Episode 197: Is Expanding Your Child Care Center the Right Move for You?

In this podcast episode, Carrie and Kate discuss the complexities of expanding a childcare center. They cover the benefits of scaling up, the timing of enrollment spikes, and the importance of market demand, zoning, and financial considerations. The speakers highlight the need for thorough due diligence, such as understanding local market dynamics, checking licensing reports, and community perception. They also suggest consulting with a business broker experienced in the childcare sector.

Transcript

Marie (00:00:01) - Welcome to Child Care Conversations with Kate and Carrie.

Kate (00:00:05) - So it is one of those seasons as a child care center that you're like, okay, parents are calling, parents are interested. We're getting ready for summer. Carrie, I have more on my waitlist than I know what to do. What should I do?

Carrie (00:00:23) - I mean, you've got a couple choices. One, you can raise your prices and stay how you are. But what we're going to suggest is right now might be a good time to look at expanding, having a second location or a third or fourth or, you know, however many. and it could be that your current center is licensed for under 50 and you're like, okay, another center that's under 50, I can do that. And I'm going to say no, if you're buying another center

Kate (00:00:56) - Wait, wait wait wait, wait. First you're telling me to get another one, but now you're telling me it has to be bigger than the one I already have? Okay, so why?

Carrie (00:01:07) - Because you've proven that you can do this.

Carrie (00:01:11) - And all the mistakes you made getting to where you are now, you've learned from them and you're not going to make those mistakes again. You will find new and different mistakes to make. I'm not telling you you're not going to make mistakes, but you're ready for bigger and better things. And yes, having one center that's 42 kids and another center that's 65. That can be the amount of growth, like 20 more kids. You know how to do this, you can do it. And there is advantages to scale. If you have one school with 42 kids, you don't have enough classrooms to have a full time substitute on call. If you've got one center with 40 and one was 60, we've now got 100 kids. We might be able to have a substitute that we employ so that we always have one.

Kate (00:02:06) - My favorite part about having more than one center is it makes sense to have a director who's not in the classroom, possibly even an assistant director or somebody to help you with human resources components.

Kate (00:02:21) - And it gets even more exciting when we get 3 or 4 centers, because you don't need more administrative staff, because this is where that whole you've done it once, right? Like you just said, we you know, you do it once and you've figured out how to train the staff, how to hire the staff. You've already you're using the same employee handbooks, you're using the same parent handbooks, probably using the same marketing materials. Ish. But, I think this is a great opportunity to even start to talk a little bit about a couple of components. If you're an on site owner or an on site director, and you have an awesome reputation with your school, then acquiring another program and giving it your brand and your curriculum, this is an awesome opportunity. You get more out of it. Kind of like a subway.

Carrie (00:03:18) - Well, yeah. And you can also have slightly different cultures at different schools. So I had four schools. I started with one, I got to four, and each one had a little bit of a different culture, so that it was easier for when somebody came to tour the program.

Carrie (00:03:36) - I could put them in the right type of program, and I lost fewer enrollments because I'd be like, you know what? I think you'd be a great, family for my school on West Avenue or Rio Grande or, you know, whatever different locations you can plug staff and parents into, one that is a better cultural fit. Had the same handbook, same marketing, all of that. But each school just gets its own little culture. But I think we've gotten maybe ahead of the person who's listening. So let's rein it back in and go, okay, if you were if you're terrified of what Kate and I were talking about, or going, no way, no thank you, let's just scroll it back a little bit and talk about why we think now might be a good time to expand to a larger location or a second location. So why is the spring or incipient summer? Because it's already we're already getting some summer heats. But why is this a time of year? And in this year, why is that an opportunity? Why is that something we're talking about?

Kate (00:04:55) - Well, I think there's two things.

Kate (00:04:57) - One, we always know that families. Transition generally in May, September and January. Right? Somewhere in those months, families are automatically transitioning because it's summertime or it's back to school or it's a new year. So when you start to think about that, we know that we also have all these folks who had been working remotely, working from home since 2020. More and more businesses are going, yeah, you've had your remote time. Yeah. You've had your work from home time. It's time to come back to work. So we're seeing an increase in folks who are having to go back to work. At the same time, we have programs all over the country that they're tired, they're exhausted, they've got awesome assets, great location. They just they're tired, they're ready to retire. And Covid was enough for them to go, okay, I think I'm done well.

Carrie (00:05:57) - And a lot of people held on while the Covid money was still rolling in and now they're like, cool, now it's time for me to sell my school.

