The Economic Outlook Today

We’ve seen significant changes in the childcare industry in the last five years. The COVID-19 crisis changed how schools were operated and regulated, mandating the shutdown of some schools and changes in operating procedures.   Throughout the COVID-19 crisis, the government increased funding for PPP, child care relief funds, and other grants. This made many schools flush with cash even though enrollment was low. Subsequently, those grant funds are no longer available. Now, many schools across the state are struggling with low enrollment and/or difficulty hiring employees.  

Enrollment

We see the enrollment issue for private preschools across the state. The first major concern is public schools competing directly with private preschools. Many, if not most, school districts have an afterschool program and a Pre-K program, starting with three-year-olds.   We don’t see this changing in the near future as long as the government is funding public schools to compete with private preschools. We also see increased competition from nonprofit organizations like “The Y,” Boys and Girls Clubs, and others.   In more affluent neighborhoods, we still see children not going to preschool but staying home with a parent, more so than prior to the COVID-19 crisis. We think this could change in the next couple of years if we go through a recession and inflation continues to be higher than normal. This would push both parents back into the workplace to make ends meet, increasing the demand for preschools.  

Hiring Employees

Since the COVID-19 crisis, it is been difficult to hire employees in the current economic outlook. Employees were able to receive additional payments either through unemployment or relief funds. Those employees have become accustomed to that money alongside inflation. In 2019, we saw many schools that paid their employees $12 an hour or less. Today, the starting salaries are $15 to $18 an hour.  

Preschool Buyer Activity

We have been selling preschools in Texas for 25 years. Normally, with competition, employee shortages, the economy, and high interest rates, we would not expect to see as much selling and buying activity for preschools as we are currently experiencing.   So, what is the difference this time compared with other similar economic times? The answer is simple: the inflow of out-of-state buyers looking to purchase preschools in Texas and the southern United States. In normal economic times prior to the COVID-19 crisis, we might have sold 25% of the schools to out-of-state buyers, but today, most of the buyers that are purchasing schools are out-of-state.   With all the hard economic times we experienced with COVID-19 in Texas, it was still much better than in some other states. Investors were investing in other states and are now concentrating their purchases in the southern part of the United States because of less government regulation and interference. This has been great for school owners who wanted to sell their schools. This is one of the strongest markets for larger profitable schools that we’ve seen in the last 25 years.   Today's economic outlook will significantly impact your decision to sell your business. Whether you plan to sell now or in the future, contacting a Gateway School Sales business broker can provide you a confidential, no-cost, no-obligation Broker Opinion of Value. You can decide to sell now or use the Broker Opinion of Value as a benchmark to build value for a future sale.