The Kumon franchise opportunity allows you to run an after-school center that provides math and reading programs using the Kumon Method of learning (“Kumon Center”). Children are given the opportunity to attend Kumon Centers twice each week throughout the year for approximately 20 to 30 minutes per subject and complete daily assignments at home on non-Center days.
In 1954, Toru Kumon developed the Kumon Method in Japan. Mr. Kumon was a Japanese high school math teacher who created a supplemental math program for his son, who was getting marks at or near 100% in second-grade math. As a result of Mr. Kumon’s method, his son reached calculus by the sixth grade. Over the ensuing decades, this became an international business. Mr. Tanabe was appointed President and CEO of Kumon North America on its Board of Directors in October 2013. In 2022, he also became CEO of Kumon South America.
The Japan regional headquarters has initiated businesses in various countries similar to the type being offered in the U.S since 1958. Kumon in the United States has offered franchises since 1994 but is actually celebrating its 40th anniversary in 2023,2023,2023, so was operating before 1994 in other capacities. There are over 4 million students studying the Kumon Method in approximately 25,000 after-school Centers in 58 countries. In North America, there were approximately 405,000 students studying it.
Children’s Programs are typically activities and programs children can participate in after school or during the summer. These programs are popular for parents who both work full-time and would want their children to develop hobbies or extracurricular activities. Furthermore, schools are now looking for well-rounded students who not only excel in school but also are involved in other activities.
Many Children’s Programs businesses overlap with Children’s Education Programs, especially because some of the sub-sectors, like tutoring, are also after-school activities. However, many businesses in the Children’s Programs industry focus on non-academics. They involve physical activity, like sports, swimming, or outdoor play. Another popular type of program uses the creative arts, teaching kids music, dance, or other types of performance. These programs are a step above what is available in schools, but more cost-effective for parents compared to private lessons.
On the one hand, Kumon North America appears to be a very successful franchisor. It has been ranked in the top ten of the overall Entrepreneur Magazine Franchise 500 List. 2021 is also the 20th year in a row that Kumon has been named the No. 1 tutoring franchise in the Franchise 500 List’s tutoring category. Kumon ranks as the No. 1 tutoring franchise for its performance in areas including unit growth, financial strength and stability, and brand power. However, as we will see, the perspective from the franchisee side is not equivalent.
The estimated total investment necessary to begin the operation of a Kumon Franchise ranges from $67,428 – $145,640. The following costs are part of the upfront costs included in the initial investment for a Kumon. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy a Kumon franchise in 2022.
|Type of expediture||Amount||Whom To Pay|
|Training Agreement Deposit Fee||$1,000||Kumon|
|Initial Franchise Fee||$2,000 less the $1,000 Deposit Fee if you are obtaining your first Kumon Center franchise||Kumon|
|Initial Purchase of Materials||$1,000||Kumon|
|Architect Design||$0 – $10,000||Architect|
|Leasehold Improvements||$30,000 – $60,000||Contractor|
|Security Deposit, If Required||$0 – $15,000||Landlord|
|Rent||$1,000 – $4,000||Landlord|
|Furniture, Equipment, Primary Sign & Supplies||$5,000 – $15,000||Vendors|
|Notebook Computer at Kumon Center||$500 – $2,000||Vendors|
|Professional Fees||$1,000 – $3,000||Accountant, Lawyer|
|Liability Insurance||$480 ($4.80 multiplied by the number of students enrolled in the Math Subject)||Kumon or Insurance Agent|
|Business License, Name Registration||$100 – $200||Local Municipality, State|
|Kumon Lead Management Telephone System||$480 – $600||Kumon’s Vendor|
|Recommended Reading List||$2,600||Vendors|
|Fingerprinting, Criminal Background Check||$18 – $60||Treasury of the United States|
|Payroll Cost for Assistants (3 months)||$9,750 – $11,700||Assistants|
|Additional Funds – 3 Months||$13,500 – $18,000||Vendors, Utilities|
|Total||$67,428 – $145,640|
However, based on conversations with Kumon franchisees, we estimate that additional funds are almost double that listed at $27,000 – $36,000. This drives the initial cost estimate to $80,928 – $163,640, which is a higher cost.
Actual startup costs can even be in the $200,000 – $300,000 range depending on the build-out and when you finally break even.
The franchisor is particularly looking for candidates who have a passion for education and working with children. Also needed are a four-year college degree and the ability to create and manage a Kumon center that will motivate and help children in your community. That said, the minimum net worth required to own a Kumon franchise is $150,000 and the applicant must have liquid assets of at least $70,000.
Royalty: Kumon has a complicated system, which we detail below.
Initial Enrollment Royalty Fee: For each reporting month, $15 times the number of newly enrolled students. Monthly Royalty During Temporary License Period (“TLP”): $38.25 times the number of full-payment students enrolled, and $19.13 times the number of partially exempt and/or prorated tuition students for each SubjectFranchise. In July 2023, these fees will increase to $40.50 and $20.25, respectively. Monthly Royalty after completing the TLP: $34 times the number of full-paying students enrolled, and $17 times the number of partially exempt and/or prorated tuition students for each SubjectFranchise. In July 2023, these fees will increase to $36.00 and $18.00, respectively.
