Due Diligence Checklist for Buying a Childcare Centre

Due diligence on a childcare centre means verifying four things before you settle: the financials, the regulatory standing, the lease and property, and the people who run it. Done properly it confirms both that the centre is sound and that the price is right — while you still have the leverage to renegotiate or walk away.

Most deals don’t fall over because the centre was bad. They fall over because the buyer found out too late. Due diligence is the window between signing and settling where you confirm that what you were told matches what you’re buying — and where you still have the leverage to walk away or renegotiate. Treat it as a formality and you inherit someone else’s problems. Treat it as an investigation and you buy with your eyes open.

This is the childcare due diligence checklist we walk buyers through before they commit to a centre. It is built around the four areas where childcare transactions actually go wrong: the financials, the regulatory standing, the lease and property, and the people who run the place.

Start by Confirming What You’re Actually Buying

Before you check anything, get clear on the structure of the deal. Are you buying the business only (the operation and goodwill, with the property leased), or the business plus the freehold? The answer changes your entire due diligence scope — a freehold purchase adds building, title, and planning checks on top of everything else. If you’re unsure which path suits you, our guide to buying a childcare centre sets out the full process and where due diligence sits within it.

One point that catches first-time buyers off guard: the service approval (the licence to operate that centre) can transfer to you, but the provider approval is attached to you personally and cannot be bought. You need your own before you can run the service. We cover the two-permissions split and the transfer mechanics in detail in our provider approval guide — confirm your approvals pathway early, because the timeframes can become a settlement condition.

Financial Due Diligence: Verify, Don’t Trust

The numbers in the information memorandum are the vendor’s best case. Your job is to test them against source documents.

Ask for at least three years of profit and loss statements, the matching BAS lodgements, and the centre’s CCS reconciliation reports. Cross-check them against each other — revenue claimed in the P&L should reconcile with what was actually subsidised and what was lodged with the ATO. Gaps here are not always fraud, but they always need explaining.

Then dig into the line items that distort childcare profit:

• Owner-related costs. An owner who works in the centre but pays themselves below market — or above it — distorts the profit. So does above-market or below-market rent paid to a related landlord.
• One-off and irregular items. Grants, COVID-era support, one-time maintenance, and lumpy CCS catch-ups inflate or deflate a single year.
• Staffing run-rate. Confirm the current roster and award costs, not last year’s. Wage growth in the sector is real and ongoing.

The reason these matter is that the headline profit is rarely the number a buyer should pay a multiple on — adjusted earnings can sit 20–40% away from the stated figure. We explain exactly which adjustments childcare buyers and their financiers make in our valuation guide, and how to read the statements themselves in how to read a childcare centre’s financials. Don’t re-derive it here — verify it.

Because so much childcare revenue flows through the Child Care Subsidy, confirm the centre’s CCS approval is current and unconditional, and that there are no outstanding reconciliation liabilities you’d be inheriting. Our explainer on how CCS works covers why this revenue line behaves differently from a normal business.

Occupancy: The Number Behind the Number

Revenue is a lagging indicator. Occupancy tells you where revenue is heading.

Don’t accept a single occupancy percentage. Ask for utilisation by room and by age group over the past 6 to 12 months. A centre that looks “85% full” can be a very different business depending on where those children sit:

• The 0–2 and 2–3 rooms carry the highest fees and the tightest ratios. A centre that is full in the nursery is a strong centre.
• A centre propped up by a full kindergarten room while the under-threes sit half-empty has a softer revenue base than the headline suggests.

Then verify it. Compare enrolment records against actual daily sign-in data. Enrolled families and attending families are not the same thing, and the gap is exactly where revenue reliability lives. Also ask for the waitlist — a real, recent waitlist is one of the best forward signals a centre can show you.

Regulatory and Compliance Due Diligence

A childcare centre is only as valuable as its right to operate. Three checks are non-negotiable.

First, pull the centre’s current National Quality Framework (NQF) assessment and rating from ACECQA’s national register. As context, the NQF Snapshot reported by The Sector in August 2025 showed 91% of Australia’s roughly 18,000 approved services were rated Meeting the National Quality Standard or above — so a “Working Towards” rating puts a centre in the minority and is a flag worth understanding, not necessarily a deal-breaker. A rating directly affects both how parents choose the centre and what a future buyer will pay.

