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What is Kumon? Franchise Opportunity For 2022

Written by: Brooks Gammill
Last Updated: December 6, 2021
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Kumon Franchise

The Kumon franchise will operate 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 20–30 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 and created a supplemental math program for his son, who was struggling with second grade math. Mr. Kumon’s method was so successful that his son reached calculus by the sixth grade. This then turned into an international business and Mr. Tanabe was appointed President and became a member of Kumon’s Board of Directors in October 2013.

The Japan regional headquarters has conducted a business similar to the type being offered in the U.S since 1958. Kumon in the United States has offered franchises since 1994. Predecessors offered Kumon franchises from March 1983 to January 1994. 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. There are 27 company-owned Kumon Centers, and 1,568 franchised Kumon Centers.

Kumon Center Franchise Accolades:

Kumon North America 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 number one tutoring franchise for its outstanding performance in areas including unit growth, financial strength and stability, and brand power. John Collins, Vice President of Center Network Development at Kumon North America, Inc. spoked with Entrprenuer.com “To be ranked in the top ten of Entrepreneur Magazine’s Franchise 500 List for the first time and recognized as the number one tutoring franchise for the 20th year in a row is a testament to Kumon’s commitment to both our franchisees and students across North America.”

How Much a Kumon Franchise Costs?

Kumon Franchise Fee

Kumon franchise fee is $1,000 for your first Kumon Center franchise. This is the upfront fee that must be paid when opening a Kumon franchise.

Kumon Franchise Cost

The estimated total investment necessary to begin operation of an Kumon Franchise ranges from $64,458 – $139,890

Additional Kumon Franchise Cost Breakdown

The following costs are part of the upfront costs included in the initial investment. Many of these are one-time fees that are needed to launch the franchise.

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Additional Cost Breakdown

Training Agreement Deposit Fee$1,000
Initial Purchase of Materials $1,000
Architect Design $0 – $10,000
Leasehold Improvements$30,000 – $60,000
Security Deposit, If Required$0 – $15,000
Rent$1,000 – 4,000
Furniture, Equipment, Primary Sign & Supplies $4,430 – $12,130
Notebook Computer at Kumon Center $500 – $2,000
Professional Fees$1,000 – $3,000
Liability Insurance $480
Business License, Name Registration $100 – $200
Kumon Lead Management Telephone System$480 – $600
Recommended Reading List$2,600
Fingerprinting, Criminal Background Check $18 – $60
Payroll Cost for Assistants (3 months)$7,350 – $8,820
Additional Funds – 3 Months $13,500 – $18,000
Total $64,458 – $139,890

The biggest expenses in the additional costs section is leasehold improvements and costs related to rent and construction which vary greatly from $31,000 – $89,000. Depending on the location and pre-existing structure that is being purchased you could see your expenditure being on the lower or higher end of this spectrum. It is important to talk to other franchisees and see what their costs were for leasehold improvements and construction.

This article’s primary source is the 2021 Kumon Franchise Disclosure Document (FDD). You can purchase it and have full access to all the data by clicking here

 

Ideal Kumon Franchise Candidate

 The franchisor is particularly looking for candidates who have a passion for education and working with children. Also needed is 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.

 

Kumon On-Going Cost and Fees:

Royalty Structure:

$15 x the # of new students

$34 x the # of full paying students

$17 x the # of partially paying students

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How Much Do Franchise Owners Make?

Kumon Franchise Sales Figures

Kumon does not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets. If you are purchasing an existing Kumon Center, the company may provide you with the actual records of that Kumon Center.

However, using the Franchisor income statement we can deduce from look at the income statement line item “Franchise Revenue”

2019 Sales Figures and Break Even Point:

Based on 1507 franchise units

Royalty Fee: Average of $22 per student for royalty fee, and each student on average pays $150 per subject per month. Therefore this is approximately a 14% royalty.

In 2019 Kumon franchise revenues were $143,000,000

Estimated Total Franchise Sales: $1.02 Billion

Estimated Average Franchise Revenue: $678,000

1- Based on a midpoint investment of $102,174 with estimated profits of $67,778 (10% profit margin) it would take about 2.5 years to recoup your investment.

