How to Read a Childcare Information Memorandum

The first document you receive on a childcare centre for sale is also the most carefully written one you will see in the whole process. An Information Memorandum — the IM, or “the book” — is a marketing document, prepared to present the centre at its best and to move you from curious to committed. Read well, it is a genuinely useful starting point. Read passively, it sets the price expectation before you have tested a single number.

Reading an IM is a skill: you decode what the figures are actually claiming, pressure-test the occupancy story, and notice what the document quietly leaves out — all before you make an offer. The IM is where your questions should start, not where your homework ends.

What an Information Memorandum Is — and What It Is Not

An IM is the vendor’s sales prospectus. In an Australian childcare transaction it typically runs to a centre overview, a summary of three years of financial performance, licence and approval details, lease terms, staffing and room configuration, occupancy figures, and a section on “growth potential” or “upside.” Its job is twofold: to generate interest, and to establish enough credibility that you keep reading.

What an IM is not is an audited, independent, or complete account. Every number in it is the vendor’s indicative figure until you have verified it against source documents. That is not an accusation of dishonesty — it is simply what a marketing document is. The financial summary is normalised to show earning power; the occupancy figure is chosen to flatter; the “upside” is, by definition, something the current owner has not yet achieved. Your task is to separate the facts you can rely on from the framing you should discount.

Treat the whole document as a set of claims to be tested, in three groups: the money, the children, and the silences.

The Money: Reading the Vendor’s Indicative Numbers

Most IMs lead with an adjusted EBITDA — earnings normalised to show what the business would earn under a new owner. This is the single most important, and most manipulable, number in the book. The headline figure almost never matches the statutory accounts, because it has been rebuilt through add-backs: costs the vendor argues a buyer will not carry.

We cover the arithmetic of these adjustments in full in our guide to EBITDA adjustments childcare buyers must understand, so we will not repeat it here. What matters when you are reading an IM is whether each add-back would survive scrutiny. The professional standard, applied by buyers, lenders and their advisers alike, is that an adjustment holds only if it is genuinely non-recurring, market-tested, and traceable to the ledger.

Three tests do most of the work:

• Would the cost genuinely disappear? An owner’s above-market salary added back is fair only to the extent it exceeds the market cost of replacing that role. If the IM adds back a $180,000 owner wage but a working director would cost $110,000 to replace, roughly $70,000 of that add-back is real — not the full amount.
• Is “one-off” actually recurring? A “non-recurring” repair that appears in three of the last four years is an operating cost wearing a costume. Genuine one-offs happen once.
• Can it be traced? Every adjustment should map back to a line in the profit-and-loss statement. An add-back that cannot be pointed to on the actual accounts is not an add-back; it is a hope.

Read the IM’s financial summary beside the centre’s real financial statements the moment you can obtain them. The gap between stated and defensible EBITDA is where the asking price is really set — and where a disciplined buyer finds room.

The Children: What an Occupancy Percentage Leaves Out

Occupancy is the number a childcare IM leans on hardest, because it is the clearest signal of demand. It is also easy to present selectively. A single headline percentage — “92% occupancy” — hides more than it reveals.

Ask what the percentage is actually measuring. Utilisation (booked places against licensed capacity, weighted for part-time days) tells a very different story from a raw enrolment headcount. A centre can look “full” on enrolled children while running well below capacity on any given day because those children attend two or three days a week, not five.

Then ask about shape and time:

• Trend, not snapshot. One strong month is not a trend. Ask for a rolling monthly occupancy series across at least two years, so you can see the direction and the seasonality — the January dip, the post-holiday recovery, the effect of the local school intake.
• Room by room. A centre averaging 90% can be full in the 3-to-5s and half-empty in the nursery, where ratios are most expensive to staff. The mix decides the margin.
• How it was won. Occupancy propped up by heavy fee discounting or a single large employer contract is more fragile than occupancy built on a waitlist. A “waitlist” claim in an IM means little without numbers behind it.

