Buy Vs. Build A Childcare Centre

A tree in the middle of a green field.

Childcare Businesses or Zoned Commercial Property or Both

ZONING
I recommend that you develop a clear understanding of what zoning means and how to get the proper zoning for your Childcare business and/or property. You can call the Municipality and speak to the Zoning Department for information, or see http://en.wikipedia.org/wiki/Zoning

IN SHORT: Whether you decide to build or purchase your new Childcare Centre, the zoning will need to meet the "use" your business falls under. Each zoned property has a list of types of businesses that are allowed on the premises and those types of businesses that are not allowed. Just because the existing zoning is Commercial doesn't mean your Childcare use will meet the Zoning By-law. Should the zoning of the property not meet the "use" of your Childcare business, you will need to apply to the Municipality to have the property re-zoned to accommodate your Childcare use. There are costs that you will incur, and there is no guarantee the re-zoning will be granted.

Purchasing

Business Plan

Whether you are borrowing from a lender or not, you should have an approved Business Plan. (Email me for a Recommended Accountant who will develop a Business Plan at an inexpensive cost). The Business Plan acts like a road map for the success of your business. It describes how you will make and spend your money and shows how you will pay your debtors. The Business Plan will show your business on paper and can act like a budget for Income and Expense spending.

Existing Property and Business

Subject to your finances and your ability to borrow from a Lender, the preference is to purchase a property with a Childcare business operating in it, thereby bypassing the need to re-zone a property. The fact that the Childcare business is already meeting the Ministry of Education's criteria and the property meets the Municipality's criteria gives you a much smoother transition into your own business. Given the Childcare business is in operation, it would come equipped with employees, registered children, materials, equipment, furniture, etc.

Existing Business in Leased Premises

The second choice, and least expensive, would be to purchase an existing Childcare business on leased premises. Again; the business would already meet the criteria of the Ministry of Education and the Municipality; given the business is in operation, it would come equipped with employees, registered children, materials, equipment, furniture, toys, etc.

General Childcare Facts

  • 20 to 25 new Childcare Centres get listed for sale every year in Ontario. Fewer since the Covid Pandemic
  • Maybe one or possibly two Childcare Centres will become available for sale in the general area you desire in any 3-year period
A large room with red lockers and white walls.

Leasing Space for Childcare Renovation

  • Zoned Childcare space is rare and hard to find in Ontario, and zoning is very specific. Very few commercial spaces have the zoning required for Childcare. If you did find space available, it would have to meet your criteria of size and location.
  • Tenant needs to enter into a Lease with a Landlord.
  • The landlord has to agree to give you green space for a playground area.
  • The tenant needs to hire an Architect to provide an architectural floor plan, which needs to be approved after you have applied for your Ministry License. Cost $2,000 - $5,000.
  • The tenant would need to renovate that space and playground area to meet the guidelines and criteria of the Ministry of Education. (The landlord may cooperate by paying for some of the renovations or doing some of the renovations for you and adding the costs to your monthly rent.)
  • The tenant needs to hire a Contractor/Renovator to do the renovation. The cost to do so would be in the $150 - $200 per square foot range. A 3,000 sq ft centre would cost a minimum of $450,000 to renovate into an approved childcare centre.
  • The tenant needs to attend the space/location every day to make sure the Contractor/Renovator shows up to do the work and do the work correctly.
  • The construction period will likely be about 3 – 6 months.
  • While the construction is in process, the Tenant would have to apply for a NEW Ministry License.
  • The Ministry License could take up to 12 months to be approved.
  • The centre will need furniture, equipment, Playground equipment, materials, and toys at a cost of $50,000 - $100,000.
  • The tenant can begin advertising, marketing, and branding their Childcare business.
  • Tenants can pre-register for the date your centre is licensed; however, you cannot accept any money/funds for pre-registration until you actually have the Ministry License.
  • Tenants can have up to 5 children in childcare until you receive your Ministry License. You can also provide other temporary services as a way to introduce your centre to the community by hosting children's birthday parties, tutoring services, and any other child-friendly service the space can support.

Benefits of Purchasing a Childcare Business

  • The Childcare centre already exists and meets the criteria of the Ministry of Education and is licensed for "X" number of children.
  • Providing the sale is a Share Sale, the Sale can transfer in 30 - 60 days, and therefore, the Buyer can begin registering children once the sale closes.
  • The Buyer generally receives a reasonable 5-year lease with a 5-year option.
  • The sale of the Childcare centre includes all the furniture, equipment, playground equipment, materials, and toys.
  • Buyer may want to do small repairs and/or painting of the centre.
  • The Childcare Centre is known and has a history and goodwill in the community.
  • The Buyer would get the existing phone number that is known in the community.
  • The Childcare centre may be local to where you live for an easy winter commute.
A parking lot with a basketball hoop in the middle of it.

