Are you thinking about investing in childcare franchises? Are you working, or is your spouse working, or are you both working? Are you looking to maybe have a business option that your kids can also have their childcare taken care of? Today, we’re going to go through what the childcare franchises in the United States are all about, and if it’s an industry that you should further explore.
I don’t have to explain to fellow parents, childcare has been a major challenge for many people in this modern society where two people in the household oftentimes are working, balancing work, family responsibilities, even some leisure time. Where do you get that quality dot childcare, especially when you’re working Monday through Friday? So childcare franchises, most states, I should say every state, you must have licensed childcare services.
And depending on the state, California is going to be a lot stricter than other states to get that license, and that can delay the time that it’s going to take for you to open up your childcare franchise.
The industry’s booming as more households have both parents working. Then, there has been more flexibility in terms of remote work. But for any of those that lived through the COVID pandemic and worked from home while their kid was also studying, going to school virtually, it’s a very tough thing to juggle, and it’s best oftentimes that the child is out of the house for some period of the day.
There’s a lot of franchise brands in the space and big franchises that have been sold for millions of dollars, including Goddard Schools. I was looking back on some of the data from Goddard Schools, there’s been at least 10 franchises that have been funded through SBA that were sold to new Goddard School owners and being sold for anywhere from a few hundred thousand dollars to millions of dollars.
And they’re usually priced at a multiple of EBITDA or what the owner, if it’s an owner-operator, was earning from the business. So if you’re earning $400,000 from your childcare franchise and you’re working in the business day to day, you could expect to sell out for $1, $1.2 million. If you have a day-to-day manager in place, the multiple for EBITDA, what the earnings you would get, could be four times, or maybe even as high as five times if you have multiple preschools, multiple childcare franchises.
People are willing to pay for an established business, especially as a childcare business is generally a long-term play. Especially if you’re in the preschool space where, depending on the state, ground-up construction could take two years from the time you identify the sites, get the permits, get the staff, open doors. It could take two years to break even. Now, there’s other states like Texas where you can open up in a year and really break even faster and start making $10,000, $20,000 per month much faster than many of the states in the North East.
Now, if you’re looking to open up a childcare franchise preschool in New York City, for example, you’re probably going to do, not a ground-up construction, but converting an existing space, which isn’t going to take two years to convert, but it could take a full year until you start making money from your childcare franchise investment. So it’s really important to look at all the options and be really careful with your invested capital because a lot of these schools, especially the preschools, are going to be costly.
We’re talking, including the real estate, $4 million, $5 million to open up a preschool and also own the real estate. If you don’t want to own the real estate, it could be as low as 200K, 300K. But it’s most likely going to be around a million dollars if you’re looking to open up a preschool with 200 students, where, at 100 students, the financials don’t always make sense. But once you get to 200 students, it’s generally being run with economies of scale, and you can have a proper employment structure where you have 30, 40 employees with a great hierarchy and you’re able to attend to kids as early as 6 weeks up to 5 years old.
Now, going through a few options, you have Children’s Lighthouse Schools who have about 50 locations throughout the United States. It’s going to set you back, for Children’s Lighthouse Schools, $720,000 up to a million dollars. That does not include the real estate again. The franchise for sale rate over the past three years we have data for is 8%, which isn’t too high, and they haven’t had a failure in the past three years that we have data for.
They do disclose financials and for the information on the schools that they’re disclosing for, the 41 reporting schools of the 50 or so, they’re doing $1.6 million in revenue. And the average student enrollment’s 177. Again, that magic number is 200. Getting up to 200, you make more revenue obviously. But generally, the profit margins start to make a lot more sense as you approach 200 students. Of the 41 franchise locations of Children’s Lighthouse that were reporting, you had one school that was making $2.5 million, and then you had one school that was making $687,000. So, just barely getting by, or probably investing more money every month to maintain the operations.
The next one up is KLA Preschools, popular concept down where we are in Miami. You have about 20 locations, 6 of those are corporately owned and operated, the rest being franchise. Minimum investment at $1.2 million, all the way up to $6 million. That does include the land and all the costs associated with building the preschool, working capital, furnishings, etc. Then, how many people are getting out of KLA Schools? You’ve got a few that were sold in the past few years, and from the information that we have, no closures.
They break down the financials for KLA Schools into smaller schools and larger schools. I don’t really like that they have more than 10 franchise locations they choose not to report on the franchise locations, and they report on their affiliates. This is a classic example of an emerging franchise brand where they wanna put their best foot forward and show the successes of the owner of the franchise brand that also has some corporate locations that often time is performing a lot better from the other franchises.
For transparency purposes, at Vetted Biz, we’re all about unbiased data. I would love to have more emerging franchise concepts, not only a report on the financials from their corporately owned and managed locations, but also for their franchises. Even if they’ve just been operating 12 months, you still should show them. It helps build trust for your prospective franchisee.
Now, going back off that tangent. For the small locations, $1.3 million is standard for KLA Preschool. Then, for the larger format, you have average sales at $3.3 million, low $2.4, and then going up to $4.1 million. One KLA preschool down here in South Florida is doing $4.1 million, not bad.
Another preschool option with a smaller ticket size, Montessori Kids Universe, $419K up to $1 million. They have 15 or so locations principally in the State of Florida. The failure rate for this brand though is a little high at 20% over the past three years. Good to understand why those locations ceased to operate or they decided to not operate anymore under the Montessori Kids Universe brand.
Highest gross revenue store doing $1.3 million, lowest gross revenue, $140,000. You can imagine that at $140,000, they’re losing money. At $1.2 million, depending on how it’s operated, and especially if it’s owner-operated, it could provide a pretty good livelihood for the franchise owner.
Those are three franchise examples in the childcare space. On our website, Vetted Biz, we have many more franchise brands to explore in childcare and preschool. I encourage you to browse through franchise opportunities at www.vettedbiz.com.
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