Private schools are no longer the preserve of the elite.
Partly as a result of the perceived shortcomings of the state system, and partly because of greater affluence, more and more parents are choosing to pay handsomely to educate their children.
And private sector involvement in education is no longer championed only by the Conservatives. Shorn of clause 4 and much of its old dogma, Labour has committed to having 400 privately-run city academies by 2010.
Education is opening up to entrepreneurialism
However, despite these trends, it’s surprising how unaware people are of quite how lucrative running a school can be, despite the fact that the initial investment required is quite substantial.
“It gives very long-term and secure returns if the school is managed correctly,” says Piers Carter, director of STC, a confidential education business brokers.
STC specialises in prep schools, which are no longer targeted at those aspiring to a public school. Many parents in areas such as Kent or Birmingham see the schools as gateways to grammar schools, or just as a means to give their children a kick-start in life.
‘Repeat business’ is a phrase that sits awkwardly with a public service business such as schools, but for all intents and purposes it is something you get a lot of if you run a school.
“You keep your customers for, on average, seven years and you get your cash in advance,” says Carter.
“Put simply, people are prepared to give up luxuries such as holidays to pay for this product. Once people are committed to independent education, they’re very reluctant to give it up.”
He adds that, during the recession of the early 90s, it wasn’t until around 1995 that schools began to have problems – by which time, “Granny had sold her Range Rover".
High returns
It is possible to buy a school as a fully managed package, with head teacher, bursar and reliable staff already on board. Depending on what you are buying, returns of between 12% and 25% on your initial investment can be achieved.
The price of such schools ranges between £500k and £20m, although Carter says that a good quality school will typically cost between £2m and £5m in the more affluent areas of the country, for both leaseholds and freeholds. Of course, the latter will be more expensive – although this is certainly not just a game for millionaires.
It shouldn’t, however, be seen purely as a property investment. Schools will usually give better returns than property, and by purchasing a leasehold you will get ‘more school’ for your money.
Schools will typically charge between £2k and £3k per term for an average of around 300 pupils, although school sizes obviously vary considerably.
Just as the education market itself has diversified, the range of buyers of schools has expanded considerably over the past few years – including educational companies, ex-teachers and private investors, some of which come from overseas.
“There are many more foreign buyers. There is a huge interest from buyers from Mexico to Dubai. It’s partly because of the perceived strength of UK property and the UK economic climate,” says Piers Carter.
Clearly, schools are more expensive than many other businesses, but loans can be secured and agencies such as STC have strong links with companies in the financial services. Banks are quite aware of how good an investment a well-run school can be.
Rural or urban?
The first thing you should look for in a school, according to STC, is quality. You should ensure that staff are well paid, premises are in good condition, and that classes are fairly evenly matched in numbers throughout the school.
Location is, as always, a factor, with schools in the Home Counties at a premium.
“If you want a bargain, buy in a rural location,” Carter explains. “If you want a secure market, then buy in an urban location.
“There are other factors, though. Smaller buyers want accommodation for the family as well.”
But personal involvement can be minimal. Carter and his wife have owned a school since 1978 and only devote a day a week to its management – the result of employing good staff and, most importantly, a good headmaster.
Conversely, he doesn’t recommend trying to turn a school around unless you have some experience of running an educational institution – although most buyers do have an interest in education.
It is possible to expand or extend the school’s offer. For example, at Carter’s school, he has added a nursery with the help of a competent manager.
Running a school is satisfying because you are doing something for the public good. Nevertheless, Carter final comments are about the financial benefits.
“I really think there is no better business to be in terms of long-term stability,” he insists.
