How to Secure the Highest Price when Selling your Childcare Center
Even if you’re not thinking about selling, these steps can help you prepare for your future.
The idea of selling the childcare center that you have worked hard to build may be difficult to fathom, but chances are that if you are reading this, the thought has crossed your mind. Over the next decade, 6 out of 10 business owners will plan to sell their company and for a good reason – the market is flourishing and 2014/2015 is a great time to sell.
Over 11 million American children under the age of 5 are in some form of daycare, and average annual daycare fees per child can range anywhere between $3,911 and $20,178! While the childcare industry can be incredibly competitive, these statistics make for a very profitable and lucrative business plan. These statistics along with government benefits and extracurricular programs have probably assisted you in building a profitable childcare facility that you are now interested in cashing in on. You may be wondering several things about selling your business; how can I maximize the value of my childcare center to ensure the best payout? How can I prepare my center for sale? And, how can I estimate the worth of my center?
Child care centers can range anywhere from small, to mid-size to large depending on a number of factors. Factors such as fees, government assistance, and expenses all make up your center’s revenue. It is difficult to estimate the average revenue of a childcare center, but according to the 2014 Business Reference Guide, childcare centers have an average of about 12 full time employees and can bring in around $27,900 each in revenue, or an average of 6.6% profit.
So how much can a childcare center sell for in today’s market? Dozens of childcare facilities sell every year in the United States and at Viking Mergers & Acquisitions, we have sold 5 in the past 18 months. Depending on size, sales and other monetary factors, a childcare facility can sell anywhere between $500,000 and $3,000,000. Advisors use several formulas to reach the right price for childcare centers, but to help get a better idea of where you stand, review the multiples below. These numbers are to serve as guide, only a professional can tell you the real value of your business after viewing your financials.
- Pricing ranges from 1.5 to 4 times EBITDA.
- Larger facilities (licensed for 100+ children), calculate the cash flow 4x.
- Smaller facilities, calculate the cashflow 2x.
- 4-7x SDC (Seller’s Discretionary Cashflow), including real estate.
Knowing now partially of what goes into calculating a sales price, there are several things you can do to further maximize the value of your childcare center. If you are thinking of selling your business now, or 5 years from now, take these steps to increase the value of your center and ensure you get the cash you deserve when it comes time to sell.
Childcare centers are strictly regulated by local and state government agencies. As an owner, you hold a license with the state that qualifies you to operate your business. This license is non-transferrable and the new owner will need to apply for the same license in their name, before the closing date. Before listing your center, be sure you are in compliance with local building, fire, sanitation and zoning codes and if repairs are required by these agencies, make sure you keep records. By showing that you are in compliance with these regulations, your business instantly becomes more attractive to buyers due to a decrease in upfront costs and more ease in obtaining the required license.
Having a team of highly-trained professionals in your business will help increase the value and the overall attractiveness of your facility. Employee requirements vary state-by-state, but it never hurts to go above and beyond these requirements for several reasons. First, more parents will take an interest in your center because of the highly-trained staff, thus, increasing revenues. Second, when it comes time to sell, trained staff will be viewed as an asset to potential buyers and will bring your sales price up. As per Child Care Aware, it is recommended that all basic employees have CPR & Health and Safety training, along with 40 hours of initial training, and 24 hours of review training once per year. To advance your employees skill set, you may want to consider training them for a Child Development Associate Credential.
A CDA candidate must:
- Be at least 18 years of age.
- Have a high school diploma or GED
- Have 480 hours of experience working with children within the past five years
- Have 120 clock hours of formal child care education within the past five years. The 120 clock hours must include at least 10 hours in each of the following eight content areas:
- Planning a safe, healthy learning environment
- Steps to advance children’s physical and intellectual development
- Positive ways to support children’s social and emotional development
- Strategies to establish productive relationships with families
- Strategies to manage an effective program operation
- Maintaining a commitment to professionalism
- Observing and recording children’s behavior
- Principles of child growth and development
By having CDA credentialed employees, your reputation and capacity will increase, thus showing that buyer stability and profitability. Make sure you are also in compliance of the staff to child ratio.
Another method you can use to maximize the value of your center is to begin increasing enrollment, starting a few months before listing. Depending on how many children your center is licensed for, begin building your enrollment and get as close to capacity as you can. It may be wise to implement a marketing plan if you have not already done so to help with bringing in new clients and further building your reputation within the community. By increasing your enrollment size, you will also be increasing revenues and demonstrating cash flow stability. This demonstrates to buyers that your business is thriving, stable and is a safe and prosperous investment for them.
If you are not already capitalizing on the government programs offered to child care facilities, this is definitely something you need to look into. State and federal governments offer a variety of programs to assist in childcare that can help you rake in some extra cash to go towards your bottom line. The websites below included how to apply and what requirements your center will need to meet in order to be eligible for the programs.
- USDA Child & Adult Care Food Program
- U.S. Department of Human Service Child Care Development Fund by State
- North Carolina Child Care Subsidy Programs
By taking advantage of government programs, you could add literally thousands of dollars to your bottom line. Food programs, such as the USDA Child & Adult Care Program, help with the cost of food by reimbursing centers for food costs. State and federal departments of human services help low-income families with the cost of childcare, adding clients to your enrollment and more dollars to your cash flow.
Government benefits are in the same boat as compliance licenses – they are non-transferrable. The buyer will need to apply for these benefits once they take over but you have paved the way for them; you already did the back work to be eligible for these benefits, the new buyer will just need to apply. The years your center collected these benefits will also reflect positively in your financials to potential buyers.
Implementing new programs to your childcare center before listing it can also help increase the value. Think about what programs you currently offer and what market you could expand into. Maybe you currently care for kids under 5 but would like to expand to elementary aged children. Starting up an after school program would greatly expand the market your center can now cater too. The old sibling of a toddler you are currently caring for may now begin attending your after school program, raising your enrollment rate and your revenue. Your center may also be eligible for a Pre-K Program (formerly called More at Four in North Carolina). Pre-K programs are a statewide initiative in North Carolina designed to help better prepare children for educational success. By implementing a Pre-K program, your center instantly becomes higher-quality in the eyes of parents and creates a very large source of new revenue for you. To find out more about how to qualify and apply for additional programs at your center, visit the links below.
Knowing how your childcare center stacks up against competitors is important, even if you aren’t ready to sell. By understanding the value and monetary breakdown of your business, you can see where you are doing well and where you could use some improvement. In the long run, having this knowledge will make it easier to manage your business and set you up to grow and succeed. Maximizing the value of your business won’t just help you when you decide to sell; it will also benefit you should you need to take out a loan. If you do not know the worth of your childcare facility and want to start planning for your future, Viking Mergers & Acquisitions can help you. We offer a no-cost, no-obligation valuation for business owners, even if you aren’t sure about selling right now. Even if you decide to sell in a few years, valuations can help you in several different financial situations, such as net worth assessment and estate planning. Give yourself an advantage; take these steps to maximize the value of your business and secure your future.