Carrie (00:06:08) - I was planning on selling it in 2020. Then this thing happened and they've held on. And so we have a lot more childcare programs that are on the market today than we had two years ago then. We even had six months ago.

Kate (00:06:25) - Well, and definitely had yeah, definitely had in 2019. So definitely more than five years ago.

Carrie (00:06:31) - and we call this a buyer's market. So when there are more people selling than there is a natural demand. So the natural demand, there's always some demand for people to buy a child care center or any cash flowing business. You know, there's always a demand for people to buy a job or buy a business that cash flows. And child care is a business that is always going to be needed. There is always a need for child care. Yes, there is some downward pressure on childcare centers because we've got school districts taking early childhood as well. But according to the state law, they have to partner with existing childcare centers. We know that's not happening as much as it should, but that's what the law says.

Kate (00:07:25) - Okay. So, you know, you brought up a good point about it's a buyer's market. And we've got, you know, I don't want to say an excess of programs available because that's not actually the case. But we have a lot of people who have been in business for a long time who are choosing now to retire. But I think one thing that's really, really important, and you and I can definitely we could spend all day on this conversation. But, if you're thinking about expanding, buying another program, we want to give you some real life things to think about. And things to look at. So just because a building is or was a child care center doesn't necessarily mean that it's still a great location. So this is an opportunity for you to think like McDonald's or like subway. because it could be that you need to be a completely across town like subway did. Or maybe it's like McDonald's, which is just an expert in buying real estate. So you need to look at a variety of things.

Kate (00:08:31) - Carrie, based on personal experience, what would be something that you would immediately tell somebody to take a look at before they even remotely think about buying what might be an underperforming school, or picking up a location that had been but isn't currently operating as a school.

Carrie (00:08:52) - So has there been a major change in big employers? So did a nearby hospital close down or repurpose? Did a large manufacturing plant disappear? Did they was there a software development company and they were all in person and now there are 70% remote. Look at the large employers in the area if there's been a change. And that's part of why there has been some lackluster enrollment, then that's probably not the one to pick up. Another thing that you is a green light is if you go and you look there and it's looking a little kind of rundown, because if it looks a little rundown, you know how to use a paintbrush, you know how to cut shrubs, you know how to put plants in planters, you can put in new flooring.

Carrie (00:09:55) - And if you just do those little things and there's still a good market, there's. Good employers nearby. There's plenty of families who have the right age children. Then. Yeah, take that building that needs some lipstick and put some lipstick on that girl. Go clean it up.

Kate (00:10:13) - Absolutely. And make sure she smells good inside. So you got to get rid of the carpet. Get rid of the carpet?

Carrie (00:10:18) - yeah.

Carrie (00:10:20) - That's the first thing you do. And then you can paint the outside, get rid of all existing carpet. Yeah. Immediately. And then re tile the bathrooms. These are the first two things I would do from a smell perspective.

Kate (00:10:34) - Yeah. Don't don't don't even waste your time on trying to steam clean. Okay. So with that though, one of the things that I think is also really important because we just talked about looking at maybe programs are a little bigger than you currently are. So, again, before you commit, research, any fire code changes, building code changes, find out if where you are, if by any chance, that's going to no longer be in your zoning process.

Kate (00:11:08) - Carrie's worked with a program that, again, there had been a child care center in that building, but the community changed its planning and zoning, and all of a sudden that was no longer zoned for child care. Yep. Together we worked on a program that it had been licensed for over 100 originally, but it had been grandfathered. So when the license changed, we were no longer grandfathered. So then it required that linked smoke detector system. So, make sure you really, you know, we're we're telling you from experience. Yeah. painful experience. We're telling you from experience. and we're talking also about when you're buying programs. and I think we've got an episode on this somewhere. But one of the things that we, I'm sure would tell you also is really be clear what the assets are that you're buying. So we're going to tell you, or at least I'm going to tell you buy the building. if you if they're just wanting to sell you the business on a lease. Carrie, what are some things that maybe they need to make sure they're looking at? If they're buying a building on a lease.

Kate (00:12:14) - Smoke in.

Carrie (00:12:15) - The bear. Okay, so if they if you are buying a business that is in a leased building, you need to have an assignment of the lease and it needs to be executed by the landlord before you give anybody any money. you need to make sure that you can get it insured before you give anybody any money. check the zoning. We're talking about this. You know, right now, because of a program we're working with where a conditional use permit, which is what's called a C permit in the biz. so it wasn't in the normal zoning for that neighborhood. And so you can have a conditional use permit. Well, if you buy that business, you have to get a new C permit because it's a new business from a legal perspective. So back to that zoning thing. Right. so make any money to the seller contingent on if you're leasing the lease option, being executed by the landlord, and whether you're buying or leasing, make sure that the zoning matches the the use.

