In the training workshops I conduct and my meetings with childcare owners, I find them confused about why childcare business buyers buy and what the buyers are willing to pay for. Why Buyer Buy – and What They Will Pay For are not the same; let me explain.
A buyer will buy your child care business for its.’
- Competent Management Team
- Qualified Teachers and Staff
- Good Culture
- Quality Programs
- Well Maintained Facilities
- Strong Demographics
- Reputation in the Community
- Good State Rating
- Good Market Rate Tuition
- Projected Population Growth
- High Number of Children in the Area
A Buyer Will Pay You For Your Business Profits
All child care business buyers – individuals and large, national multi-unit buyers desire to purchase child care businesses with a well-trained management team, quality teachers, an excellent culture, programs with high state ratings, above average tuition rates, good demographics, growing areas, and well-maintained buildings and grounds. However, these things alone will not result in you receiving a high purchase price for your childcare business. Buyers buy and pay for business profits!
As an owner, it is important that you understand what creates value and how this impacts what you will receive for your childcare business when you decide to sell. Too often, I find that childcare owners focus most on building a great program, investing in developing their management team and teachers, and creating a culture that employees want to be a part of and others seek to join. Unfortunately, these owners often spend very limited time and effort on the financial management of their childcare business.
When I present a child care business acquisition to a buyer, they want to know about gross revenues, net operating income, recast Seller Discretionary Earnings, or EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) enrollment to licensed capacity, income, and profit growth potential – the financial aspects of the child care business are the most important.
When buying a childcare business, individual buyers – are buying a job. They want a business that will provide them with a good living wage, cover the debt (loan obtained to buy the business), cover all the business expenses, and have the excess cash flow for working capital. National multi-unit buyers (most backed by private equity groups) buy for profits today and an ongoing stream of predictable income (gross revenue) and profits in the future.
Low-profitability childcare businesses often do not sell or are sold for low prices. Without good levels of business profits, potential individual buyers will find it difficult, if not impossible, to obtain a loan to buy the business. And, the national multi-unit buyers often pass on low-profitability child care businesses, or if willing to make an offer, it is usually very low. These larger, national multi-unit buyers may review several hundred childcare businesses for sale (across several states or the entire US) each year, ultimately only pursuing the purchase of those centers with good financial performance and profits.
As a childcare owner, you must spend as much time focusing on your business’s sound and profitable financial management as you do building great programs, creating a good culture, developing your team, and maintaining a good state rating.
If your childcare business is not as profitable as you would like you would like some help to make it as profitable as it can be, and you would like to explore the financial consulting services I provide, give me a call at 336-617-3181.