How much is worth a preschool? (Part 2)

Preschool is not a business that will make you rich overnight. But if you work on building a community a step at the time, the cumulative effects of that effort will snowball over time.
Preschools are constantly evolving. In the earlier times they were meant to provide standard education to children, without much attention to issues such as disabilities or different learning method. But with time, modern preschools fine-tuned and customised the learning approach to address everyone’s needs.
Especially through multiple available curricula such as Montessori (proudly Italian), Reggio Emilia (the city where I was born) and Waldorf, parents are now able to pick and choose the learning style for their precious children.
As a business, a preschool can include extra-curricular activities. Some of them could be catered to children only, while others involves parents. For as naive as it could have sounded 10 years ago, some preschools are already offering yoga and dance lessons that involve both the parents and the children.
Arts are by far the simplest extra-curricular activities to implement in order to further build community and generate additional income for the school.
Moreover, a significant trend is the segmentation of the learning angles. For instance, some parents might be more inclined to send their children to schools that hold religion as a solid value to be transferred rather than suppressed.
This could be seen as a market approach to access different profiles, similarly to those banks that are hybridly offering traditional banking as core business, yet integrate the offering with Islamic banking.
When it boils down to the business valuation of preschools and schools, it is certainly hard to get an accurate value given that Covid-19 has influenced the way that these entities are allowed to operate. The standard operating procedures and the restrictions put in place might end up eating quite a bit of revenues.
For instance, maximising the space between students equals to fewer children in each classroom.
Adding layers of health safety such as multiple temperature screening throughout the day might require additional staff.
All together, less revenues and more costs.
On the flip side of the coin, schools have been stocking up technology over the past decade or so, therefore when authorities require schools to close down in order to reduce chances of Covid spread, parents will continue paying fees — although sometimes reduced — and children will learn from home.
In this colu million I do not want to enter in the debate on the efficacy of remote learning, as I am just analysing preschools as a long term business opportunity, one that indeed will be around for a while, but is undergoing tremendous rethinking, innovation and structural changes.
According to my friend Bharat Kanodia, who helped me with this research, the 3 pillars on which it is important to invest are:
n Academic qualification, social reputation and work ethic of staff
n Anticipating cash-flow with advanced payment of fees by offering discount for long-term enrolment
n State-of-the-art facilities, technology and learning material
If you are considering buying an existing preschool, aim for those counting larger amount of students, especially when the real estate is owned by the business. It will cost much more, but will make the investment more valuable in the long run.

 

STEFANO VIRGILLI
stefano@virgilli.com