The royalty fee ends up being around $34 – $38 with nearly all subjects having a fee of $38. This, at the end of the day, amounts to a royalty fee of 30% of gross revenues if the current average tuition of about $130-140 per subject per month is being charged. This fee is prohibitively high and one of the highest we have seen in franchising.
Note: Some franchisees charge over $200 per month and thus bring their effective royalty down to a somewhat more reasonable figure. However, it is rare that franchisees effective royalties are under 25% of gross.
Marketing Fee: Kumon says in its FDD that there’s no marketing or advertising fee. However, rules are rapidly changing, and the franchisee we interviewed said that new franchisees are now required to pay for digital advertising. They are expected to pay at least $300 per month either through an outside marketing agency or through their own initiatives.
Local Marketing: Kumon franchisees are required by the FDD to aggressively promote their franchises in every way possible, including locally. During the first two years of COVID-19, opportunities were limited but now there is more pressure to find a number of different local marketing approaches in addition to digital marketing, though there is no specific dollar amount attached.
|Year Franchised Center Opened||Total Count of Centers as of December 31,2021||Average/Median Number of Enrollments After 12 Reporting Months For Centers Opened in Year Indicated||Count (%) of Centers with Enrollments Equal To or Above the Average After 12 Reporting Months For Centers Opened in Year Indicated||Average/Median Number of Enrollments After 12 Reporting Months For Bottom 25% of Performing Centers by Year Opened (Count of Centers in this Category)||Average/Median Number of Enrollments After 12 Reporting Months For Top 25% of Performing Centers by Year Opened (Count of Centers in this Category)|
|2020||58||76/68||26 (45%)||31 (14) / 29 (14)||135 (14) / 128 (14)|
|2019||56||76/67||23 (41%)||32 (14) / 31 (14)||137 (14) / 129 (14)|
|2018||31||83/78||13 (42%)||46 (7) / 47 (7)||129 (7) / 126 (7)|
As you can see, with an average profit margin of 7.5%, it takes a really long time of 12.75 years to break even on your initial investment. This is much longer than other franchises in the industry and shows up in other ways that we will discuss below.
Kumon Centers during 2020 saw a revenue decrease of 27% and we can assume that this sharp decrease was due to the spread of COVID-19 and the fact that many indoor facilities such as education centers were unable to open and operate as normal. The move to online education will be a trend that will need to be analyzed further as to how it will affect Kumon Centers.
This is just estimated sales based on the franchisor’s income statement and can vary greatly depending on the length that the particular franchise location has been open and how well the business is run.
New Kumon owners put in anywhere from 40 to 80 hours per week on average into working on their franchises. Most of this work would be priced at a very low hourly wage. However, many franchisees stay in the system motivated by the unique benefit of Kumon to the students they support.
Additionally, Kumon operates centers that cannibalize existing centers. For example, Kumon opened a corporately owned location a short distance away from a franchisee who is among the most successful Kumon owners in the USA. Immediately students began to transfer to the new center.
To assign a valuation multiple for Kumon franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.
Under $1 Million Net Sales
When you go to sell a Kumon Center franchise based on the median multiple of .46 and net sales in 2021 of $260,629 it would sell for $119,885. This represents a significant loss when allotting for your time to build up the business and break even (sweat equity).
It is difficult to make the money back from owning a Kumon franchise, which means your initial investment, which could be as high as $300,000, could become a sunk investment. We recommend looking at a Kumon resale instead of a new location.
|Asking Price:||$80,000||Cash Flow:||$38,215|
|EBITDA:||N/A||Rent:||$1,650 per Month|
|Harris County, TX|
|Asking Price:||$185,000||Cash Flow:||$57,274|
|EBITDA:||N/A||Rent:||$4,100 per Month|
|For The Years Ended December 31,|
|Franchise fees and royalties||$122,600,511||$112,544,197||$143,051,079|
|Sales of publications and supplies||2,017,877||2,463,833||2,633,814|
|Tuition and related fees – company owned centers||4,516,634||4,924,279||6,473,750|
|Costs and operating expenses|
|Cost of revenues||28,962,035||28,399,227||30,382,808|
|Selling, general and administrative expenses||75,970,463||77,475,231||87,289,278|
|Total costs and operating expenses||104,932,498||105,874,458||117,672,086|
|Income from operations||26,099,098||15,874,458||36,716,356|
|Other income (loss)|
|Interest income, net of interest expense of $105, $372 and $269, respectively||180,078||452,459||940,606|
|Other income, net||595,240||989,879||1,011,934|
|Total other income||775,318||1,442,338||1,952,540|
|Income before provision for income taxes||26,874,416||17,268,633||38,668,896|
|Provision for income taxes, net of refunds||7,219,470||4,571,462||11,112,200|
Kumon is a very profitable business for the franchisor, with retained earnings of $19.65 million in 2021. Compared to $27.55 million in 2020, they saw a decrease of around $8 million. This was probably due to COVID, and the recovery is clear when you compare 2020s figure of $12 million to 2021’s figure of over $19 million.
|Outlet type||Year||Outlets at the Start of the Year||Outlets at the End of the Year||Net Change|
Over the last three years, the company has been in expansion. Both franchising units and company-operated stores have increased. Over the last three years, franchises have opened at a rate of 53 units a year. This is an indicator that these locations are performing well. Clearly, the confidence in the franchisor is still strong even after COVID.
