In this blog post, Supallab Chakravorty, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses the process for structuring a playschool business in India.

Introduction

Taking up play school business is a business stance that is gaining popularity among the entrepreneurs of India. The primary reason this venture as a business is gaining popularity is because of its lucrative nature in terms of low investment, even lesser legal compliances and huge outcome. Kidzee, a popular chain of playschool franchisee provider quotes an ROI on its franchisee to be 200% in 4 years; such is the outcome of this business. Once settled, this business does not give you the stress like recessions and low impacts.  Healthcare and education are two such sectors which are least affected by any kind of economic crises.

 

Analysis of the Market

The business model has a good cash inflow and potential of seeing substantial growth based on the entrepreneurial drive driving it. The potential of growth in this sector is humongous. Following are a few graphs that will show the potent growth in this business filed. Accordingly, the competition in the market is also substantially high. The graph below would display the same.[1]

 

Image 1: Size of playschool business market in India and share of market held by competitors

 

 

Structuring a playschool business in India – Process Chart

But no matter how lucid and easy going business field one might be in, one certainly needs a good business plan to grow aggressively in the market. As it is commonly said, a stagnant business/product is as good as a dead business. Therefore, to start a business too, one needs a good business structure. Here are a few items that are supposed to be in the checklist in starting a playschool business:

1. Selecting a business model

When one plans to start a playschool business in India, he has two options in hand i.e. either start his own venture or take up a franchise. Both of them have their own set of advantages and disadvantages.

On getting a franchisee, there are certain benefits like there are certainly advantages like:

• There is no requirement of aggressive marketing or campaigning that is taken care of by the brand-name holder.
• The terms set out in the agreement for setting up a business model is easier and has very low investment criteria.

 Let us take a look at the top franchisors and the criteria they site

• Required investment for Kidzee Playschool is just Rs. 5 to 10 lakhs and the required floor area is 2500 square feet
• The net investment to open a Tree House play school franchise in India is also under Rs. 10 lakhs and the minimum required area is 1000 square feet.
• A Hello Kids play school is about Rs. 10 lakhs, and the required floor area is a minimum of 1000 square feet.
• One needs a minimum investment of Rs. 10 lakhs to open a Shemrock franchise preschool in India as well as a floor area of 2500 square feet.
• The cost of opening Euro Kids franchise is 10-15 lakhs and area required is 2000 square feet.

• The return on Investment assured by this franchise is easy to achieve and are considerably high. The risk factor involved in such franchise business is very less.
• Professional support in terms of setting up the school (pre-defined infrastructure, staff and administration), managing it, getting market recognition etc. are some advantages of having a brand franchise.

However there are certain disadvantages also attached to the franchise form of business.

• The disadvantages come with the contract. Not every brand franchisor will let you go away with the business know how and the brand value it has carried for so long. Therefore before entering into any form of contract, please take note of the following clauses:
  • Events of Default clause – may cause the termination of contract without any material default on your part;
  • Exit Option Clause – The contract may not allow you to exit easily and you are stuck for a long time with a bad business deal;
  • Non-Compete, Non Solicit Clause – It may restrict you to venture with other brands of play school or start your own venture;
  • Penal clauses – It may impose unnecessary penalties on minimum defaults and may give rise to unnecessary litigation;
  • Trademark and franchising Clauses are important because that is the sole advantage you are deriving out of the franchise agreement therefore conduct a thorough due diligence on it; and
  • Survival Clause – Refers to the clauses that survive post termination of contract. A bad survival clause will trigger a good deal for you.

Setting up one’s own venture

Setting up one’s own venture also has its own set of advantages and disadvantages.

Advantages

• One gets to handcraft one’s own business model. One can choose a partner and a scale of business investment of his choice.
• There is a certain degree of freedom as he is not bound by a standard form of agreement.
• He gets to apply his own expertise, entrepreneurial ideas into it and design an innovative venture.

Disadvantages

• There are a large number of formalities that need to be completed. That all has to be done meticulously.
• Apart from the investment of money and space, time and efforts are also required from the part of the venture holder. There are several important tasks like planning and finalizing the curriculum, setting up the administration and infrastructure based on the norms and rules as required by the curriculum and much more.

