A question I get asked a lot during expansion discussions with clients is “should I buy an existing center or should I build a new one”? If you missed part 1 on Site Selection, I touch on how to find the best location. In part 2 of this expansion series, I’m offering some pro’s and con’s for this very big topic as there many decisions to make when taking that leap to your second, third or even fourth location.
The Buy Vs. Build decision has several key components and I want to touch on 3 key elements of this decision.
There are many different ways of structuring loan packages and your growth, based on if you are going to buy vs. build. A great program that many of our client’s use is the SBA 504 Smart Loan/Smart Choice Program. Check with your local Small Business Association and they will be able to guide you. This financing piece of the process can be very complex and can be a bit painful. Any amount of cash you have saved up going into this process, can only help you in the buy vs. build decision.
When going to your bank, they or may not be as willing to lend you the money for leasing a new center vs. buying the real-estate. Another component is if you purchase an existing facility that has cash flow with clients/customers, the lenders are more likely to give you a loan for that scenario. If you are cash tight and trying to get into another center, then leasing your second location might be your best bet and wait on trying to purchase the real estate. Or look to buy an under performing school, but still has cash flow and paying students, the loan sources (the bank or the SBA) are more apt to fund your request vs trying to start something from the ground floor up.
#2 Speed of Cash Flow
When you buy an existing school that has cash coming in, it is obviously much easier in your growing process. When you build a new school, the time factor is usually 18-24 months to get it all built out and then you have the issue of filling that new school.
Even if you use all our strategies that we teach here at Child Care Marketing Solutions, it can take anywhere between 6 to 18 months to fill a 200 child school. Remember you have competition, your market and marketing to consider as well. One of our clients Paul Huff ( listen to his story on our blog) got lucky and he filled his school really fast. Your speed of cash flow or “how deep are your pockets” are 2 elements that can affect component #1, your financing. Building has many upsides, but speed of cash flow is certainly not one of them.
#3 The Adaptability Process vs. Creating a Fresh Product
When buying an existing school, you are acquiring a school that not necessarily fits with your culture. You will have change management issues to deal with by working with existing staff and parents to ease their fears about new ownership. There is a lot of work involved in bringing that new school into your culture. This involves everything from curriculum, your program style, even your décor and making it yours. But when you build a new school, you have a blank slate, you get to create a fresh new product.