Nick Smith: Childcare a paying proposition

Former All Black makes new career as a provider of early childhood education.

Taxpayers who gripe about the level of childcare subsidies to parents need to understand the costs involved in bringing a new generation of taxpayers into the economy.

Lollipops Educare's managing director and owner, Mark Finlay, achieves a 15 per cent return on his company's investment in its chain of early childhood education centres.

Yet to set up is costly: "If we build a childcare centre on a freehold site, develop it, working capital, equipment, resources, the whole lot - to look after 50 children will cost us $1.5 million," Finlay says.

Those costs must be paid for by parents, assisted by direct government subsidies to the childcare operator. "The quantum varies depending on socio-economic groups but, on average, you're probably looking at funding ... of about $10,000 per child, per year," is Finlay's estimate of government support. On average, parents will pay $150 to $350 per week.

Of course, another option is to have one parent care for the kids at home but that's increasingly unaffordable for all but the rich. Most parents need to work and somebody's got to look after the ankle-biters.

"We find with early childhood education that we're looking after children where both parents are working. Whereas, in other parts of the country, it's more of a luxury, in Auckland it's an absolute necessity."

But placing children in care also contributes to the wider economy, says Finlay. "Whoever's in power, they want parents in the workforce. They see early childhood education as a positive investment in the country, not only for the children we're looking after and educating, [but because] it has a positive influence on GDP as well."

Lollipops is a small part of a large market. It runs 35 out of about 2000 centres, which are a mix of kindergartens and private operators. It targets the higher socio-economic bracket because "we know we're going to get paid and we can charge parents enough to service our debt. We're investing $30,000 per child and we're really only looking for a 15 per cent return on investment, which is not unreasonable."

Finlay returned to NZ in 2000 after the former All Black finished the usual peripatetic career, playing in Italy and Japan. "I used rugby to travel. When I came back I was basically unemployable; I hardly knew anyone and it was like going to a foreign country."

Self-employment was the only course and, as he had young children, early childhood education became the vocation. He started as a Lollipops franchise operator but, six years ago, he and two other shareholders bought the business, set up a corporate office and centralised operations.

The operators are employees who run the HR component. Head office handles "all the ugly stuff - Ministry of Education and council compliance, all the financial requirements."

Since 2006 Finlay and his partners have built another 25 centres and have gone from about 800 children in care to around 3000. Lollipops made last year's Deloitte Fast 50 list, recording 159 per cent revenue growth over three years. It has centres in Christchurch, Napier, Hastings and Hamilton, but it is primarily based in Auckland.

Investment in IT has been a strong feature of the business: "Our Auckland CBD centres provide a remote video service, so [parents] can log in and watch their child while they're at the centre," he says. "Our parents love it. The children from overseas - and there are a lot in the Auckland central area - their grandparents and extended family go on and watch the children. It's a benefit you wouldn't think of."

Finlay plans to introduce the service in other Lollipops centres but notes that teachers are less fond of the innovation than parents: "Because we're open for 11 hours a day, we have to provide two shifts of staff, which is a lot tougher than running a kindergarten."

He predicts consolidation in the early childhood education sector as the industry becomes increasingly unaffordable for individual owner-operators. "Our compliance costs are increasing every year, our wage costs are very high, land costs have gone up. It gets tougher and tougher to make it work."

Providing a decent education costs big money, as parents and providers know all too well.