 

2. Commercials

One of the important aspects before venturing into legal formalities is to have the commercial structure clear. What could be the source of funds? How much of debt or equity needs to be injected in the business:

Investment Required

1. Land and Building – Ranging from 1000 square feet to 2500 square feet
2. Capital Investment – Ranging from Rs. 7,00,000 to 10, 00,000 (depends on the scale of business.)
3. Furniture like plastic chairs, tables and classroom equipments amounting to 40,000- 80,000
4. Play equipments like rockers, slide etc. Also book racks, wall hangings and staff furniture needs to be considered.^[2]
5. Appropriate Human Resources qualified to man the organisation. Minimum wages that need to be paid out is 80 rupees per day. 1 staff per 10 students and 1 teacher per 20 students. A venture like this typically has 20 -50 students.[3]

The Return on Investment as quoted from famous franchises is approximately 2 to 3 years[4] depending on the franchise and the scale of the business. Setting up a franchise is easier. The process is as follows:

• A simple forms needs to be filled in their website.
• They are going to conduct the survey if one meets their criteria to select a favourable location, do the marketing and campaigning.
• You will be able to start a playschool with their guidance at every step.
• There are several portals which provide gateways to apply to these playschool franchises. Like www.startingfranchise.in

But if the venture is one’s own, then certain factors have to be kept in mind before making an investment in order to reach an ROI. The factors that need to be taken care of are as follows:

1. Geography – Parents till the initial stages of the growth of the child do not want to send their children far, therefore it has to be in a residential area with open spaces around. Again depends on the locality.
2. Demographic Profile – Once the location is fixed, than one needs to look for the demography of the area. A place with a nuclear family would be more likely to send their children to play school than places with joint family where the child mostly gets its education from elders. Also it is advisable to keep a tap on the type of income group people that live there. It will help set the fee structure.
3. Market Survey – Conduct a survey to find out the potential number of students and the preference of the kind of playschool.

Break Even Point

Step 1: 

• From the industry standard, let us keep the Break Even Point (where both Fixed Cost and Variable Cost are absorbed) at 1.5 years
• The Fixed Cost is assumed at initial stage as INR 7, 00,000 (FC)
• The Variable Cost is expected to be 4, 00,000 (TVC)
• Also, we set a target to break-even our business in 1.5 years.

Step 2:

• Find out the annual fees that your competitors are charging to estimate your fees.
• Let’s assume that the fees charges would be INR 25,000 per student and the number of students to be X. Therefore the Total Revenue (TR)would be INR25, 000X.

Step 3: 

Contribution = TR – TVC

• 25,000X — 4, 00,000.’

Step 4:

• We have kept the break even timeline as 1.5 years. Whatever is earned over and above our variable costs, will be used to cover the fixed expenses. Post that all earnings would be to be profits of the institution
• Divide FC by Contribution to get your breakeven period in years.
• Therefore we get the following equation:
• 700,000 / (25,000X — 400,000) = 1.5.
• The value of X stands as 34.67.
• Thus we need at least 35 students for first 1.5 years to realise all costs.
• Even after the breakeven point, the profit will be INR 4, 75,000.

 

Potential Investors

1. Aavishkaar
2. Acumen
3. Centre for Innovation, Incubation and Entrepreneurship
4. Michael and Susan Dell Foundation
5. Rural Technology Business Incubator
6. LGT- Liechtenstein Global TrustVenture Philanthropy
7. UnLtd India
8. Footprints Child Care

 

3. Legal Formalities

In case of playschools, the legal compliances are very minimalistic. Thus the cost of litigation that may arise out of such process is also very less.

1. The Shops and Establishments Act is not applicable

 In case of playschools, the Act is silent and one can run your playschool without a registering under Shops and Establishment Act.

Labour laws:

The following labour laws have to be kept in mind:

1. Provident Fund payments – If there are more than 20 employees the organisation has to abide by provident fund rules otherwise may be subject to penal provision under 14B of the Act of 1952.

