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Monday, November 22, 2010

How To Develop A Business Plan & Feasibility Study For A New School


I'm back at our head office in Vancouver after spending eight weeks working in Riyadh, Saudi Arabia leading a major strategic planning project for the Saudi K-12 education system. It was an extremely gratifying and challenging project and I gained considerable insight into the Saudi education system. It's quite a switch in weather returning to Vancouver and our first (and hopefully last) snow flurry. I had a switch of 90 degrees F. in temperature.
As always, I'm avidly following my beloved Vancouver Canucks hockey team and the franchise's 40th year. Perhaps this will be the year that they win the Stanley Cup. Unfortunately, they lost 7 to 1 to Chicago last night!
Our firm has been swamped with requests to complete market/feasibility studies and business plans for new schools globally. The world economy and demand for high quality K-12 private school education and US offshore accredited universities continues to grow.
Today I want to share with you how our firm determines the overall costs of starting a K-12 private international school (be it for- or non-profit). Of course, many of the elements can cross over to other types of schools, locations, etc. It should be noted though that we never develop a business plan in isolation, as you also need to conduct a market/feasibility study to gauge market demand, enrollment projections, fee sensitivity, etc. All of this HEG can provide globally.
Please read on to find out more about the fundamental elements of developing a business plan for a new private school. Remember, this is the foundation that all school development decisions should be based on!
To your success,
Doug Halladay 
Halladay Education Group 

P.S. Don't forget to go to our secure Online Store to invest in our Strategic Planning or Start-A-School Toolkits

Measurable Planning to Maximize Performance
When clients retain HEG to determine the overall project costs to start an international school, it can be difficult to estimate the costs of any given international school project without knowing the costs of the local environment and the market in which the school will operate. This is why it is important for HEG to complete on-site research and inspection of the market.
Our firm typically uses a four stage development process to prepare schools for operation, focusing on:
  1. Market Study and Business Plan
  2. School Development Plan
  3. Implementation of School Formation Plan
  4. Operation and Management of the School
Normally, our starting point with a client is to develop the feasibility-market study and business plan to determine project capacity, market demand, enrolment, financial projections, facility requirements, and ensure clarity in the start-up preparation and due diligence. Please note that our firm is experienced in a variety of educational programs (e.g., US, IB, Canadian, Special Needs, Single Gender, Elite Sports, British) and accreditation groups (e.g., WASC, ECIS, IBO, NEASC).

When developing a business plan, there are four major cost components to a school formation project:
  1. Land
  2. Construction of the buildings
  3. FF & E; and
  4. Soft costs such as marketing, accreditation, consulting, recruiting and all other costs necessary to execute the business plan with which we will form the school.
Each one of the four major components has different cost behaviours and characteristics, such as:

(1) Land:

The size of land required for a school depends on enrolment and availability of land in the area.  In a perfect world, we would like to see a combined elementary and high school campus to have at least 25 acres to 50 acres of land. However in a high cost urban area like Singapore, Hong Kong and Honolulu where we have had numerous clients, the land area of a school could be as little as three acres due to the high cost of land in those cities. In the Songdo project in Korea, which is a high-end American International School we consulted for near Incheon, Korea, the school has a total land area of 17-acres for 2,100 students. The Canadian International School in Singapore was constructed on 3.3 hectares (1 hectare = 10,000 sq. meter or 2.471 acres) for 2,000 students. As you can see, depending on the plot ratio (F.A.R.) permitted by the local jurisdiction, we can design a school that could suit any size of enrolment and still meeting the school's program requirements and budgetary challenges.

(2) Construction:

The costs of construction will vary from location to location, however you should note local cost for school construction on a per sq. ft. basis. What you may not know is how much the indoor spatial requirements are for your proposed school, which are dependent of your educational program. The typical standards we go by for estimating indoor building areas, depending on the client's budget and program requirements would anywhere from 100 to 200 per sq. ft. depending on your school type. A typical high-end international school, one which charges USD 15,000 to $25,000 a year for tuition, would usually have excellent amenities such as performing arts center (auditorium), black box theatre for their performing arts center, swimming pool, gymnasium, state of the art science labs, computer network connections, library, cafeteria, industrial shops, arts center and  band room.

(3) Furniture, Fixture and Equipment (F F & E):

This cost component is again difficult to estimate without knowing the local costs and your school's programming requirements. In a high costs area like Seoul or Hong Kong, F F & E costs could be very high. In a country with very efficient manufacturing industries like China, FF & E costs could be quite low. Your program, grades, and location will influence the type of equipment and apparatus you will need. HEG can draw upon our experience in this area based on the average F F & E of many other HEG projects.

(4) Soft Costs:

This includes marketing, accreditation, teaching staff recruitment, consulting etc. It is very difficult to estimate these costs without knowing your local costs. However, marketing costs can be lower in some regions than others; Hanoi as compared to major markets like Seoul and Singapore. The costs of recruiting international teachers will be the same though. Whether the international school is located in Jakarta, Mumbai or Hainan Island, we still have to attend the same international recruiting fairs.

Other Costs Required Immediately After Formation:

Besides construction and formation costs of starting a new school, school founders may have to budget extra cash to cover the school's deficits due to possible low enrolment during its early years. This extra cash reserve however may or may not be necessary depending on the international school market conditions in which the school operates.

Because it is always cheaper to build to a 700-student capacity for the school all at once, the proposed school during its earlier years may have excess capacity that is not generating profits. As a result, the school will need extra cash to meet budgetary deficits in the earlier years. The exact amount of cash requirement the school needs cannot be determined until HEG completes an in-depth business plan. However as mentioned above, in some rare situations, as it was in one school we started in Vancouver, Canada, some schools might not have any operation deficits due to large market demand for private school education in their catchment areas. Again, this is why is it important to conduct a market/feasibility study.

It may be advantages to separate construction over a number of phases.

As you can see, estimating the costs of school formation and operations is not an exact science by using just ratios and standards. Besides estimating the school formation budget as we did above, we also need to review the school operating budgets for the first five years because the school's operating deficits, if there are any, could have an impact on the amount of capital required to start a new school. It is therefore very important that HEG must complete an in-depth business plan in order to have a better understanding of all the issues and criteria of starting a private school in your region.

I trust the above will assist you with an estimate of the project formation and development costs for your school.


Douglas, HEG and our experienced team are experienced with the development of a market/feasibility study and business plans internationally, with experience in the USA, Canada, Singapore, Malaysia, China, Korea, India, Kuwait, Qatar, Saudi Arabia, UAE, etc. If your group needs support with the development of your business plan for a new private school, then you should seriously consider our services. If you'd like to learn more about how we can help your organization, please email HEG or call  our direct line at +1-604-868-0002 to find out more.

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