While there are a number of business sectors under enormous financial pressure such as retail business and the construction sector, with many of those businesses failing to survive post the pandemic, the Early Learning sector continues to thrive due to the governments subsidies and the need for early learning centres in metropolitan, rural regional areas and the growth corridors areas surrounding most capital cities.

Some statistics to note

Australia’s Child Care sector operates under a government supported subsidy model, with around 1.4 million children 12 years and under at some form of government-approved or government-funded childcare service in 2024-25—many of which are not for-profit entities. Nearly 80% of childcare providers operate only one childcare facility, with the sector generating around $21.8bn in 2024. There are 11,471 businesses in the Child Care sector, which has grown at Compound Annual Growth Rate (CAGR) of 6.2 % between 2019 and 2024.

Government funding

In Australia, the government provides several funding schemes to support childcare operators, primarily aimed at making childcare more affordable and accessible for families. Key funding options include:

Child Care Subsidy (CCS): This is the primary form of financial support for families, helping to reduce out-of-pocket childcare costs based on family income, the type of care used, and the age of the child. The subsidy is means-tested, so the amount decreases as family income increases and for the 2023-2024 financial year:

• Families with a combined income of up to AUD $80,000 can receive up to 90% of the childcare fees covered.
• For incomes between AUD $80,000 and AUD $530,000, the subsidy gradually decreases and families with a combined income above AUD$530,000 are generally not eligible.

Hours of Care:
The amount of subsidised care is capped based on the number of hours a parent works, studies, or volunteers.

Type of Care:
Different types of childcare services (long day care, family daycare, in-home care, etc.) have varying limits on what the subsidy can cover

Annual Cap:
There is an annual cap on the total amount of subsidy a family can receive, which varies based on the family’s situation.

Additional Child Care Subsidy (ACCS):
Available for families facing financial hardship, including those receiving certain government payments, as well as for vulnerable children, including those at risk of abuse or neglect.

Capital Grants:
The government sometimes offers grants to establish or expand childcare services in underserved communities and in rural and regional areas.

The biggest operators in the sector

The three largest childcare operators in Australia are G8 Education, Goodstart Early Learning and Affinity. Additionally, there are a number of other childcare franchisors with a lower footprint. Here is a snapshot of each of these operators and their costs.

Goodstart Early Learning

Goodstart has around 660 centres around Australia and is a not-for-profit entity, with its related Community Kids brand offering affordable childcare services.
The initial investment costs include:

• Franchise Fee: Typically ranges from AUD $50,000 to AUD $100,000.
• Real Estate and Construction Costs: Depending on the location and size of the centre, costs can range from AUD $200,000 to AUD $1.5 million which includes the cost of purchasing or leasing land, building construction, interior fit-out, and outdoor play areas.
• Equipment and Supplies: Furniture, learning materials, toys, kitchen equipment, and office supplies range from AUD $50,000 to AUD $200,000.
• Marketing and Launch Costs: Range from AUD $10,000 to AUD $50,000.
• Royalty Fees: 5-7% of gross revenue.
• Marketing Fees: 2-3% of gross revenue to promote the branding.

G8 Education

G8 has over 400 centres across the country. The cost to set up a G8 Education franchise can vary depending on several factors, including the location and size of the centre. The final amount could land between AUD $500,000 to AUD$ 1.5 million which includes:

• Initial Franchise Fee: AUD $50,000 to AUD $100,000, depending on the location and size of the centre.
• Property and Fit-Out Costs: Meet G8 Education’s standards, and purchasing furniture, fixtures, and equipment from AUD $300,000 to AUD $800,000.
• Training and Staff Recruitment: Training and recruiting qualified personnel range from AUD $50,000 to AUD $100,000.
• Licensing and Regulatory Compliance: Franchisees must ensure their centres comply with local regulations and licensing requirements, which may involve additional costs for inspections, certifications, and permits.
• Marketing and Initial Advertising: Marketing and promotional activities ranges from AUD $20,000 to AUD $50,000.