Occupancy is also the lever with the most leverage on value, which is exactly why it is presented carefully. Small movements in utilisation move earnings hard, because a childcare centre’s costs are largely fixed once the doors are open. That sensitivity cuts both ways — it rewards a centre with genuine room to grow, and punishes one whose headline figure is already as good as it will get. If the IM frames the current occupancy as “upside,” check whether that upside is available to you or was simply never real. Our guide to increasing occupancy at a childcare centre sets out what actually moves the number, so you can judge whether the vendor’s growth story is a plan or a wish.

The Silences: What a Good IM Leaves Out

The most revealing part of an IM is often what is not in it. A polished book can be entirely accurate about what it says and still steer you away from what matters most. Read for the absences:

• Compliance and rating history. An IM will quote a current National Quality Standard rating; it rarely walks you through the assessment history, any past compliance notices, or conditions on the approval. A rating is a snapshot of a moving record.
• Staff stability. Wages and headcount appear; turnover, key-person dependence, and the state of the educator roster usually do not. In a tight labour market, the team is often worth more than the fit-out.
• The lease, in full. The IM gives you the rent and the remaining term. It seldom gives you the option structure, the rent-review mechanism, the make-good obligation, or the make-up of outgoings — all of which move value.
• Local supply. The book describes the catchment as it is today. It will not tell you about the approved centre being built two streets away that reshapes the catchment the year after you settle.
• The debtor and subsidy detail. Revenue is stated; the split between fee income and Child Care Subsidy, the family debtor position, and any concentration in a few large families are the kind of detail a good buyer asks for and a marketing document omits.

None of these silences is proof of a problem. Each is simply a question the IM has not answered — and the questions you have to raise yourself are the ones that most often change the price.

The Questions to Ask Before You Offer

An IM has done its job when it has generated enough genuine questions to structure your first conversation with the vendor or agent. Before you put a number on the table, you should be able to ask, and get straight answers to:

• Can I see the last three years of statutory financial statements and the CCS remittance data behind the revenue line?
• Which add-backs are you claiming, and can each be traced to the accounts?
• What is the rolling monthly utilisation by room for the last 24 months?
• What is the full lease — options, reviews, make-good, outgoings — not just the rent and term?
• What is the assessment and compliance history behind the current rating?
• What has staff turnover been, and who are the key people?

Verifying the answers is the work of formal due diligence, which begins after your offer is accepted, not before — see our due diligence checklist for buying a childcare centre for the full post-offer process, and what buyers look for in a childcare centre for the criteria that separate a strong centre from a merely presentable one. Reading the IM well is what tells you whether a centre is worth taking that far. For the wider picture, our guide on how to buy a childcare centre sets the IM in the full purchase journey.

The last step before an offer is to form your own view of value — not the vendor’s. Once you have rebuilt the earnings on defensible add-backs and tested the occupancy, you have the inputs to price the centre yourself. If you want a fast, independent sense-check of where your number should sit, our childcare centre value estimator is a useful first pass before you commit to a figure.

Read It Twice — Once as Told, Once as Tested

An Information Memorandum rewards a second reading. The first time through, you absorb the vendor’s story: the earnings, the occupancy, the upside. The second time, you read it as an auditor would — testing every add-back, unpicking the occupancy percentage, and listing what the book chose not to say. The centre worth buying usually survives the second reading. The price worth paying is almost always the one you build yourself.

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

Sources

• Miro Capital, “Information Memorandum When Selling a Business,” 2025 — purpose and standard contents of an IM in an Australian business sale
• bsale.com.au and LINK Business Brokers Australia — what an Information Memorandum includes and why it is a marketing document
• CT Acquisitions, “Adjusted EBITDA Add-Backs in a Business Sale (2026)” — buyer-accepted add-back categories and the replacement-cost test
• Southcoast Financial Partners and Windes — why “non-recurring” costs that recur are rejected, and the traceability standard for add-backs
• ACECQA / Starting Blocks (Australian Government) — National Quality Standard ratings and public register (referenced conceptually)

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.