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Buying a school: a sector analysis

Schools at a glance

  • Few investments are as lucrative and reliable, with yields of between 12% and 25% possible
  • It's also a noble calling, as you're doing something for the public good
  • You get to keep your 'customers' for, on average, seven years
  • Schools can cost anywhere between £500k and £20m, but most good schools start at £2m
  • There are around 510,000 children in independent schools

Partly as a result of the perceived shortcomings of the state system, and partly because of greater affluence in British society, more parents are choosing to pay to educate their children privately.

Despite these trends, most people are unaware of quite how lucrative running a school can be (although it does require a substantial initial investment). "It gives very long-term and secure returns if the school is managed correctly," says Piers Carter, director of STC, a business broker that specialises in selling schools.

People are prepared to give up luxuries such as holidays to pay for this product

Piers Carter, STC director

STC specialises in prep schools, which are no longer targeted purely at those aspiring to attend a public school. Many parents see these 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 public service businesses such as schools, but, for all intents and purposes, it is something you get a lot of if you run one. "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 1990s, it wasn't until around 1995 that schools began to have problems - "by which time, granny had sold her Range Rover".

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 from 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.

Schools will usually give better returns than property, and by purchasing a leasehold you will get 'more school' for your money. Schools typically charge between £2k and £3k per term for an average of around 300 pupils, although school sizes obviously vary considerably.

Foreign buyers

Just as the education market has diversified over the past few years, so too has the profile of buyers of schools, now including educational companies, ex-teachers and private investors, some of whom come from overseas. "There are many more foreign buyers," says Carter.

"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."

Clearly, schools are a lot 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 industry. Banks are quite aware of how good an investment a properly run school can be.

When you come to assess a school, you should consider factors such as how well paid the staff are, the condition of the premises and how big class sizes are. Location, of course, is also a big factor, with schools in the Home Counties at a premium.

"If you want a bargain, buy in a rural location," Carter advises. "If you want a secure market, then buy in an urban location." There are other factors to consider. For example, "smaller buyers want accommodation for the family as well," says Carter.

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 failing school around unless you have some experience of running an educational institution.

You might consider expanding the range of facilities at your school. 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're doing something for the public good. If you get it right, then you could be making a significant contribution to the moulding of tomorrow's scientists, engineers and captains of industry.

Nevertheless, Carter's final comments are about the financial benefits: "I really think there is no better business in terms of long-term stability."

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