Kate (00:13:36) - Absolutely. And, and and with that lease piece, another thing to look at is how long is the lease. How long is the, the the the note to buy the business. So if the note to buy the business is going to be five years and you can only get a lease for two, what what happens if that business isn't around for two, you know, past two years. So, ask those hard questions. if numbers look too good to be true, like, they give you accounting and they're telling you this is what they want for the business, and you're trying to figure out if they're making all this money. Why do they want out? ask those questions. Be real honest. Be real blunt. if you don't already have an accountant, an insurance agent, a lawyer, somebody who has experience in real estate as far as like leases and negotiating leases. So again, it could be your realtor, it could be a leasing agent. it could be somebody who's on your side, for lack of a better term.

Kate (00:14:44) - so make sure that you have that team together as you start to expand. And this is a business that's not going anywhere. No one's getting rid of the industry. It's not going to be all collected by school districts and state agencies. CS. So figure out what your unique selling proposition, your USP, your niche, your thing and do it well and do it better than anybody else. And and don't try to be everything to everybody.

Carrie (00:15:14) - Absolutely. And when you're buying, if you're buying a business that is already up and running, if you are a, French immersion Montessori program, do not buy a program that is a nature based preschool. Those aren't going to go together. You need to buy programs that have some similar values, or else you're going to just be buying the equipment. And if you're just buying the equipment, you should not pay the price for buying a business. You would instead pay the price for buying the equipment. If all you want is the building and the equipment, do not pay.

Carrie (00:15:58) - Buying a business prices?

Kate (00:16:00) - Absolutely, absolutely. And if you're not really sure, again, reach out to carrier. I would be happy to help you with that. But even better, next week or the week after, sometime in the next couple of weeks, we actually have a guest who's going to be joining us who has done this exact thing, but a variety of programs all across the the state. And they're going to talk. She's going to share with us kind of some pluses, some minuses, how to know when perhaps maybe that purchase wasn't the best purchase. And we're really excited to have her on. So Carrie we've planted the seeds. What are two things we would suggest they do if they're going, okay, maybe I might do that. When is a good time and why might now be a good time? Or what do they have to do before they, they they do do that.

Carrie (00:16:51) - So I would say that the spring is pretty much the best time because you have a big enrollment surge at the beginning of the summer and another big enrollment surge at the beginning of the school year.

Carrie (00:17:04) - So this is a great time to look at buying a program. so if you can't do it this summer or this spring, maybe planned for next spring, because this is the perfect time, in my opinion, to buy a program. So of course we're going to say what we always say, which is look at your finances before you go to do this and then talk to a business broker. You don't have to use a business broker. We have a couple that we really like. If you want a referral, reach out. We'll be happy to give you one, but at least have a conversation with a business broker so they can tell you what our child care center is currently selling for. Is it one times earnings? Is it two times earnings one time one times the gross profit two times gross profit. Net profit. There is a mathematical calculation that is primarily what is happening in your market right now. And you need to know what it is, because if you don't, somebody's going to tell you, yes, you need to pay five times my gross receipts to buy this business.

Carrie (00:18:18) - And I will tell you, no, you don't, but I'm not going to tell you I don't know what the current math is in your market. So talk to that business broker to find out what is a reasonable way to price the business.

Kate (00:18:32) - Well, and not only that, make sure you have a business broker who's in your market who's in this industry. So because business brokers who only have maybe a couple of childcare centers ever, but are used to doing other traditional businesses may not again have the best math and it will change whether or not you're in a, a massive major metro, a middle sized metro, a rural community. it's going to, you know, how many programs are in the area? also, you know, you need to do that homework, too. You need to know what the market is in your area. Is there is there an expansion need, and is there a, you know, what are all the reasons why that program is it just they're tired and ready to sell, but they've got a profitable program, but they're, you know, retirement age or is there an underlying issue.

Kate (00:19:29) - So do your due diligence, check their licensing report, check their equivalent of yelp's Google reviews, Facebook reviews, check the community feel for that program. and we're really excited to see you grow because now is a perfect time for you to go add school to if you're just getting started or school 3 or 4, because you absolutely can do this.

Carrie (00:19:55) - We'll talk to you next week if you got something from this episode. Please share the show with your friends and go in and comment on your favorite podcast listening app.

Marie (00:20:07) - Thank you for listening to Child Care Conversations with Kate and Carrie. Want to learn more? Check out our website at Texasdirector.org and if you've learned anything today, leave us a comment below and share the show.