Why buying a franchise in the childcare sector could be a good business investment

By Sarah Stowe | 29 Oct 2015 View comments

Australia’s childcare industry is growing exponentially by the year.

Growth is projected to generate $9 billion in revenue for 2014-15 and an overall $495 million in profit, according to IBISWorld statistics.

The multi-billion dollar growth is at a rate of 9.2 percent per year.

The rise of enrolments suggests that the widepsread industry confidence could result in the creation of more small business opportunities.

This is great news for anyone considering investing in the childcare sector.

Here’s a breakdown of the enrolments nationwide:

–         New South Wales 32.2 percent

–         Queensland 24.2 percent

–         Victoria 23.3 percent

–         Western Australia 7.8 percent

–         South Australia 7.5 percent

–         Tasmania 2.2 percent

–         Australian Capital Territory 2 percent

–         Northern Territory 0.8 percent

So, by IBISWorld figures, it’s estimated that nearly 1.5 million children aged 12 and under are expected to attend some form of childcare service.

Government assistances such as the Child Care Rebate (CCR) and the Child Care Benefit (CCB) have contributed to industry growth over the past five years, while it has done well to improve parental confidence in investing in childcare services.

With more financial assistance and relief, comes more trust in the process and this sees enrolment numbers rise.

But some professionals in the industry beg to differ from the significance of government assistance.

Director of international operations at Sherpa Kids Dawn Engelbrecht spoke about how families aren’t always easily finding the right childcare services for their needs, while government facilities and services are continuing to minimise the autonomy of small businesses providing childcare services.

“Research shows that many families across Australia continue to struggle to arrange the right sort of care at the right price. Plus schools struggle to cater for their community and in some instance, government departments continually throw red tape to qualified providers that stop OSCH club opening schools, families and the children but we are tied down in tenders, lazy interviews, overzealous compliance that reflects non tangible services which should be tangible service. We are not desks and chairs,” Engelbrecht says.

Additional to government assistance, the rise in female labour participation has generated the high demand for childcare services, as households are requiring dual incomes to sustain the cost of living. Now parents – or a single parent – can’t afford to be stay-at-homers.

Engelbrecht believes that childcare is a people’s industry whose success heavily relies on the personalities they employ.

“Childcare is a people industry; hence personality is as important as business acumen. Our most successful partners not only have the drive and entrepreneurial spirit required to build a formidable franchise network, they also care about helping others achieve success.

The power of local franchisees

“While there are many regulations that we have to abide by and that is clearly of paramount importance,” Engelbrecht says.

Every small business has their own success story: some unique, some common. For the success of Sherpa Kids, employing locals plays a pivotal role.

Engelbrecht also talks about the necessity to employ experienced, knowledgeable people (like former or current teachers) because they're not only professionally equipped to run the business smoothly, but they’re also naturally good at working with children.

“Choosing local people as franchisees is part of our success story. We have demonstrated that locals – often current or ex-teachers or educators – take an interest in the business that is larger than the balance sheet. 

“We are, after all, working with children and families. Local franchisees are best placed to engage with local stakeholders, from the school principal to the fresh fruit merchant. Local franchisees empower the brand at a local level, where their customers live. They develop trust, which grows market share.

Engelbrecht noted that the widespread demand for childcare services in Australia has also inspired entrepreneurial types to consider entering the industry, and it’s these candidates that will find success as childcare franchisees.

“Evidence shows that good quality, affordable childcare services are like gold dust in many parts of the country, hence the childcare market in Australia is ripe with opportunity for franchisees who have good people management and leadership skills, strong business acumen and entrepreneurial flair,” Engelbrecht said.

Despite most industries catering for working parents – i.e. flexible start and finish times have evolved over the years – parents are still in a frantic, stressed rush to cater for their children in a reasonably priced space.

Price isn’t the sole concern for parents, though. There is also the fact that, say in an out-of-school-hours-care (OSHC) arena, principals and administrators are reluctant to implement childcare service strategies.

“Thousands of Australian parents are frantic for more outside school hours care (OSHC). More parents are employed, more parents are working longer hours, and city transport issues make the school-to work, work-to-school transition a stressful daily gamble.

“Where extended families exist, grandparents are often too far away to help with the care. Volunteer managed OSHC committees are quitting in the face of new regulatory reforms that increase quality expectations but also increase administrative burdens. And despite the pressure for places, many school principals are reluctant to open up facilities to faceless OSHC providers,” Engelbrecht says.

Childcare business opportunities

Commercial providers that are entering the market are typically chain-store models. And as chains typically expand – usually into hundreds of services – local focus is neglected and school communities are uneasy about high staff turnover and their children’s care becoming a commodity.

Engelbrecht outlins data she’s compiled in her position as director of international operations and her findings are interesting.

“Commonwealth reports show 100,000 more children in OSHC between 2004 and 2013 (from 225,000 to nearly 335,000). More than two-thirds of that growth (66,950) occurred after September 2010 and demand continues to outstrip supply in most areas. There is also ‘silent’ demand as parents cannot work when they cannot get appropriate care,” Engelbrecht says.

Neither the old small business model nor the big business model is flawless: it is not the answer to children’s childcare in Australia, perhaps even globally, too. Engelbrecht is very much in favour of the franchising model. For her it is the only way to foster strong business operations going forward for the childcare industry.

“Franchising, the Sherpa Kids way, puts a tested business model to the task of filling local and regional needs in a way that the sector can understand and support. This approach of independent local ownership, backed by strong central quality control and guidance, explains Sherpa Kids rapid early growth and high expectations for the future,” Engelbrecht says.

Debbie Pham, managing director of franchise chain Kids Korner, believes that the growth of the childcare centre has been hyped by the media, and this has contributed to the industry experiencing exponential growth.

“There is hype of childcare in the news and the need for a secure business that is considered as a stable and profitable business,” Pham says.

Pham says that the government could assist a little more with guidelines and standards: clear legislation, concise regulations and a high-standard benchmark are key in this sector. 

“Assisting businesses with legislation and regulations that promotes high standards but without the additional cost to the small business owners,” Pham says.

Pham is confident that businesses in the childcare sector have a bright future. But it's a tougher market for individual centres which will have to be careful with their compliance, understanding of costs and have a stringent, sound review strategy in place to remain competitive. That's where a franchised business has the edge.

“There are many compliance and hidden costs when setting up a childcare service, with the wrong advice this could be costly. This will result in smaller businesses having to update and review their business processes to keep in line with the high standards of the franchise centres,” Pham says.