We had a virtual coffee recently with Addison Clarke from Finexia Financial Group, fund manager of the Finexia Childcare Income Fund, who shared key insights into the ECEC sector. He highlighted the urgent need for expansion, driven by rising demand and increased government subsidies. Addison provided practical advice for operators on navigating growth, from choosing the right site to securing approvals and managing risks, helping them capitalise on opportunities and avoiding common pitfalls.

What is the most important thing early learning service owners need to know right now?

I would say that now is the time to grow your business. Whether you have three centres or thirty, there has never been a more critical moment in our sector’s history to expand and establish more high-quality early learning services.
There’s a significant shortage of services across the country, and the government, whether Labour or Liberal, will likely continue to increase subsidies for parents. When demand goes up without a corresponding increase in supply, out-of-pocket costs for parents naturally rise. If we don’t open more services while the government is boosting subsidies, prices will increase for parents, and that’s something we all want to avoid. The key to keeping prices stable or even reducing them is for operators to step up and create more capacity in the market to meet the growing demand.

How urgent is this need for expansion? Are we talking about this quarter, this year, or longer?

The timeline is very urgent. I would say operators should begin now — this quarter. If you listen to the news, there’s a lot of focus on building more homes to meet the growing deman of our growing population. Early learning faces a similar issue; there’s a limited supply of resources and land, and building new centres takes time.
From the moment you decide to open a new service to the day you open your doors, it could take anywhere from 12 to 36 months. First, you need to acquire land, then obtain development approval (DA) from the council, which can take 6-12 months depending on where you’re located. Once that’s done, you can finally start construction. For operators who are not building but rather signing lease agreements, you’re still part of the same value chain that includes developers, landowners, and councils.
There’s really no time like the present to get started on new projects.

What are some key factors operators should consider when deciding how to grow — whether through new builds or retrofitting existing buildings?

It depends on where you are in your journey as an operator. For larger operators with ten to twenty centres, you likely have a strong team behind you and the resources to start building new centres. Those operators need to look at expanding into new locations, especially since there are many “ECEC deserts” in our country — areas that are significantly underserved.
For smaller operators, particularly mom-and-dad businesses with one to five centres, the brownfields route or acquiring an existing service might be a better option. This could involve purchasing a centre that has been around for a while but needs a facelift. For example, you might find a centre that’s been running since the 1990s without much updating — no modern website, outdated facilities, and subpar food. You can buy that centre, invest in renovations and new educational resources, and significantly boost its occupancy and value.
Another option is to sign an agreement for lease with a developer. This is generally the cheapest route because you’re essentially agreeing to operate a centre on a long-term lease. However, competition for these sites can be fierce, especially against larger chains like Goodstart or G8. That said, smaller operators might have more success in regional areas, where councils often prefer locally owned services over national chains.

What risks should operators be aware of when expanding their services?

Risk management is critical when expanding, and at Finexia, we help operators assess these risks every day. One of the biggest factors is making sure you choose the right site. A good operator in a good site is the ideal combination, but the reverse can be catastrophic.
One of the key metrics we look at is the ratio of children to ECEC places. If there are two children for every one place, that’s a decent ratio. But if you find areas with ratios of three or four children per place, those are the high-demand areas that present the best opportunities for new services.
Another factor is ensuring your rent and wage ratios are in line with the market. If you’re paying too much rent for a centre that doesn’t have the capacity to generate enough revenue, you’ll struggle to stay profitable. Talking to brokers and other operators can help you understand what the going rate is in different regions.

What happens when things go wrong, like if the Department of Education doesn’t approve a centre’s planned capacity?

That’s a major risk, and it can be devastating. Let’s say you’ve planned for 120 places, but the Department of Education only approves 80. Suddenly, your revenue projections are cut by a third, but your rent and other fixed costs remain the same. This can have a cascading effect on your ability to run a sustainable service.
One way to mitigate this is by maintaining good relationships with your landlord. In some cases, landlords are willing to renegotiate based on the number of approved places rather than sticking to the original agreement. This is important because the landlord knows they can’t market the site as a 120-place centre anymore — it’s now an 80-place centre. Flexibility in these negotiations can prevent a lot of financial headaches down the line.

How can operators set themselves up for success in getting approvals from the Department of Education?

Preparation and working with the right experts is key. You want to work with architects who specialise in design for early learning. Some architects have carved out a niche in this sector, and their experience can be invaluable. It’s easy to look up planning approvals in council portals and see who the reputable operators are using for their designs. Once you find out who they’re working with, you can approach those same architects or firms.
In addition to architects, you need experienced builders and a strong understanding of the sector supply chain. Not any builder will do, and not any furniture supplier or playscape company will either. ECEC is a specialised industry, and there are many ancillary businesses that focus solely on providing products and services for this sector. The same goes for IT infrastructure, staffing agencies, and compliance software. You want to surround yourself with experts who understand the specific needs of an early learning service.

Are there industry events where operators can meet these kinds of experts?

Absolutely. There are several sector-specific conferences, like the Early Childhood Australia (ECA) and Australian Childcare Alliance (ACA) events. These aren’t just for operators; you’ll find builders, IT companies, furniture suppliers, and even compliance software vendors exhibiting there. These events are a great way to meet experts in various sub-industries that support the sector.

Have you ever had to help operators reverse out of bad situations, and how do you approach that?

Fortunately, we haven’t had any major issues with our clients, but that’s largely due to thorough planning. However, one scenario we always prepare for is the possibility that the Department of Education might not approve a centre’s capacity. If they approve fewer places than expected, it’s important to have contingency plans in place, such as renegotiating with landlords or revisiting your financial models to ensure the service remains viable.
Working closely with architects and other industry professionals can help you avoid these kinds of situations. It’s always better to spend time and effort on the front end, ensuring everything is done right, than to try to fix things after the fact.

If you’re an operator of any size and looking to expand your childcare business, you can give Addison a call on 0476 436 908 or email him at addison.clarke@finexia.com.au

We loved speaking to Addison. If you or someone you know has a story to share, we’d love to have a discussion. Let us know via the website, Facebook or LinkedIn.