2- Based on a midpoint investment of $102,174 with estimated profits of $101,668 (15% profit margin) it would take about 2 years to recoup your initial Kumon franchise investment.

3- Based on a midpoint investment of $102,174 with estimated profits of $135,557 (20% profit margin) it would take about 1.75 years to recoup your investment.

2020 Sales Figures and Break Even Point:

Based on 1547 franchise units

Royalty Fee: Average of $22 per student for royalty fee, and each student on average pays $150 per subject per month. Therefore this is approximately a 14% royalty.

In 2020 franchise revenues were $112,500,000

Estimated Total Franchise Sales: $803,500,000

Estimated Average Franchise Revenue: $519,000

1- Based on a midpoint investment of $102,174 with estimated profits of $51,943 (10% profit margin) it would take about 3 years to recoup your initial Kumon franchise investment.

2- Based on a midpoint investment of $102,174 with estimated profits of $77,915 (15% profit margin) it would take about 2.3 years to recoup your initial Kumon franchise investment.

3- Based on a midpoint investment of $102,174 with estimated profits of $103,887 (20% profit margin) it would take about 2 years to recoup your initial Kumon franchise investment.

As seen in both 2019 and 2020 based on our estimates of franchise revenues, it takes less than 3 years to make your initial investment back even at just a 10% profit margin. This is an indicator of an efficient business model that has a quick return on capital.

Kumon Centers during 2020 saw a revenue decrease of 27% and we can conclude 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 and how it will affect Kumon Centers.

This is just an 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.

 

Is owning a Kumon Franchise profit worth the investment?

As seen in the sales figures above, it takes a short time to recoup your investment if you own one singular Kumon franchise. The tutoring franchise industry has an average profit margin of 8.1%, so based on 2020 Kumon Center sales it would take a little over 3 years to recoup your investment. Kumon franchise centers have been ranked the number one tutoring franchise for the last 20 years so investing in the best in the industry would be a good investment especially with its widespread brand recognition.

How much can you sell a Kumon Franchise or other education tutoring centers for?

To assign a valuation multiple for Kumon Center 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 like Anytime Fitness where more transaction data is available.

Under $1 Million Net Sales

  • Estimated Selling Price = Net Sales * 0.46

$1 Million – $5 Million Net Sales

  • Estimated Selling Price = Net Sales * 0.78

When you go to sell a Kumon Center franchise based on the median multiple of .46 and net sales in 2020 of $519,000 it would sell for $238,740. This is over double than the midpoint investment of $102,174.

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Kumon North America Franchisor Income Statement

Consolidated Statements of Income For The Years Ended December 31, 2020, 2019 and 2018

 202020192018

Revenues

   
Franchise fees and royalties$112,544,197$143,051,079$137,880,384
Sales of publications and supplies2,463,8332,633,8142,583,860
Tuition and related fees – company owned centers4,924,2796,472,7508,180,090
Other Revenue1,768,4442,230,7991,782,175

Total Revenues

121,700,753154,388,442150,426,509

Costs and operating expenses

   
Cost of revenues28,399,22730,382,80831,792,069
Selling, general and administrative expenses77,475,23187,289,27883,683,484
Total costs and operating expenses105,874,458117,672,086115,475,553

Income from operations

15,826,29536,716,35634,950,956

Other income (loss)

   
Interest income, net of interest expense of $372, $269 and $9,574, respectively452,459940,606749,152
Other income (loss), net989,8791,011,934(84,635)
Other income, net1,442,3381,952,540664,517
Income before provision for income taxes17,268,63338,668,89635,615,473
Provision for income taxes, net of refunds4,571,46211,112,2008,661,852

