Poised for Action: Steps To Take Before Selling Your Educational Business
Maybe selling the educational business you have worked so hard to build is the last thing on your mind. Maybe it is in the back of your mind as you watch this exciting new acquisition market and think it sounds promising. Maybe it is the first thing on your mind on Monday morning when five teachers call in sick, the computer crashes and licensing chooses today to visit (did I mention that the toilet is clogged?). Where ever you are in your business cycle and making an economic decision to realize the value from years of hard, but fulfilling work, opportunities are best acted on when you operate like a company that is poised for action.
Poised for action
Today’s acquisition market is exciting and fast changing. More consolidation efforts from a few 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 in a moment and should always be considered. 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. Although each buyer will handle the process somewhat differently, requiring different information and due diligence, they will all be fairly similar. Also 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 good at managing the process confidentially.
Buyers will typically pay business prices based on current gross income, adjusted by their own future costs. (See December 2006 article, Valuing Your Childcare Business). Therefore, selling when income is at its highest is best. Be sure that tuition rates are at or slightly higher than the competition and raise rates to market before the sale. Also consider adding supplemental or collaborative programs that bring in additional revenue. For instance, consider the USDA food program, a Head Start or business collaboration, or adding an infant or afterschool program. In addition to gross revenue, buyers will 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 (look for future article on Financial Information and Controls). Also, when preparing to sell, invest in maintenance and safety issues, and consider cosmetic changes such as a fresh coat of paint and mulch, but major renovations and capital purchases, such as playgrounds and vehicles, rarely return their investment in the short run.
Accurate, Timely Financial Information
Current financial statements will be requested along with two to three prior years. Keep financial statements current and accurate and be able to separate owner expenses so that they are easily distinguishable. Independently prepared financial statements will lend credibility to the numbers, and larger companies should consider an annual review or audit. Also be prepared to present tuition schedules, enrollment by classroom, and individual payroll statistics such as position, pay rate, and length of service.
Operationally Independent and Congruent
Potential buyers will place high value on a culture match with your organization. They will want to be sure that they can maintain your current operational situation with minimal changes. Be sure that a Director is in place and staff is stable and ready to run smoothly without your presence. Also, staff benefits should be matched to industry standards. Consider the number of staff with free or reduced childcare, vacation and holiday policies, etc. and be sure it is manageable financially. Review staff and parent policies and align your company with the market as much as possible. Take note of financial policies (late payment fees, registration fees, etc.) and operational policies that impact the financial situation such as child vacation days.
Other than financial incentives, other aspects of selling can be rewarding as well. Often a larger organization brings growth opportunity to staff and this can be an extremely rewarding experience for the seller to provide. Another potential reward to selling is that often the buyer will have increased staff benefits that are more affordable with a larger company. As with other processes such as accreditation, the sales process itself can be very valuable. Be ready to take action and consider all possibilities—now go grab the plunger!