Thinking of Buying a Childcare Center?
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The key to the profitability of the childcare industry is paying the employees modest wages. WELCOME TO AMERICA. In New Jersey, the director usually makes around $45,000 per year. The remainder of the employees is often paid a few dollars more than minimum wage.
While the industry may pay modest salaries, it does not charge decent prices. For example, if mom just had a baby and she wants to park the child at a childcare center for 11 hours a day while she goes to work or shopping, it will cost about $1,300 per month. You do the math. In New Jersey, the younger the children, the more staff required by law. Nonetheless, the more infants a center has, the more profitable it is.
In operating a childcare center, the two biggest expenses are payroll and rent. The goal is to keep payroll at around 45 to 50% of gross. A cost-conscious owner might be able to get the payroll down to 40% of gross. The industry standard for owner compensation is 20% to 25% of gross; owner compensation means seller discretionary earnings, or the total financial benefit that is accruing to the owner; i.e., salary, auto expense, cash glom, and other business expenses that are really personal in nature but are disguised in the tax returns as business expenses.
The bottom line is that if a child care center is grossing $1 million, the owner should be making between $200,000 and $250,000 per year. This means that the center probably has an enrollment of about 100 children.
In New Jersey, childcare centers are heavily regulated. The manual of regulations is about 120 pages. Nevertheless, they are highly profitable if run by a competent operator, and investors purchase many of the larger ones.
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