Things to consider when investing in a preschool franchise

Top questions you should ask your franchisor

If you’re passionate about education and keen to start a business, you may be considering a preschool franchise. Compared with other possible franchises, preschool franchises seem particularly enticing as they are in an industry with positive social impact and purpose, while also being recession-proof and having evergreen demand. But as with all investments, it is worthwhile nonetheless to think carefully and choose the right franchisor to work with.

Here are several points to consider before deciding if a particular preschool franchise is the right investment for you.

 

1) How much capital is needed to start a preschool?

As preschools are subject to governmental regulation in many countries including Singapore, you don’t have free rein to decide how or where to set up your new preschool. There are rules and restrictions to abide by in order to get the government license to operate, and these include a minimum space per child, minimum staffing for your school per child, minimum size of indoor or outdoor playgrounds, amongst others. In the Singapore context, we estimate that a franchisee will need around $500,000 or more in capital, depending on factors such as the location and size of the centre (since rental expenses scale according to location and size).

Make sure your investment budget covers items like the initial franchise fee, the rental deposit, the cost of obtaining government approvals, the cost of renovation/fit-out, as well as working capital for staff salaries, rental expenses and other operational needs in the initial months prior to your school hitting the monthly operational breakeven point.

But wait a minute, did you hear from somewhere that you can set up a preschool for $300,000 or less? Well, this is where caveat emptor applies. You need to be careful with what is said or not said – hidden costs can adversely affect your overall ROI and investment case, so it helps to clarify with the franchisor exactly what is included or not included in the investment budget!

 

2) Where is a good location for the preschool? Can I pay the franchise fee only when the space is found?

There are many factors that affect whether a new preschool can succeed in a given location. These factors include the population demographics and number of competing schools in the vicinity, the rental rates offered, the differentiated curricular offering you are providing, the price you are charging, etc. Our belief is that it is wise to first conduct a holistic market study before you decide which location has the best chance of succeeding for you! Here’s a tip – do ask your franchisor if they are able to provide a site survey report for you to assess the chance of success before you agree to take on the location!

While common wisdom may point towards rapidly growing suburbs like Punggol, the reality is that there are almost no commercial spaces available in decent locations there. (We know because we have been looking there ourselves for quite a while!) With many available locations there being in properties owned by HDB and therefore subject to a tendering process, it is extremely difficult for a new franchisee to win a tender without the direct intervention of your franchisor.

In other areas in Singapore, it will ultimately depend on market forces and the state of the property market. E.g. how keen the landlord is to have a preschool or childcare centre within the premise, how flexible landlords can be for the rental rates, etc. We generally find that rental rates above $6 psf (per square foot) for preschools tend not to present a very compelling investment case for the franchisee, so it is wise to do your sums!

Next, be aware that some franchisors may reassure you that it is easy to find a space so as to seal the deal and collect franchise fees. The true litmus test is whether the franchisor is willing to delay your payment of the full franchise fees until a suitable space is found. There are potential risks for you otherwise – e.g. you may end up with a sub-optimal space that was hastily found just to “close the case”, or perhaps wind up having your capital “stuck” for a long while without earning anything due to no suitable location.

At Mulberry Learning, we believe that it is fair for our franchisees to only pay us the full franchise fee upon a suitable space being secured. This approach helps ensure better alignment between both parties!

 

3) How easy is it to get and retain good teachers?

Teachers are a key resource pillar for your future school, and our studies have shown that finding high quality teachers is one of the easiest ways to grow a school’s enrollment and word-of-mouth referral engine among parents. The fact is, however, that there is much competition out there for the best teachers, both from government-linked preschools like MOE Kindergarten, as well as private sector operators.

It would be useful for you to ask your franchisor how they can aid you in the hiring process to ensure that you get access to the best teachers. You can ask if they can directly help you advertise for positions, conduct interviews, provide salary benchmarking, or centralized HR management services like payroll management and staff engagement/retention initiatives.

For Mulberry Learning, we provide all of the above services under our standard franchise package, and it is one reason why our franchisees find it much easier to own a preschool with us.

 

4) What support is provided by the franchisor, and does the franchisor help absorb any costs?

Many franchisors are able to provide the normal franchise support items such as staff training, operations manuals, site setup and marketing advice, etc. But if you happen to be someone who is keen on owning a business but not too keen to quit your day job, nor do you fancy having to handle daily issues like teachers going on sudden MC or disease outbreaks, do ask your franchisor if they can help you manage the centre as well.

From what we know, not too many franchisors are too keen on this operational management model, as it restricts their ability to quickly offer as many franchises at the same time. However, franchisors who are willing to do so are usually more aligned with you in ensuring that quality is maintained and that your school will succeed, since they will need to properly find a good location for you, commit their own internal resources to help you grow the school, or be accountable otherwise!

Also, if you are lucky, you may also come across some franchisors willing to help grow your centre without charging you a cent! For example, Mulberry Learning does not charge franchisees a cent for

any nationwide branding ads or Open House campaigns! In fact, there is also a centralized HQ Admissions team that helps franchisee centres follow up on every single lead generated, so as to maximize enrollment conversion!

 

Summary

Investing in a preschool franchise is a potentially rewarding endeavour but it does have risks if you do not choose wisely! Let us know via the form below if you are keen on a private consultation on this investment opportunity to grow your nest egg while achieving a sense of fulfilment and purpose!

 

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