How to Read a Childcare Centre’s Financial Statements

The headline numbers on a childcare centre’s P&L almost never tell the whole story. Two centres can show the same revenue and profit line and be worth wildly different prices — because what really matters is what sits behind those lines, how it has been classified, and what a buyer would normalise out before pricing the deal. If you cannot read a childcare P&L confidently, you cannot value the business, and you cannot negotiate with discipline.

This guide walks through how to read a childcare centre’s financial statements the way an experienced buyer reads them — line by line, with the noise stripped out.

Start With What You Should Be Given

Before you can read anything, you need the right documents. For any serious offer, ChildcareLink recommends asking for at least three full financial years plus the year-to-date current period. The minimum pack is:

• Three years of profit and loss statements
• Matching balance sheets at each year-end
• Year-to-date P&L for the current trading year
• A monthly enrolment and attendance report
• A CCS (Child Care Subsidy) reconciliation against the centre’s own software
• A copy of the lease and any side agreements with the landlord
• Payroll register including employee tenure, qualifications, and award classification
• BAS lodgements for the past 12 months and the latest tax return

A vendor who hesitates to provide any of these is sending a signal. For the broader transaction process and where this fits, see our step-by-step buying guide.

Revenue: It Is Not One Number, It Is Three

The single biggest mistake first-time buyers make on a childcare P&L is treating “revenue” as one figure. In a CCS-approved centre it is structurally three different income streams, and they behave very differently:

1. Parent gap fees. The portion paid by families after CCS is applied. This is real, recurring, and the most defensive part of the revenue line.

1. CCS payments from Services Australia. The subsidy paid directly to the provider on behalf of the family, recognised under AASB 15 (or AASB 1058 for not-for-profits) on a service-delivered basis. It can lag, it can reconcile retrospectively, and it can be clawed back.

1. Other income. Excursion fees, late fees, enrolment fees, casual care, food levies, and sometimes government grants (Worker Retention Payment, capital grants).

A clean P&L should split these out. A messy one will lump everything under “Fees” — and that is your first cue to ask for a CCS reconciliation report from the centre management software (Xplor, Kidsoft, SmartCentral, or similar). The reconciliation should match the bank receipts from Services Australia within a small tolerance. If it does not, ask why before you proceed.

Enrolment vs Attendance vs Billed Days

Revenue does not move with enrolments. It moves with billed days. The three are not the same.

• Enrolment is a contractual booking — a child enrolled for, say, three days a week.
• Attendance is the days actually attended.
• Billed days are the days the centre charges for, regardless of attendance, less any allowable absences.

A centre can show 92 per cent enrolment and only 78 per cent attendance, with the gap driven by holidays, illness, and absence allowances. CCS is paid against billed days, capped at the allowable absence rules, so a centre running heavy absences also runs the risk of CCS shortfalls.

When you read the revenue line, the only number that matches the cash is the billed-days figure. Always ask for utilisation expressed as a percentage of licensed places multiplied by operating days, not just “occupancy”. The difference is the difference between an offer that holds and an offer that gets repriced at due diligence. For the broader verification process, see our due diligence checklist.

Costs: Where the Money Actually Goes

A childcare P&L is dominated by one line: wages. The Australian Competition & Consumer Commission’s 2024 Childcare Inquiry Final Report found that labour costs averaged around 69 per cent of total costs in centre-based day care — and that share has been climbing, with labour costs growing 28 per cent between 2018 and 2022, faster than the Wage Price Index over the same window. The same report noted large not-for-profit operators paid 94.5 per cent of staff above the award, compared with 64.3 per cent at for-profit operators. That gap matters: a centre paying mostly to award today is almost certainly paying more tomorrow once a buyer takes over and benchmarks staffing properly.

The other major lines you will see:

• Rent and outgoings: Usually 8–15 per cent of revenue. Anything below 7 per cent is suspicious — often a related-party lease set below market by an owner-occupier landlord.
• Food: 2–4 per cent of revenue. Higher in centres that market a strong food offer.
• Consumables and program supplies: 1–3 per cent.
• Cleaning, repairs, utilities, insurance: 4–6 per cent combined.
• Marketing, software, admin: 2–4 per cent.