NET INCOME

$12,697,171$27,556,696$26,953,621

Kumon North America Franchisor Cash Flow Statement

 202020192018
Cash flows from operating activities:   
Net income$12,697,171$27,556,696$29,953,621
Adjustments to reconcile net income to net cash provided by operating activities   
Depreciation and amortization3,300,3493,090,4353,118,038
Provision for doubtful accounts(185,893)73,645101,203
Deferred income taxes2,367,806(66,235)(82,916)
Deferred rent obligation(1,433,510)699,666(44,655)
Amortization of operating leases3,953,300
Loss on sale of property and equipment(8,634)(74,084)91,514
Decrease (increase) on cash surrender value of life insurance policies(760,447)(835,973)365,669
Changes in assets and liabilities:   
Accounts receivable2,764,904(444,401)(1,191,944)
Inventory(1,802,184)(293,352)(738,328)
Worksheet development costs(646,818)(550,585)(367,998)
Due from parent company and affiliates929,051(509,330)(24,391)
Prepaid expenses and other current asses1,708,566(1,744,646)655,522
Other assets57,466140,053(63,489)
Accounts payable(2,617,404)1,529,478941,004
Due to parent company and other affiliates160,152(132,494)453,829
Accrued expenses and other current liabilities(3,349,785)418,123901,790
Pension liability263,303172,334275,827
Other long-term liabilities(3,349,190)159,8111,367,234
Operating lease liabilities631,483

Net cash provided by operating activities

 14,661,68629,189,14132,711,530
Cash flows from investing activities   
Net sale of investments3,017,33910,093,8802,463,798
Proceeds upon maturity of investments3,731,060
Payments for software and software development costs(26,595)(193,938)(49,164)
Acquisitions of property and equipment(7,663,666)(5,662,935)(10,171,347)
Proceeds from sale of property and equipment145,054308,551160,432
Benefits paid for company-owned life insurance(137,869)(96,794)(38,411)

Net cash provided by (used in) investing activities

(934,677)4,448,764(7,634,692)

Cash used in financing activities

   
Payment of dividends(27,000,000)(26,000,000)(26,000,000)
Effect of exchange rate change on cash and cash equivalents(1,476,900)552,419(451,589)
Net increase (decrease) in cash and cash equivalents(14,749,891)8,190,324(1,374,751)
Cash and cash equivalents – beginning37,884,46229,694,13831,068,889
CASH AND CASH EQUIVALENTS – ENDING$23,134,571$37,884,462$29,694,138

Kumon Franchisor Cash Flow Statement Key Insights

In 2020, Kumon North America had a net income of $12.7 million and their cash, cash equivalents and restricted cash was $23.1 million a decrease of 63.6%from the cash at the start of the year which was $37.8 million. This decrease in cash is seen in the cash flow from operations as accounts payable was ($2.6) million and other long long-term liabilities was ($3.3) million compared to the prior year where these numbers were $1.5  million and $160,000. These factors contributed to net cash provided by operating activities to be $14.6 million in 2020 compared to $29.1 million in 2019. Even though Kumon saw a decrease in cash flow, the company still has a cushion of $23.1 million in cash and since in person learning is back underway Kumon hopefully should see their revenues and profits return to 2019 levels and then grow from there.

How many Kumon Centers have opened and closed?

Outlet Summary

Outlet typeYearOutlets at the Start of the YearOutlets at the End of the YearNet Change
Franchised201814901507+17
201915071547+40
202015471568+21
Company-Owned20182623-3
20192321-2
20202127+6
Total Outlets201815161530+14
201915301568+38
202015681595+27

The rate of franchise growth has been steady over the past three years with an average of 26 centers added annually. Kumon Centers have been around since 1994 in the U.S. so the company is mature and growing at a normal rate not exponentially since they have been in business for 27 years.

kumon

Should you invest in a Kumon Franchise?

The Kumon Franchise offers a great opportunity to start a fulfilling business and join a well-respected company that has proven results year after year. Even though Kumon has held the top spot for tutoring companies for the past 20 years, there will be competition from educational services offered on the internet, tutoring centers, learning centers, and other centers. Some franchises that Kumon competes with are Club Z!, Mathnasium, and Tutoring Club.

The total investment needed to start a Kumon franchise ranges from $64,458 – $139,890 and in just a couple years you can have a return on your investment and begin profiting. Umon has a business model that has been proven since its inception in the 1950’s and will continue to thrive as educational needs rise.

We strongly recommend you speak to at least 5 Kumon franchisees to better understand the financials (see questions to ask).

Think Kumon is the right franchise for you, or are you interested in other franchise opportunities in the Tutoring industry? Check out our listings page on the Vetted Biz website for thousands of franchises available for your investment.

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