Poised for Action: Steps to Take Before Selling Your Childcare Business

Maybe selling the early learning school you’ve worked so hard to build is the last thing on your mind. Maybe it’s in the back of your mind as you watch exciting new investment and acquisitions in the market. Or maybe it’s the first thing on your mind when Monday morning comes around and five staff members call in sick. Wherever you are in your business cycle, opportunities are best acted on when you operate like a company that is poised for action.

When opportunity knocks… answer!
Today’s investment and acquisition markets are exciting and fast acting. More consolidation efforts from major companies have driven business prices up and a favorable real estate market has opened new avenues for realizing value on property. Opportunities can present themselves at a moment’s notice and should always be taken into consideration. Don’t be afraid to work through the process with potential buyers when they are interested. Even if you are not completely sure that today is the day to sell, the knowledge gained by working through the process is invaluable. Each buyer will handle the process somewhat differently—requiring different information and due diligence. Don’t let confidentiality concern you. Companies that are experienced in acquisition understand the value lost to them as a potential buyer if customers and staff are concerned that a sale is taking place, and they are extremely careful to manage the process respectfully and confidentially.

Prime the pump!
Buyers typically pay business prices based on current gross income, adjusted by their own future costs. Therefore, selling when income is at its highest is best, or as we like to say, “It’s best to sell when you’re performing well!” Tuition rates should be at or slightly higher than the competition and you should consider adding supplemental or collaborative programs that bring in additional revenue--for instance, the USDA food program, a Head Start or business collaboration, or an infant or afterschool program. In addition to gross revenue, buyers also consider operational expenses and whether they are controlled within industry standards. The main expense focus should be on staffing costs and maintaining a healthy expense percentage to gross revenue. It’s also a good idea to invest in maintenance and safety issues as well as consider cosmetic changes like a fresh coat of paint or a top up of mulch. However, major renovations and capital purchases, such as playgrounds and vehicles, rarely return their investment in the short run.

Close the credibility gap!
Keep your financial statements current and accurate and have owner expenses separate so that they are easily distinguishable. Independently prepared financial statements will lend credibility to your numbers and larger companies should consider an annual review or audit. Current financial statements are usually requested alongside two to three prior years. Also, be prepared to present tuition schedules, enrollment by classroom and individual payroll statistics such as position, pay rate and length of service.

Avoid culture shocks!
Potential buyers will place high value on a culture match with your organization. They want to be sure they can maintain your current operational situation with minimal changes. Make sure a Director is in place and staff is stable and able to run smoothly without your presence. Also, staff benefits should match industry standards. Review staff and parent policies and align your company with the market as much as possible. It’s important to consider the number of staff with free or reduced childcare, vacation and holiday policies, etc. and to make sure this is manageable financially. Also take note of other policies (late payment fees, registration fees, child vacation days, etc.) that impact the financial situation.

Many aspects of selling can be rewarding—from financial incentives for yourself to growth opportunities and increased benefits for your staff. It’s always beneficial to consider your choices and cash in on opportunity. And the more prepared you are to take action, the more positive your experience will be!

If you want to learn more about how HINGE Brokers can support your buying or selling needs, please contact us at info@hingebrokers.com

ArticlesJaclyn Lintern