Checklist of the same could be found at http://epfindia.nic.in/Applicability.htm

2. The Minimum Wages Act, 1948 – The minimum wages for primary schools is Rs. 80.

3. As per the Payment of Bonus Act, 1965 – If there are more than 20 employees, one needs to pay a 1 month at anytime during the year.

Forming the entity:

If you start your own institution, it can be done either as a partnership or as a Section 8 company or even an NGO under a trust. It is usually easier to form a partnership, and cheaper and quick to register. Forming a company can take up to 4 weeks, and costs around Rs. 35000. Be careful with the formation of the partnership deed and the profit sharing.

LLP in India has certain regulations which need to be abided by, according to the LLP Act, 2008 in India. Although the regulations are more than partnership firms but less than floating a company given the ever increasing regulations for companies under Companies Act.

 

Running it in a residential area:

Most playschools are located in residential areas. The first thing that needs to be looked into is whether the rental agreement permits it. Also, if it is an apartment or consortium or society apartment, the bye-laws of the apartment/association/ society consortium should be looked into for permits to run a playschool. Otherwise, there is no running a playschool in residential premises. Requisite permission has to be taken from the society it is operating in.

It has been decided by Courts in different states that a chartered accountant, yoga teacher and lawyer can carry on their work in residential premises so there is no reason why a playschool cannot be carried on as well, as long as the disturbance to neighbours is minimized.[5]

Maharashtra Preschool Centres (Regulation of Admission) Act of 1996 or Tamil Nadu Private School Education Act:

These Acts provide for compulsory registration of pre schools in certain state. Only in a few states, one needs permission from appropriate authority for starting preschool in Maharashtra. It should be education officer of Municipal Corporation who will provide with the certificate. However this is the only state where you need such permission. The procedure is broadly as follows:

1. Name the institution. It should not duplicate
2. Define your budget.
3. Develop a preschool curriculum [6]

 

4. Deciding a curriculum

The final step to see the business set up to reach its initial stage is setting up a curriculum for the day school. This depends upon the type of playschool being formed Children of this age group are mostly very active and require engage in various activities. Their mindset is set to explore, observe and grasp and learn quickly. Their socio economic backgrounds may be different and so shall be their languages thus every child is different in terms of energy and understanding.

There can be different programs based on the age group:

1. Mother Toddler program for 9 months and 2 years of age: Mother Toddler program again is designed to help mothers understand child’s socialisation needs and help them develop their skills while playing.
2. Early Childhood Teacher training program (E.C.C)/Nursery teacher training program:
   launching this year – Such programs are aimed towards training students to be ready for pre primary or early school. Theory plus practical courses of 7 months are advisable for this stage.
3. Day Care centre curriculum – It is a different sort of set up. Most of the parents are working and are unable to provide teaching time to their kids. Such parents look for quality preschools where their child could get proper early childhood education.

An ideal playschool curriculum fulfils all the requirements of a child. A typical preschooler’s curriculum includes a good mix of reading, preschool worksheets, writing and math exercises along with colourful fun preschool activities. Such wide scale of activities helps children in learning and developing their skills in all the fields. Children are quite fascinated by playful activities and colourful objects and also appreciate the playful moments. There are professional advisors who can help in developing a good playschool curriculum. It is advised to consult them because it is the first learning stage of the child and should not be dealt with.

Footnotes:

[1] SOURCE: http://www.netscribes.com/

[2] Source: http://bangalore.citizenmatters.in/articles/3686-quick-guide-to-starting-a-playschool?utm_source=copy

[3] Source : http://indalytics.com/case-studies/pre-school/how-to-conduct-feasibility-study-before-starting-a-preschool/

[4] Source : http://www.startingfranchise.in/2013/03/how-to-open-kidzee-school-franchise.html

[5] V. Sasidharan v. Peter and Karunakar, (1984) 65 FJR 374 (SC); National Union of Commercial Employees v. Industrial Tribunal, (1962) 22 FJR 25; Dr. Devendra M. Surbi, Case(AIR 1969 SC 63 6T); Dev Brat Sharma v. Dr. Jagjit Mehta, C.A. No. 4216 of 1988

[6] Find the Sample Form in the annexure