What You Shouldn't Do?

You shouldn't buy a property to have re-zoned for the purpose of renovating the building into a Childcare business for the following reasons.

  • 1 You should buy the property conditional upon re-zoning. However, a Seller is not likely to consider your Offer due to the fact that he would have to wait for possibly up to a year, depending on the Municipality, before you could finally get an answer as to whether they will allow the re-zoning of the property for your Childcare business. Essentially, the Seller's property is off the market while you try to re-zone it, and it is not likely the Seller would agree to those terms.
  • 2 Should you be able to find a location and a Seller cooperating with you to get it re-zoned for a Childcare business, you could pay a fee. Depending on the town/city, to have the Committee of Adjustments even consider your proposal to change the zoning to accommodate Childcare Use and the money is usually non-refundable. There is no guarantee that the re-zoning will be approved, in other words. Likely would be a waste of time, money, and effort.
  • 3 See above Leasing Space for Childcare Renovation (See point 6).
  • 4 Once finished, the Advisor from the Ministry of Education would have to come to the new premises and qualify the centre to make sure it meets all their criteria.
  • 5 Once licensed, you are now open for business, and you will realize that you don't have any children (income) to pay the expenses of the Childcare business. Check your Business Plan to determine the amount of money you need to pay for all your expenses to break even every month. Figure that you will need enough registered children to pay your employee wages, mortgage/lease, utilities, food, etc.
  • 6 At this stage, you have invested up to $450,000 plus HST to build your Childcare centre, thousands on lawyers to close the transaction for you, and more thousands to your accountant to help you manage your money and pay your expenses. You will also lose money every month you are open for business until you get to break even. Those losses could be up to $15,000 per month. All as mentioned, and you haven't collected a pay cheque yet.
  • 7 It could take 6 - 12 months of pre-marketing and advertising the Childcare centre in order to attract enough families just to break even.
  • 8 Lastly, you can't start paying yourself until your Childcare centre starts making a profit. This can take 6-12 months before you can draw a paycheck for yourself.
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How to Purchase Your New Childcare Centre?

  • 1 By buying an existing Childcare business, be it a property or leased premises, you are immediately in business upon the closing date. The Childcare business already has the employees and the registered children in place, and presumably, the Childcare centre is at break-even or making a profit. The Childcare centre meets all the criteria of the Ministry of Education and the Municipality. Also, you should be able to collect a pay cheque right away.
  • 2 As the new Owner, you are the stranger in the business. My advice is to take the first 3 months of ownership and carefully observe your new business. Don't make any changes. Take notes on employee behaviour, rules and policies of the centre, ways to improve the centre, parent's comments, etc. This will help you develop a feel for your new business. After the prescribed period of time, begin to make minor changes so as not to upset your employees or parents, and tweak the business model to make it your own.
  • 3 Suppose you have questions about the operation of the Childcare centre or in dealing with the employees or parents apart from the Ministry of Education. You can also visit various websites to do with your business, like The Association of Daycare Operators (ADCO) at http://www.adco-o.on.ca/ or for Montessori Operators, go to Canadian Council of Montessori Administrators: "CCMA" at http://www.ccma.ca/ There are plenty of other sources on the Internet that you can find answers to questions. Also, join in seminars and educational programs offered by various groups. Get involved in your business, and the benefits will be aplenty,
  • 4 You can also hire a Childcare Consultant to help navigate the journey of preparing and licensing your centre.
  • 5 I will help direct you, and you will have easy access to me by phone or e-mail.

Steps to Starting a Licensed Childcare Program

  • Determine whether you want to start a new licensed Childcare program from scratch, or whether you'd prefer to buy an existing licensed Childcare centre.
  • Choose a prospective location and survey the area to be certain there is a need for your service.
  • Check with the Zoning Department in your municipality to make sure that the area is zoned for "Childcare" use.
  • Download and review the Childcare and Early Years Act (CCEYA) as well as the Ministry of Education's Reference Guide for Applicants and Childcare Licensing Manual.
  • Apply for a Childcare license within the Ministry of Education's online system (CCLS) and pay the required fee. (This allows a Ministry Program Advisor to be assigned to you.)
  • Concerning the floor plans of your Childcare centre, follow the instructions on the CCLS (Childcare Licensing System)
  • Under the direction of the Program Advisor, you must arrange to have your premises inspected by the Building, Fire, and Health Departments in your municipality. Follow CCLS instructions as it is not the same for each Municipality.

Before Your Childcare Centre Can Be Licensed, the Following Procedures Must Be Completed: