The idea of selling the daycare center that you have worked hard to build may be difficult to fathom, but chances are, if you are reading this, the thought has crossed your mind.
You may be wondering how to sell a daycare business in Knoxville successfully. Perhaps you have wondered: How can I prepare my business for sale? How can I estimate the worth of my daycare center? How can I maximize the value of my daycare center to ensure the best payout?
Daycare businesses in Knoxville can range anywhere from small, midsize, to large, depending on a number of influences. Fees, government assistance, and expenses are all factors that affect your center’s revenue. It is difficult to estimate the average revenue of a daycare center in Knoxville following the impact of COVID-19, but the daycare industry is expected to slowly return to high demand by 2025 as the number of children aged nine and younger is anticipated to increase at an accelerated rate, and unemployment is projected to mostly recover.
Dozens of daycare facilities sell every year in the United States. Business advisors use several formulas to calculate the right price for daycare centers, but to help get a better idea of where you stand, review the multiples below. (These numbers serve as a guide. Only a professional can tell you the enterprise value of your business after reviewing 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 cash flow 2x.
- 4-7x SDC (Seller’s Discretionary Cash Flow), including real estate.
With the above insight into calculating the sales price, there are several ways you can help maximize the value of your daycare center. Whether you are thinking of selling a daycare business in Knoxville this year or in five years, begin taking these steps now to increase the value of your center and ensure you get the cash you deserve when it is time to sell.
Daycare businesses in Knoxville and Knox County are strictly regulated by local and state government agencies. As an owner, you hold a license with the state of Tennessee 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. Working with a professional to navigate and assist the new owner in obtaining this license, or finding a buyer who already holds this license, can be very beneficial.
Before listing your center, be sure you are following 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 following 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, which increases revenues. Second, when it is time to sell, trained staff will be viewed as an asset to potential buyers and will bring your sales price up.
According to 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 the 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 daycare 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, thereby showing stability and profitability.
Another method you can use to maximize the value of your daycare business 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 bring in new clients and further build your reputation in Knoxville. By increasing your enrollment size, you will also increase revenues and demonstrate cash flow stability. This shows buyers that your business is thriving, stable, and is a safe and prosperous investment.
If you are not already capitalizing on the government programs offered to daycare facilities, this is definitely something you need to look into. State and federal governments offer a variety of programs to assist in daycare that can help you bring in extra cash to contribute to your bottom line. The websites below include information on how to apply and requirements for eligibility.
- USDA Child & Adult Care Food Program
- U.S. Department of Human Service Child Care Development Fund by State
- TN Enhancement Grants
- TN Child Care Certificate Program
By taking advantage of government programs, you could add 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 daycare, 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 legwork to be eligible for these benefits, and 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 daycare center before listing it can also help increase the value. Consider the programs you currently offer and what market you could expand into. Maybe you currently care for children under 5 but would like to expand to elementary aged children. Starting an afterschool program would greatly expand the market your center can serve. The older sibling of a toddler you currently care for may now begin attending your afterschool program, raising your enrollment rate and your revenue.
Your center may also be eligible for a Voluntary Pre-K (VPK) program. VPK programs are a statewide initiative in Tennessee designed to help better prepare children for success in kindergarten and throughout the child’s life. By implementing a VPK program, your center instantly 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 daycare center stacks up against competitors in Knoxville is important, even if you are not yet 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, set you up to grow and succeed, and ultimately help you sell your daycare business in Knoxville for top dollar.
If you do not know the worth of your daycare 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 are not 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. We are here to help. Contact us today.