Working Capital

For any franchisee they need funds for initial working capital to cover operating expenses, such as salaries, utilities, and supplies, until the centre becomes profitable which can range from AUD $50,000 to AUD $200,000

Franchise preconditions

Most Franchisors will have minimum requirement for prospective franchisees to meet to qualify, such as:

• Experience and Background: While previous experience in early childhood education or childcare is not mandatory, it is a benefit together with experience in working with children, and a background in business management or leadership.
• Financial Capacity: Financial capability to invest in and operate a franchise including sufficient working capital to cover the initial investment and ongoing operating expenses.
• Compliance with Regulations: Franchisees must be able to comply with all local, state, and federal regulations including necessary licenses, permits, and certifications, as well as adhering to health and safety standards.
• Training and Development: Undergo extensive training programs to ensure they are fully prepared to operate a childcare centre.
• Community Involvement: Community engagement and expects franchisees to actively participate in their local communities, building relationships with parents, local businesses, and organisations to promote the centre and enhance its reputation.
• Adherence to the Education Model: Franchisees must operate their centres according to the model, which includes following the company’s curriculum, policies, and procedures.
• Ethical Business Practices: Conduct their business with integrity and transparency. This includes maintaining open communication with the franchisor, staff, parents, and the community.

Revenue Streams

The primary source of revenue for ELCs comes from fees paid by parents and government subsidies, extra-curricular programs, and other services such as after-school care.

Profit Margins

Profit margins in the sector vary, but franchisees should expect to achieve profit margins ranging from 10% to 20%, depending on the centre’s performance and efficiency.

Return on Investment (ROI):

The return on investment for typically means recouping the initial investment within 3 to 5 years but will depend on factors such as location, enrolment rates, and the franchisee’s ability to manage the business effectively.

Renewal Fees

These vary significantly depending on the franchisor’s policies and range from a few thousand to tens of thousands of dollars and are usually a flat fee but can also be based on a percentage of revenue. Some franchisors also tie renewal fees to the franchisee’s performance, potentially offering discounts for strong performance as an incentive to renew the franchise.

Terms

The franchise term is usually 5 to 10 years, and fees may vary based on the length of the renewal with an additional option for a similar period.

Long-Term Growth Potential Sales Multiples

Franchisees who are part of a well-established brand with strong market presence will build capital growth to then sell their business.

In Australia, childcare centres typically sell for EBITDA multiples ranging from 4 to 7 times EBITDA, dependent on a variety of factors such as:

1. Location: Centres in high-demand urban areas may fetch higher multiples.
2. Size and Capacity: Larger centres with greater enrolment can command better valuations.
3. Reputation and Quality: Well-established centres with a strong reputation often attract higher multiples.
4. Growth Potential: Centres with strong financial performance and growth prospects may see higher valuations.
5. Market Conditions: Economic trends and the demand for childcare services can impact multiples.

Other Operators

There are a number of other highly successful privately owned centres operating around Australia such as Affinity Education Group with around 240 centres across Australia, under various brands such as Milestones, Papilio, Kids Academy, and Aussie Kindies, Busy Bees which operates approximately 144 centres largely in Sydney, Melbourne, Brisbane and Perth and Kool Kidz with around 16 centres. There are also a growing number of overseas entities entering the market such as Kinderland from Singapore, Little Learners UK and MindChamps Australia offering their own unique educational programmes.

Summary

This is an overview of the early learning sector in Australia. There is no substitute for seeking specialist Legal and financial advice whether establishing a new Franchise or taking up a franchise opportunity. They are both substantial investments.

Sanicki Lawyers

Sanicki Lawyers have acted for Franchisors both local and overseas for over 35 years and as member of the Franchise Council of Australia (FCA) and the International Franchise Lawyers Association (IFLA ) can assist you to ensure the successful roll out of your franchise. We have a network of allied consultants that can also assist with demographics, site location and compliance.
Contact: Robert Toth | Special Counsel | Accredited Commercial Law and Franchise Specialist | [email protected] | mobile – 0412 67 37 57