Whether or not you are ready to sell your day care center, you are reading this because either the idea has crossed your mind or because you want to know the selling price of your greatest asset – and maximize it. Owners often ask me: “What will my business sell for?” I thought it would be helpful to give you a few insights. Here goes.
Let’s review the obvious ways to increase the selling price of your center:
- A genius idea: Increase your licensing capacity! In many cases, this is easier said than done. Your unique limitations may include home/commercial real estate constraints (indoor/outdoor square feet per child) or difficulty maintaining child-to-adult ratios due to geographic staffing constraints, not to mention ongoing training and certification. However, if you can increase the licensing capacity (and therefore revenue), it will increase the selling price.
- Be sure you have good financial records. This consists of income statements and balance sheets that are accurate, up-to-date and recorded on the books. In my experience, a good accountant is worth it.
- You want to show good profits to a prospective buyer. The selling price of your day care center is based primarily on the annual gross income that you can verify. Unverifiable income may help you from an income tax perspective now… but comes to bite you when you want to sell for top dollar. Year over year profitability increases will make your center very attractive to a buyer.
- Be sure your business records are in order. File and pay all state and federal corporate tax returns. If you are a C corporation with at least a 5-year horizon to sell, you may want to switch to an S corporation to avoid double taxation on the sale.
- Look for creative ways to cut costs without sacrificing service. If your center uses paper products for convenience, switch to reusable dish wear. You will save money, haul less trash and show you care about our environment. Cutting costs improves profitability.
- Stay compliant, don’t get compliant. Be sure your operating ratios meet the State’s level of regulations. Follow all relevant EEC Licensing policies and codes and be able to show a documented history of compliance.
I support my owners in their endeavor to obtain the best selling price from their day care center. At times, that means imparting some tough love. While touring a center, I will ask about the big things, but I notice the little things because a buyer will be nit-picky too.
Now for the not-so-obvious ways to increase your center’s selling price. Hint: Sweat the Small Stuff.
- Clean up your center! Remove the used tape and staples from the walls and doors. Dust the moldings. A clean and organized physical space leaves an impression – on prospective parents, existing parents and potential buyers. Send a message that you have a well-run center.
- Give excellent customer service and be sure your center has top online reviews. Online reviews are one of the first things a buyer looks at. If you don’t currently have online reviews (or a strong website), add the feature immediately then proactively ask your most supportive parents and past parents to write a review.
- Have two sinks per room? I recently spoke with an owner who lamented over not having installed two sinks per room during a recent renovation because she was trying to save on costs. However, the incremental cost would have had the dual benefit of affording her staff increased efficiency AND making her center more attractive to a future owner. As improvements and upgrades are made around your center, weigh the benefits of small incremental costs from both standpoints.
- Make your center less dependent on you. A potential buyer will consider how replaceable you are. The easier you are to replace, the more valuable your day care center will be to a buyer. Hire good people and delegate to them. Most buyers want to manage the business, not be in the classroom.
- Get rid of unnecessary people and expenses and replace poor employees. This is business, not personal. A prospective buyer wants a strong, loyal team in place. The stronger your team, the better price you should get for your business. (Your staff will thank you for it too.)
- Befriend (or at least have a good relationship with) your local inspector.
- Keep up your marketing and enrollment efforts. Whether your enrollment is growing or declining will have a big impact on how salable the center is and the price it will sell for. Consider increasing profitability by accepting more part-time or half-day children (where your profit margin is likely higher). Also, lenders are more reluctant to lend when a business has declining sales and profits.
- Turn that extra storage area into a STEM room! Most centers have a storage space where items are collecting dust that maybe you will need at some point in the future (but probably not). Donate that clutter and convert your extra space into a feature that prospective parents, your staff, the kids and prospective buyers will value!
If you want to sell your day care center within the next twelve months, you should contact me now to start the process. It typically takes six to nine months to sell a business, but it can take up to a year. It will increase the selling price of your business if you don’t have to rush the sale.
If you wonder what your business would sell for now, you can contact me to do a valuation which will include tailored commentary on how to increase the selling price of your center.
You’ve worked hard making your day care center successful and its sale is likely to be your best opportunity to get the most money for another venture or retirement. Do yourself a favor and take proactive steps to prepare your business for sale.
