Buying a nursery is not always plain sailing. What looks initially like a willing vendor may, in fact, be someone who is simply testing the market, so your time and effort could well be wasted. The owner may have an unrealistic idea of the value of their business, or a smiling staff team may mask a poor reputation.
There are around 200 nurseries for sale in the UK at any one time, ranging in price from 30,000 for a rented church hall to 2m for a large, profitable freehold business. There are a number of agents who you can approach (see our directory 'Nuts and bolts' on page 25), many of whom have experience in childcare or associated sectors, such as healthcare. Most of the sales agents will provide a list with just enough detail to whet your appetite.
Tailor to fit
Prior to starting the acquisition process, you should establish how much funding you are likely to have available. Have a look through the agent's lists to establish which nurseries might fit your funding criteria. Once you have arranged a visit, try to get hold of some information about the local competitors, so you can drive by on the same day and compare locations.
On your visit you need to look for evidence of a well-organised, clean operation, with policies and procedures in place. Beware of the well-run nursery that is wholly reliant on a dynamic owner-operator; when they leave the organisation could collapse. Instead, look for autonomous staff, good planning and efficient systems. Of course, you can always make changes after you have taken over the nursery, but parents and staff may be resistant to too much change too quickly.
In order to make a full assessment, you should request as much information as possible, including: three years' audited accounts (or if not available, management accounts), social services reports, OFSTED reports, the registration certificate, records of occupancy, salaries and all the standard marketing literature for the nursery. Most sales agents will have warned vendors this will be required. You may wish to involve an accountant to help you interpret the accounts.
Check out reputation
You will have to make your own enquires about the reputation of the nursery by asking other nursery operators, social services, local people and perhaps parents themselves. One purchaser always visits potential acquisitions by taxi because he gets so much local knowledge from the taxi driver. Remember to be very discreet; nursery owners do not usually tell staff and parents that they are selling in order to safeguard the business.
Once you are satisfied the nursery is worth buying you will make an offer based on a multiple of profits. You should have agreed parameters for making an offer with your lending sources, in advance. To get an idea of the current multiples applicable, see Chapter 4 of Starting a Nursery, published by Nursery World.
If your offer is accepted you will immediately need a solicitor and, if borrowing from a high street bank, you will also need an independent valuation. Taylors, Matthews & Goodman, FPD Savills and Pinders (see page 25) are among many valuers who have a good understanding of the childcare sector and are recognised by most lending institutions. Speak to your bank and ask who they will accept. It is usual for an independent valuation to be a reasonable match to the offer price.
Your solicitor will check the deeds if it is a freehold property, or the lease if it is rented. He or she will conduct local searches to ensure that nothing is planned that will adversely affect your premises. Do your own check of the local planning department to make sure that a 100-place purpose-built nursery is not due to open next door!
You should write up a full appraisal of the business in the form of a mini business plan, showing how the business has performed. This should include a SWOT analysis (strengths, weaknesses, opportunities and threats), information about local competitors, and projections that show the improvements you plan to bring to the business. This will be read by investors, and will help form your operational plan after the takeover.
Try to make sure that you don't pay too much for goodwill and then jeopardise that goodwill by making wholesale changes. You can still arrive at your dream nursery through the acquisition route, but be careful to make any changes slowly.
Case history
When Liz and Chris Stoker, from West Yorkshire, were looking for a nursery to buy, they were amazed to learn that the one their daughter attende was up for sale.
Registered for 64 places, the nursery is housed in a series of cottages built in the 1850s in the small town Brighouse. They had looked at seven or eight other nurseries at the beginning of the year, sent to them by agents Dowling Kerr but because they knew Bridgend House Nursery as parents, and were really happy with it, they decided this was the one for them.
'We were looking for freehold, because we wanted to have more control over the building, and this is 80 per cent freehold, 20 per cent freehold,' says Liz.
Liz and Chris, who both worked as managers in insurance companies before buying the nursery last month, have two daughters under two years old. They wanted to run the their own business and began considering nurseries because Chris's sister had looked at buying sector. 'Also, having young children of our own, they tend to dominate what we think about!' says Liz.
Although they had to provide a hefty deposit from family funds, a local independent financial advisor contacted different banks for them in the search for additional finance.
'This is worth every penny because he saved us lots of work,' says Liz. They compiled a file previous and projected trading accounts for the banks and manged to secure a loan.
With the loan agreed, their offer on a nursery was accepted in March. 'We could have completed in seven weeks but we went on holiday in May,'says Liz.
'Everything went to the solicitors, we contacted local children's services and were police checked.
The staff only found out the nursery was being sold a couple of days before we completed. It had been in the same hands for 13 years.
Fortunately the staff knew us, as we're not the sort of parents who just whisk their children away at the end of the day. We had always sat and talked when we'd picked up our daughter, so we already had quite a good relationship with three-quarters of the staff.
'They said, "Thank goodness it's you!" when they heard we were the new owners.'
Although they have a manager who deals with the day-to-day running of the nursery, Liz and Chris are now finding out how everything works. Chris will deal with the finance, books and office, while Liz plans to build up her relationship with the 25 staff.
She hopes to have their support when making any changes. 'I've taken a lot of feedback from them,' she says.
'The nursery has an excellent reputation, so it's a really good base to work from.'
The couple plan to introduce nine new after-school and holiday places, which will mean knocking down some of the walls in the cottages.