When any of these lines deviates significantly from the bands above, ask why. A centre running 1 per cent on repairs has either deferred maintenance you will inherit, or it is being run through the owner’s other entities.

EBITDA: The Number That Matters, And Why It Almost Never Stands

Childcare centres in Australia trade on a multiple of normalised EBITDA — typically 3–5x for single-site leasehold businesses, with quality, larger, or strategically located centres at the top of that range. We do not re-explain EBITDA mechanics here; for the full breakdown of how multiples and adjustments interact, see our valuation pillar guide.

What matters for reading the financials is this: the EBITDA on the P&L is almost never the EBITDA a buyer pays on. The work is in the adjustments. The recurring ones in childcare are:

• Owner-operator wages either added back or normalised to a market replacement (often $90,000–$130,000 for a working-owner)
• Above- or below-market rent from a related-party landlord, normalised to market rent per place
• One-off legal, consulting, or restructuring costs
• Personal expenses run through the business (vehicles, travel, home utilities)
• Worker Retention Payment treatment — added back if it offsets wage uplift, or kept in if it is a permanent revenue stream
• Casual and agency staff costs normalised against a sustainable permanent staffing model

Balance Sheet: The Quiet Half of the Picture

Most buyers skim the balance sheet. That is a mistake. Three things on it tell you whether the business is healthy beyond the P&L:

1. Working capital and CCS receivable. A centre with a large unreconciled CCS receivable may be carrying a pending compliance review or a system migration mess. Ask for an aged debtors report split between parent gap-fee debt and Services Australia receivable.

1. Provisions for employee entitlements. Annual leave, long service leave, and personal leave provisions accrue with tenure. For a 60-place centre with stable staff, provisions of $80,000–$150,000 are normal. Anything materially below that suggests the obligation has not been booked.

1. Inter-entity loans and director loans. These reveal whether the owner has been pulling cash out as drawings or moving it between related entities. Both tell you about how the business has actually been run versus how the P&L presents it.

Three Quick Tests Before You Pay for Deeper Due Diligence

Before you spend money on lawyers and accountants, run the financials through three quick filters:

1. Cash test. Add depreciation back to net profit and compare with the change in cash position. They should track within reason. If the centre is “profitable” but the bank balance keeps shrinking, the working capital story is hiding something.

1. CCS reconciliation test. Compare CCS receipts on the bank statements with the centre’s software CCS report. Persistent gaps point to billing errors, compliance issues, or a software migration that was never finished.

1. Wages-to-revenue test. Wages plus on-costs (super, workers’ comp, leave provisions) at 65–80 per cent of revenue is the normal range for a healthy single-site centre. Below 60 per cent and the centre is almost certainly understaffed against ratios — a problem you inherit. Above 85 per cent and either the centre is under-occupied or rates are unsustainable. For context on why staffing pressure is climbing, see our educator shortage analysis.

These three tests take an hour and will tell you whether the financials deserve a full review — or whether you walk before you spend more.

Key Takeaway

A childcare P&L is not a balance sheet of facts; it is a story written by the seller. Reading it well means knowing where the structural noise sits — three revenue streams, billed days vs attendance, related-party rent, owner-operator wages, and CCS reconciliation — and stress-testing each line against what the centre would look like under your ownership. Get that right, and the rest of the deal protects itself. For first-time buyers, our first-time buyer guide and financing options article are the natural next reads.

Sources

• ChildcareLink — transaction and advisory experience across Australian childcare centre sales
• Services Australia — Child Care Subsidy payment and reconciliation framework (servicesaustralia.gov.au)
• ACECQA — National Quality Framework; ratio and qualification requirements informing wage structures (acecqa.gov.au)
• Australian Taxation Office — general principles on business expense treatment (ato.gov.au)

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. ChildcareLink recommends seeking independent professional advice tailored to your specific circumstances before making any business or investment decisions.