23 Things I Have Learned About Buying and Selling Child Care Businesses Over the Last 23 Years
In a few months, I will be celebrating 23 years of helping people build, buy, grow and selling child care businesses. It is hard to believe that 23 years have passed. I can still recall starting my business brokerage and consulting company and the first child care business I sold. I was speaking with a child care owner the other day, and he said, “ I bet you have learned many things about selling child care businesses in the last 23 years.” Yep, I have learned many things and thought I over the course of 2018 I would share 23 of the most important things I have learned over the years about buying and selling child care businesses. (Check back often for updates to the list.)
#1 Selling a child care business almost always takes longer than expected.
Many child care owners erroneously compare selling their child care business to selling a home. Having sold their last home in three or four months, they think the sale of their child care business will be pretty quick. When I started 23 years ago, the average time to sell a business was nine to twelve months. Due to many factors; lower number of qualified buyers, lack of financing and increased child care industry regulations to name a few, the average time to sell a child business is from one to two years. Do some sell faster? Sure, however, on average you should plan on a one to two-year marketing time frame.
Of course, you can “give” your child care business away pretty quickly. “Looking for a steal – bargain hunting child care business buyers searching for their next deal,” can readily be found. Moreover, when they find a “burned-out” child care business owner, anxious to get out quickly no matter what the price they know in the end they will pay far less than the listed price.
Jokingly, I always tell child care business owners to make sure they contact me about selling their business when they are just feeling a little crunchy around the edges. If they wait until they are complete “toast,” their burn-out will lead to a lower sale price and frustration with the average length of time necessary to fully market a child care business and receive the highest price.
So, plan ahead – take your child care business to market early enough to allow plenty of time for a qualified buyer, willing to pay fair market value to be identified and a structured, business preserving transfer to take place. And, should you get lucky and your child care business sells quickly – well that just means you will get to start the next chapter of your life sooner – retirement, moving to the beach or spending more time with family and friends.
#2 Loose lips sink ships. Confidentiality is soooooo important.
It cannot be overstated the importance of keeping the potential sale of your child care business completely confidential. Even small breaches of confidentiality often result in loss of employees and enrolled children. Breaches of confidentiality can lead to reducing the purchase price or taking the business off the market and working months or years to rebuild enrollment and business value.
Too often, when thinking about selling their child care business, owners seek advice from individuals that know nothing about selling a child care business and how sensitive parents and staff can be to a possible change in ownership. An attorney, accountant or real estate agent tells them the best way to sell a business is to let everyone know it is for sale – tell your employees, parents and call your competition and see if they would like to buy your child care business – very bad and ultimately very expensive advice!
Recently, I spoke with a child care owner that had done just that – let everyone know she was looking to sell. Having heard the same story hundreds of times, I could have finished telling it for her. She shared that she had shown the business more than a dozen times, had not received a single legitimate offer. Several individuals, having no money, wanted her to lease them the child care business and building with no money down – just come in and start running the business and make monthly lease payments for everything. She had lost a few key teachers to her competitors, and her enrollment had declined as well as the business value. Each day she had to spend time addressing her employees and parents concerns about what potential buyer might take over the business – would they be qualified, what changes would they make, would they lose their job – on and on. She, of course, wished that she would have reached out to someone that specialized in helping people buy and sell child care businesses – confidentially. Fearing her business would continue to decline, she was considering closing the child care business and leasing the building to a guy wanting it for another type of business. Once a thriving, profitable child care business, operated for twenty plus years with a stellar reputation, on the brink of closing the doors. In the end, the total financial loss will probably be several hundred thousand dollars. Yes, loss lips sink ships and child care businesses – confidentiality in selling a child care business cannot be overstated.
All marketing efforts, meetings, business showings, completing the steps of due diligence, notifying the NCDCDEE of the sale and desire to change ownership – all the way up to the day of closing must be handled confidentially. Over the years, I have developed processes and procedures to lessen the chance of breaches of confidentiality. It takes a vigilant focus on following proven, best practices and constantly reminding everyone involved – seller, buyer, lenders, attorney, accountant – everyone about the need for extreme confidentiality. The continued successful child care business operations and business value depend on it.
#3 Increased regulation decreases the business value and sales price.
I have worked on child care brokerage and consulting projects in many states but mostly in North Carolina. Over the last two decades, I have watched child care regulations in North Carolina have increase substantially. Regulations, particularly burdensome regulations increase the cost to do business and decrease profits – which in turn decreases the value and potential sales price.
As a child care operator, you must reevaluate your business operations with the release of each new regulation. Moreover, when necessary, make changes in your business not only to meet required regulations but to also, as much as possible, to maintain profits. I often see child care businesses that have made changes to meet new regulations, but they have not reevaluated their child care profitability taking into consideration the new regulatory impact on business profits. You should always be asking yourself, “how can I meet regulations, license law, provide quality child care – but also increase my business profitability?” There is often more than one way to meet regulatory requirements –with some options being more expensive than others. How can you spend less money and still meet all requirements? Every dollar of profit your preserve not only provides you with more personal income but also makes your child care business more valuable and easier to sell should you choose to sell your child care business.