, or earlier if possible.
For any questions, please contact the relevant Government department.
The Transfer of Service can only be lodged with a valid Provider number.
As of 2023, the fee for this process was $130.
Step Eight – Settlement
Settlement on a childcare business typically takes place on a Friday, as government funding is allocated from Monday to Friday. This usually occurs two weeks after the Transfer of Service becomes unconditional, as stated in the letter received from ECRU.
Please note that childcare centers are in high demand and difficult to acquire. Entering the industry may require flexibility from the buyer regarding both location and price.
If a center has been operational and profitable for more than two years, a buyer may be able to secure financing for 50% of the business price, or 60% to 70% of the combined business and property price if purchasing both simultaneously. Finance brokers who specialize in child care center financing can be found under the “Resources” section of the ABB website.
The price of childcare centers varies widely, ranging from $100,000 to over $4,000,000 for an individual center (excluding property), depending on factors such as net profit, location, size, and age.
Currently, individual child care businesses in the Perth metro area are selling for a multiple of 3 to 4.5 times net profit, including add-backs. Group sales can achieve multiples of 6 to 7 times net profit.
Regional locations, typically more than two hours from Perth CBD, generally sell for multiples of 2.5 to 3 times 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.
September 2024
