Few people would look at their local childcare centre as a business in the same sense they would a retailer or financial services company. But, at the end of the day, childcare is a business just like any other.
With Australia’s birth rate set to increase by 6.4 per cent over the five years to 2019-20, along with higher maternal workforce participation rates, childcare is fast becoming vital. Projections back this up. Research house IBIS World reports that the childcare industry is set to surge by more than 34 per cent over the next few years.
There are many factors contributing to the growth of the childcare industry in Australia: continued government support through subsidies, higher fees and enrolment numbers, and both families with higher disposable incomes and those who need two incomes to make ends meet. This growth has been so rapid real estate consultancy Colliers International now considers childcare an investment grade asset.
Although the macroeconomic conditions paint a bright future for the industry, it’s worth considering the importance of regularly reviewing the figures at a centre-level, to uncover areas where you can improve the financial performance and the underlying operations of your centre.
A good starting point is your centre’s gross revenue. The issue here is determining whether your centre’s fees are at the optimum point; too high or low and you encounter poor cash flow, reduced profitability and a diminished ability to draw from the business.
This simple financial health check can be surprisingly powerful in revealing underlying problems with your centre. For instance, attracting new families to enrol their children in your centre will be made easier by better staff provision and facilities. However, a centre makeover or modernisation is often funded by an increase in fees. It’s a bit of a chicken and egg situation. Do you increase fees before you invest and risk parents enrolling their children elsewhere? Or do you invest first and hope the changes justify the increased fees?
Low subscription, and even low fees, can also cause staffing issues. There are always plenty of staffing challenges in childcare anyway, due to high turnover, low morale, and lack of progression opportunities. A lack of profitability can deepen these issues by stunting wage growth and making recruitment more difficult. Building an effective team is arguably more important in childcare than in any other business or industry. Childcare centres build value through relationships. This inevitably translates to higher gross revenue, profitability and value. Therefore it may be that investment in staffing is more critical than in facilities.
In my experience as a business owner, investing in your staff, educational systems and physical environment will no doubt place you in good stead to be charging fees at a point that will contribute to consistent profitability and value. No doubt it’s easier said than done. However, a good network of advisors and financiers goes a long way to ensuring you’re getting the most out of your centre and securing its value in the long term.
Peter Khalil is the founder of Perris Knightsbridge Chartered Accountants. He is passionate about small business clients, especially those in childcare.Do you have an idea for a story?
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