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Buying a nursery school

The information herein is of a general nature and you should not act or refrain from acting on it without professional advice

Buying a nursery school is more than just taking the premises, it is a specialised business and the success of the venture depends on knowing what you are buying and paying the right price. Not only will you be taking on leases, staff, contracts and suppliers as with other businesses, but in addition, there are some specialist matters to consider.

We at Sykes Anderson Perry Limited are able to guide you through this process and assist you at every step. Below are some of the points that you will need to consider.

1. Once you have found a target nursery, how will you finance the purchase? Nursery schools have good cash flow as parents usually pay in advance. However, make sure there are no problem parents who are poor payers or who are on special rates. There may be a good reason for this, for instance if there are siblings at the school, but you need to be aware of this.

2. Do parents pay monthly or quarterly? Is there a deposit so that if they miss a month you have money on account for the missing fees?

3. What scope is there for increasing the fees or increasing the number of children in the school? These are the only two ways you have to increase the turnover. The number of children you can take will be regulated and you will need to see what scope there is for doing this. Is there enough space to expand it?

4. You should check the contract the parents sign with the school. What notice do they have to give to take children out of the school? When can you increase fees? Is this annually? What obligations are there on the school such as providing meals? Are you obliged to provide any special catering?

5. Assess the nursery by carrying out a “due diligence exercise”. Does the nursery have high staff turnover, low occupancy or is it not very profitable? Staff will be key and some will need to have relevant qualifications. You need to check their qualifications are genuine and also that key staff will not leave shortly after you take over. Will you be involved in managing the school on a day to day basis or need a headmistress to run it?

6. What are the arrangements for the current staff? Review their contracts of employment and investigate whether there are any grievances or disputes that you need to be aware of. Consider whether any staff could leave and set up in competition to you. Check their contracts of employment carefully.

7. Is there a waiting list for the school? If so do parents pay a deposit to be put on the waiting list and is this money held in a separate account? If the seller has used this money it needs to be deducted from the sale price as you will have to account for it to the parents.

8. Are there any problem parents whom you want the existing owner to deal with before you buy? These could be parents who are poor payers or who do not collect their child on time or who constantly complain. There may also be an issue with parents who will only pay the fees in cash. It is best the child of any “problem” parents leaves the school before you take over?

9. How are you planning to structure the deal? Are you buying the entire issued share capital of the company which runs the business, or just the business itself? Buying the shares means you are buying all liabilities of the company, which means additional due diligence may need to be carried out. If you buy the business, more time may need to be spent drafting and negotiating contracts with suppliers and other third parties.

10. What are the arrangements for the premises? Unless you are purchasing a freehold property, an assignment of the lease of the property will form part of the purchase process, which will require consent from the landlord. Check the lease for the rent review frequency, service charges, repairing obligations and other key terms you need to be aware of. Consider holding a sum of money in an escrow account to cover works which need to be carried out to the property.

11. Nurseries are regulated by OFSTED and you will need to go through the registration process in order for the nursery to operate once you become the owner. This process is very thorough and can take up to 26 weeks to complete. Your business will not be permitted to operate until registration is complete and so it is important that you are proactive and fully prepared for the registration process.

12. Review the history of the target nursery. Are there any previous complaints, serious accidents or any unsatisfactory OFSTED report that you need further information about?

13. Consider having a confidentiality agreement in place. The seller will be keen on this as leaks about selling could result in parents moving children out of the school.

14. Review the school’s insurance. Have there been any claims for injury to children or other? Will you be able to renew the insurance going forward?

15. Carry out a health and safety check. If any equipment is dangerous you need to factor in the cost of replacing it.

For more information or if you would like to discuss anything, please do not hesitate to contact me.

David Anderson