10 Steps to Prepare Your Child Care Business for Sale
Whether you plan to sell your childcare business soon or years from now, it is essential to ensure you prepare your business for sale. These steps can be implemented in any order, and depending on your desired timeline for exiting your business, it can take months to as little as a few weeks.
- Get an objective assessment of where your business is today and its value. Most childcare business owners have a limited understanding of the value of their business and real estate if owned. Most have tried to piece together an idea of what it might be worth by talking with other owners who sold their business, reading articles online, and asking real estate appraisers, attorneys, or accountants what they think it is worth. No doubt, folks are always willing to give you their opinion; however, more often than not – their opinion of value will be way off – some lower than the actual value – but, most often, a value substantially more than what could ever be achieved. So, it is best to seek the opinion of qualified individuals who value and sell childcare businesses and associated real estate.
- How Does the Value of Your Child Care Business Match Your Financial Goals? Will you be able to fund the next chapter of your life? Or is there a “Value Gap”? What you need, your business worth, and the net proceeds you will receive after transaction costs and taxes. Learning this can be eye-opening and a reality check for many childcare business owners.
- Once you know the value of your business, you can take steps to increase profitability and business value. Increasing the value of a childcare business takes intentionally maximizing revenues and profits and derisking the business. Child care businesses that are well established have a trained management team in place and are not reliant on the owner, have less risk for a decline in business after the buyer purchases – and buyers are willing to pay more for child care businesses with less risk.
The amount of “value gap” (the value of your business and how much you need) will determine to some extent how long it will take to work on increasing the value of your childcare business before taking it to market. Working with a consultant specializing in “child care business value acceleration” can be of tremendous assistance in helping you design and implement a plan to increase the value of your child care business.
- Financial Performance and Records. The business financial records (Profit and loss Statements, Balance Sheets, Tax Returns) must be up-to-date, accurate, and ready for review by potential buyers and their advisors (CPA, attorney, lender). Unavailable financial records and inaccurate information will make many buyers opt not to purchase a childcare business.
- Make the Business Less Reliant on You. Buyers want to purchase childcare businesses with a well-trained management team and not rely on the owners. Childcare businesses where the owner is heavily involved in the day-to-day operation and success are riskier for a decline after closing when the owner is no longer involved. Childcare businesses with a well-trained, competent management team are always more valuable.
- Systems and Procedures. In addition to a management team, you should have written policies, procedures, and systems for all aspects of your childcare business. Just having well-documented operational policies and procedures provides your management team
with step-by-step instructions on how to handle most routine business operations.
- Exit Planning and Succession Planning. Most childcare business owners spend very little if any, time planning for the day; they will no longer own their childcare business. Successfully exiting your childcare business takes planning and implementing various steps and stages. Working with an advisor specializing in helping childcare owners prepare and implement a successful Exit Plan can help you prepare your business for sale and prepare you personally for your exit from the business.
- Get Organized and Prepared for the Due Diligence Process. The Due Diligence process and the volume of information and documentation the buyer requires for review can be overwhelming and complex. Getting information organized, updated, and categorized before taking your child care business to market can lessen your stress level and the chance of problems during the due diligence that is tanking the sale.
- Prepare Your Child Care Building and Grounds. Buyers seek to purchase well-maintained childcare buildings, playgrounds, parking areas, and grounds. Deferred maintenance, old equipment, and facilities that have not been updated require more capital expenditures by the buyer. Thus, the buyer considers this before making an offer or the offer amount. To get the total value for your business and real estate, ensure everything is well-maintained.
- Start Putting Your Team Together. Unlike selling a house, selling a childcare business is a complex transaction. To ensure transaction success, you will need to work with professional advisors who understand childcare businesses and have a high degree of experience in mergers and acquisitions. Start with researching and hiring the best childcare business broker (a broker specializing in childcare and ONLY selling childcare businesses and the associated real estate) you can find. Given the brokers’ child care specialization and many years of experience, they can often recommend other professionals you should consider adding to your advisory team – attorneys, tax advisors, and others with special knowledge and skills that may be necessary depending on your child care business and transaction details.
You often only get one chance to complete the sale of your childcare business successfully. Without planning and preparation, many things can go wrong – often resulting in receiving less for your childcare business and real estate or a failed transaction.
If it is time for you to start planning your exit or have questions about the process, call me at 336-617-3181. All conversations are confidential, and there is no obligation.