Marketplace Update

First Major Risk to School Operators: Government-Funded Competition

A previous blog summarized our new series about the “3 Major Risks for School Operators” that Bailey Routzong sees in today’s early childhood education marketplace.

That first risk is rapidly expanding competition for school operators from none other than the school owners’ own local and state governmental entities. Preschool operators across the U.S. are being undermined by their local public school districts, which are beginning to offer free full-day kindergarten programs and low-cost before- and after-care programs at rates school owners cannot because they subsidize those programs with the public’s tax money.

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Every school owners’ nightmare will be realized when your state figures out how to offer free, full-day Pre-K for four-year-olds. It is not “if, but when” as they are working around the clock to make it happen. Yes, those entities that school operators pay large sums of ad valorem taxes to are stealing these age groups that historically provided the largest financial margins for the “for-profit” preschool operator.

At the state level, many operators of private K-5 or K-8 schools that we consult with are feeling the same enrollment loss to state-funded “charter” schools … as you know all too well, it’s difficult to compete against free or state-subsidized services!

A sobering reality check (that we have been advising our preschool owner clients on) is to recalculate the profitability of their school operation on the assumption that they will, in the coming years, not be able to offer care to these “stolen” age groups as they have historically.

To underscore this reality check for the future, a noted preschool consultant in the industry told us recently that she was refocusing her consulting program toward preparing school operators for the challenge of operating their centers for only ages infant to three years. As seasoned preschool operators know so well, the financial metrics for an all infant to three years program is dramatically different from the industry’s historical age group model for the past 40 years in the industry.

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