Kumon’s business model in 2022 is still based on the idea from the 1950s that Japanese housewives in the post-war years were happy just to work and produce value even if they were not getting much in return. However in the U.S., Kumon centers are exclusively run in retail locations with rents at least in the $3,000 – $5,000 range but which in at least one case is as high as $15,000.
Owners normally need to give six months of notice before they leave the system (except in the months before the royalty is increased, when the notice is only 60 days).
If you want to explore more options in the schooling and daycare space, here are some recommendations you can look at:
The total investment necessary to begin the operation of a Kiddie Academy Franchise is $417,000 – $1,039,000 for a leased Kiddie Academy franchised location, and $3,722,000 – $4,530,000 for a purchased Kiddie Academy franchised location. This includes between $65,000 and $145,000 in Initial Fees that must be paid to the franchisor or an affiliate.
Royalties are 7% of Gross Revenues. Brand Building Fund Contribution is 2% of Gross Revenues among the major ongoing costs of running a Kiddie Academy Franchise.
In 2021, the median gross revenue for Kiddie Academy franchises was $1,543,161.
Over the last three years, the company has been expanding. While they have had only 1 company-operated unit, franchising units have increased. Over the last three years, franchises have opened at a rate of 24 units a year.
2. The Goddard School is an early childhood education provider with more than 500 franchised Schools in 37 states and hundreds of markets, including the Atlanta, Boston, Chicago, Houston, New York City, Philadelphia, Portland, and St. Louis markets. Goddard Systems, Inc. (GSI) franchises The Goddard School from its headquarters in King of Prussia, Pennsylvania.
If you lease the school facility and the landlord constructs the improvements, the total investment necessary to begin the operation of The Goddard School franchise is from $818,300 to $1,090,100 for a school and from $390,650 to $670,950 for an associated satellite school. This includes $259,000 to $283,000 that must be paid to the franchisor or affiliate for a school and $61,250 to $67,750 for an associated satellite school. If you purchase the land and build the school facility, the total investment necessary to begin the operation of The Goddard School franchise is from $3,844,300 to $7,360,100 for a school and from $3,416,650 to $6,940,950 for an associated satellite school. This includes $259,000 to $283,000 that must be paid to the franchisor or affiliate for a school and $61,250 to $67,750 for an associated satellite school.
Royalty Fee for a Goddard School Franchise is 7% of Gross Receipts of the School. If you are an existing franchisee purchasing an additional (new) franchise for a reduced initial license fee, the royalty fee is reduced during the first year of operation of the new School to 2% of Gross Receipts for months 1-3, 4% for months 4-6, and 6% for months 7-12. The Marketing Fund Marketing Fee is 4% of Gross Receipts, including the Gross Receipts derived from any Satellite Location or Annex, per month.
The Median Revenue for a Goddard School Franchise in 2021 was $1,669,054 while the EBITDA was $321,938.
Over the last three years, the company has been expanding. While they have no company-operated units, franchising units have increased. Over the last three years, franchises have opened at a rate of 30 units a year.
3. The Learning Experience is a childcare business that claims to provide a “curriculum that develops the whole child.”
The total investment necessary to begin the operation of a Center is between $589,419 and $5,225,419 per Center, depending on whether you purchase an existing Center, develop your own Center, or retain the franchisor to develop your Center (excluding the purchase of land). This includes payments that must be paid to the franchisor or affiliate that range from $525,000 to $2,625,000 (if you purchase an existing Center), $162,399 to $212,399 (if you develop your own Center), and $267,399 to $384,899 (if the franchisor develops the Center for you). If you sign a Multiple Franchise Center (MFC) Addendum to develop franchised Centers, then your total expenses will range from $2,295,676 to $20,839,676.
Royalties are 7% of the Center’s Gross Revenue, which includes all revenue related to the Center and the Brand Awareness Fund is, currently, 1% of Gross Revenue. However, the franchisor has the right to increase the minimum payment up to 2.5% of Gross Revenue.
The median gross sales for a mature Center in 2021 were $1,419,992.
Over the last three years, the company has been expanding. Both company-owned and franchised units have increased. Over the last three years, franchises have opened at a rate of 26 units a year. Company-owned units also increased from 23 in 2019 to 34 in 2021.
The preschooling and school business in the USA is big, and Kumon offers a chunk of it. However, there are a few red flags in the system. We very strongly recommend talking to at least 5 franchise owners before starting a Kumon franchise and recommend resales over starting one from zero.
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