Second, check the compliance history. Ask the vendor — and confirm independently — whether there are any compliance notices, conditions on the service approval, enforcement actions, or open investigations. These can transfer with the service or trigger a regulator’s right to intervene in the transfer.

Third, confirm staff clearances and qualifications. Verify Working With Children Checks, first aid currency, and that the centre genuinely holds the qualified-educator mix its approved places require. A centre running understaffed against its ratios is carrying a liability, not just a roster problem.

Lease and Property Due Diligence

For the vast majority of childcare purchases, the lease is the asset. Get it reviewed by a commercial lease specialist — not skimmed, reviewed.

What you’re confirming: how many years are left, what option periods remain, how rent reviews are structured, who pays outgoings, and what the make-good obligations are at the end of the term. These terms drive value as much as revenue does, which is why we treat them in depth in our childcare lease guide. For a buyer, the critical question is simple: will the lease still support the business — and a future sale — in five and ten years’ time? A short remaining term with no options can quietly cap your exit price.

If you’re buying the property too, add the building and title checks: a professional building and equipment inspection (compliant fencing, safe outdoor space, fire and safety systems), confirmation of the existing development consent and any conditions on it, and a title search for easements or encumbrances. A centre that was approved for fewer places than it currently enrols is a problem you do not want to discover after settlement.

Lock Your Findings into the Contract

Due diligence only protects you if it’s tied to your right to exit. A well-structured childcare contract makes settlement conditional on the things you’re still investigating — typically finance approval, a satisfactory due diligence outcome, landlord consent to the lease assignment, and regulatory approval of the service transfer. Each of these is a condition precedent: if it isn’t met, you’re not locked in.

This is where understanding what buyers look for cuts both ways — knowing how the market reads a centre helps you price the risks you uncover and negotiate, rather than simply walking.

Key Takeaway

Due diligence on a childcare centre is an investigation across four fronts — financial, regulatory, lease, and operational — and its real purpose is to confirm both that the centre is sound and that the price is right. Verify every number against source documents, treat occupancy and approvals as the make-or-break items they are, and make sure every open question is covered by a condition in your contract.

Frequently Asked Questions

What are the four areas of childcare due diligence?

Financial (test adjusted earnings against source documents), regulatory and compliance (NQF rating, notices, approvals), lease and property, and the operational side — the people running the centre. These are the four areas where childcare transactions most often go wrong, so each one needs its own verification rather than a single overall impression.

Can the childcare licence transfer to a buyer?

The service approval — the licence to operate that specific centre — can transfer to you, but the provider approval is attached to you personally and cannot be bought. You need your own before you can run the service, so build the approvals timeline into your contract’s conditions precedent rather than assuming it carries across automatically.

What financial documents should I request?

At least three years of profit and loss statements, the matching BAS lodgements, and the centre’s CCS reconciliation reports. Cross-check them against each other — adjusted earnings can sit 20–40% away from the headline figure once owner salaries, one-off items and related-party rent are normalised, so verify the number rather than trusting it.

How important is occupancy, and how do I check it?

It is the number behind the number. Don’t accept a single occupancy percentage — ask for utilisation by room and age group over 6–12 months, and compare enrolment records against daily sign-in data. A full 0–2 room signals a genuinely strong centre, because infant places are the hardest to fill and the most expensive to staff.

How do I protect myself if due diligence uncovers problems?

Tie your findings to conditions precedent in the contract: finance approval, a satisfactory due diligence outcome, landlord consent to the lease assignment, and regulatory approval of the service transfer. If a condition isn’t met, you are not locked in — which is what keeps your leverage intact right up to settlement.

Buying a childcare centre and want a second set of eyes on the numbers before you commit? Talk to ChildcareLink for specialist, buyer-side guidance. Visit childcarelink.com.au or contact our team directly.

Sources

• Australian Children’s Education and Care Quality Authority (ACECQA), National Quality Framework Snapshot — service rating data, 2025
• The Sector, “NQF Snapshot: 91% of services rated Meeting NQS or above,” August 2025
• ACECQA, Guide to the National Quality Framework — service and provider approval framework
• Australian Government Department of Education — Child Care Subsidy approval and reconciliation framework
• ChildcareLink transaction experience — buyer-side due diligence and deal structuring

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.