Are you going to be ready when it comes time to sell your child care business? Part of your child care business plan should be an exit strategy.
Having an exit strategy means being smart about running your child care business so you can get what it is worth when it comes time to sell. This will get you a better return on investment on all the work you’ve put into your child care center.
There are specific ways to be strategic about selling your child care program for top dollar.
My friend, Kathy Ligon at SSG Advisors, helps my Child Care Success Academy clients, and others in the child care industry, sell and buy child care centers. She helps people determine what a child care center is worth, to help buyers and sellers negotiate a fair price.
Kathy Ligon’s advice is to keep in mind 4 key factors when determining the value of your child care business:
1. Up-to-Date Financials/Profit and Loss (P&L).
Your financials need to be accurate and up to date. Financial statements, such as your P & L, let people know your child care costs, your ratios of costs compared to child care industry benchmarks, and ultimately the profitability of your child care.
To determine profitability, potential buyers for your child care will be looking at your EBITDA (earnings before interest, taxes, depreciation, and amortization.) Hey, did you learn a new fun acronym?
An up-to-date P & L should be at your fingertips every month. Good financial management is not only key when you are planning on selling your child care center, but also a best practice to control your child care costs. Every month you should be able to look at the past month so you can manage in a timely and strategic manner.
Buyers will look at what you charging relative to your competitors in the marketplace. Are you the most expensive? Are you the lowest? Or somewhere in the middle? The more you charge, the higher the valuation of your child care. This shows that you have invested into your child care brand and are at the top of your market.
3. Enrollment vs. Capacity
Look at your numbers and determine what the enrollment of your child care is versus capacity. Are you at 60%? Are you at 100% with a wait list? There is a sweet spot for buyers; it is between 70-75%. This gives buyers a little bit of upside and the potential to make more money in the future at your child care center.
If your child care business is a super profitable cash machine, with a waiting list that will give certain buyers piece of mind, this can also help your valuation for certain buyers not looking to invest a lot of time.
But for many potential buyers that sweet spot is around 70-75%.
4. Market Trends
It’s important to look at what’s going on in the real estate market, in your county, and in the business buying market overall. If it was 2008 you definitely would not get as high of a valuation that you would get today.
I’ve been hearing from friends that 2014 has been a gang buster year for child care sales so if you are thinking about selling, you may want to act soon!
If you’re getting ready to sell, it’s time to start taking the steps to get top valuation for your child care center.
Homework assignment: Dust off your P&L and get into the habit of using it regularly to keep control of your child care cost structure to keep good, desirable ratios that are in line with industry bench marks. (a good child care broker will help you figure out industry benchmarks.)
Take a look at each of step and take action to get yourself in a better position to sell or at least add an exit strategy to your child care business plan so you know what to do when the time does come to sell.