A model to clearly explain and validate a complex business opportunity in the Early Childhood Education field
The Situation –
In June, 2015, a Sydney entrepreneur formerly a teacher and now owner of a fitness business was considering selling the fitness business and taking up a Begin Bright Early Childhood learning franchise. The business had 3 components, a one hour per week School Readiness program (for 3-5 year olds), and a Beyond Bright Tutoring program for primary school children (for 5 to 12 year olds) and a School Holiday ‘Fun Factory’ delivering craft & science workshops (from 2 hours to 6 hours). The Franchise fee (plus marketing, administrative and product packs) totalled $48,000 (excl. GST) and other start-up and capital costs were estimated in the vicinity of $50,000-$52,000, a total of $80,000 (excl. GST). In addition there is an ongoing Royalty Fee of 12% of gross revenue.
The Entrepreneur liked the idea but was very hesitant having no real idea of the benchmarking performance targets and milestones necessary to achieve a reasonable profitability.
How Solutions Marketing helped –
The task was to build a financial model over at least four years linking an Income Statement with a Cash Flow Statement and a Statement of Assets & Liabilities. An additional requirement was to build into the model certain expected benchmarking milestones and ratios based on past actual experiences of successful franchises.
The process involved the following:
- Gaining a better understanding of the business model from the Begin Bright web site
- Understanding the Franchise agreement
- Conducting a telephone interview with the Franchisor and obtaining answers to relevant questions via email
- Building the model based on four school terms per year for the School Readiness & Tutoring programs and School Vacation periods for the Fun Factory craft & science workshops
Examples of the benchmarking milestones and ratios provided included the following:
- Number of School Readiness students per class at the business start, and at end year 1, 2, 3 & 4
- The average Ratio of School Readiness students to Tutoring students
- The critical fact that new classes are opened well before the maximum class size of 8 is reached – this is because it is important to offer hourly flexibility to new parents rather than force them into an existing time slot. Gradually the maximum number is attained.
- Highest enrolment numbers for the best performing centre and the predicted top capacity
- Average cost per child per week and the ratio of cost between School Readiness and Tutoring
- Holiday workshops proportion of all day (6 hour) students vs 2 hour students
- Total number of students during school terms at start, and at end year 1, 2, 3 & 4
- Teacher casual rates per hour
- Proportion of school term income paid up-front
- The number of Holiday Workshops than can be run at the same time
- The fact that the Franchisor goal is to have 100 franchisee centres in operation with 200 enrolled students each with $200,000 pa profit by 2018
The above benchmarking milestones and ratios were built into the model. In addition we added more aggressive marketing costs, motor vehicle running costs, accounting expenses, a marketing opening event cost and other administrative costs plus amortisation of the License fee costs over 5 years. The model was built on a cash basis rather than an accrual basis.
The recommendation –
The profitability goal was achievable. Very conservatively, break - even is possible in just over 12 months, and also the target profit of $200,000 (before tax) in 4 years.
But importantly, the client entrepreneur now has a clear idea of the business model; he needs to achieve his goals. The detailed financial statements will serve as an ideal budget, for year one and provide valuable guidance for future yearly budgets over the following 3 years.
The result –
The client entrepreneur has changed his mind and is now actively seeking to off-load his Fitness business and take advantage of this significant early learning franchise opportunity
Want to know more? Contact Tony Nix on 02 9955 5133 for an obligation free discussion about our Excel modelling methodology. In our research we dedicate ourselves to uncovering key market insights. In our analysis & strategy planning we aim to find solutions 'beyond the obvious!' Our offer is simply 'more for less' - more consumer insight for less cost ...guaranteed!