Private school with plans to open a new branch
A private investor approached us considering capital entry into an operating private school in Astana. The school operated in the mid-price segment, served elementary students, and planned expansion through opening a new branch with external investment attraction.
At first glance, the business looked attractive: stable capacity utilization above 80%, positive cash flow, and growing segment demand. However, the investor wanted to ensure that behind these metrics stood real sustainability.
What needed to be done
The investor requested a comprehensive business check before making a deal decision. Key questions: how sustainable is the financial model, what is the real profitability, what hidden risks exist, and how can capital entry be optimally structured?
A particular challenge was that some operations ran through informal channels, making objective assessment of actual financial condition difficult.
What we found: 4 critical risk zones
Analysis of bank statements, operational data, and legal documentation over several years revealed serious systemic problems that were invisible upon superficial review.
Dependence on government subsidies
Approximately 28% of revenue comprised government per-pupil funding and meal subsidies. Without these funds, the business fell into operational loss. Any change in government policy endangered the entire model.
Shadow expenses
More than half of operating expenses ran through personal accounts in cash. This created an opaque picture of actual cost of goods sold and made reliable financial accounting impossible.
Significant tax risks
Unrecorded cash operations created substantial tax exposure. Upon inspection, the business could face serious additional assessments and penalties.
Absence of management accounting
The company kept no systematic management accounting. We had to reconstruct the full financial picture from bank statements and interviews with the founder.
Unit economics: breakdown to the level of one student
We decomposed the financial model to the level of one student to give the investor clear understanding of business economics.
| Metric | Share of Revenue |
|---|---|
| Income Structure | |
| Tuition payments | 76% |
| Government subsidies | 24% |
| Total income | 100% |
| Expense Structure | |
| Payroll + taxes | 34% |
| Rent + maintenance | 25% |
| Other operating | 8% |
| Total expenses | 67% |
| Net margin per student | 33% |
The break-even point for the new branch is over 90% capacity utilization, leaving minimal safety margin. In the first year with gradual student enrollment, the branch could operate with negative EBITDA.
What we did: step-by-step action plan
Week 1 — Data collection and accounting reconstruction
Requested bank statements over several years, conducted interviews with the school founder. Since management accounting was absent, we reconstructed the full financial picture from statements and interview data.
Week 2 — Financial modeling and diagnosis
Built financial model: cash flow analysis, unit economics, BEP analysis, and forecast. Conducted DCF business valuation. Parallel work: SWOT analysis, competitive analysis, and tax risk assessment.
Week 3 — Deal structuring and reporting
Developed two deal structure options. Prepared term sheet recommendations, corporate governance suggestions, and risk mitigation strategies. Compiled final investor report.
Recommendations for investment deal structure
Instead of the founder's proposed scheme for entering the entire business, we proposed an alternative structure that significantly better protected investor interests.
Separate legal entity for new branch
Isolate the investment from existing obligations and risks of the operating business. A new clean structure without the "legacy" of shadow accounting.
Reduced investment amount with larger stake
Divided funds into CAPEX (equipment and school renovation) and cash-out (founder share buyout). Clear separation of investment and operational cash flows.
Transparent management and KPI
Mandatory implementation of management accounting, monthly reporting, target KPIs for student enrollment, dividend policy, and exit mechanism.
Protection from key risks
Fixing subsidy conditions, minimizing cash transactions, converting all payments to bank channels, professional accounting from day one.
Project outcomes: what the client received
Key project results
Complete business picture
Detailed financial model, unit economics, multi-year forecast, and DCF business valuation
Hidden risks identified
Shadow operations, tax exposures, and critical subsidy dependence—factors invisible in superficial analysis
Safe deal structure
Proposed alternative structure with larger stake, lower investment amount, and complete isolation from old risks
Growth roadmap
Concrete recommendations for scaling: increasing student numbers, expanding classes, plan for reaching target returns
Financial projections for new branch
Based on the built financial model, we showed the investor the development trajectory of the new branch.
| Metric | Year 1 | Year 2 | Year 3–5 |
|---|---|---|---|
| Capacity utilization | ~75% | 100% | capacity expansion |
| EBITDA | negative | positive | multiple growth |
| Margin | -2% | 34–39% | 34–39% |
| Payback period | 2–3 years from reaching full capacity | ||
This project exemplifies how comprehensive Due Diligence can radically change deal parameters. The initial proposal looked attractive, but beautiful numbers masked risks capable of destroying investment value. Our task is to ensure investors make decisions based on facts, not presentations.
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