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It can happen, especially with small or mid-sized childcare centers licensed for fewer than 100 children, but it is uncommon. It usually occurs only when the buyer can pay cash and does not need bank or seller financing. Even rarer is a buyer with no childcare experience qualifying to purchase a large, non-franchise childcare business that does not provide buyer training and ongoing support. So, the realistic answer is: rarely. As an aspiring childcare business buyer, it is much better to understand that now than after spending four months searching.
This is one of the most important qualifying questions we ask every buyer – individual buyers and new corporate/investment group buyers. If you have never worked in or owned a licensed childcare business, the odds of completing a purchase are very low — not because anyone is being unfair to you, but because both the childcare business owner and the entity providing financing for the business purchase want to know the buyer has childcare experience.
Two parties have to approve you
Your lender underwrites the person signing the loan. They are not lending against the building or the playground or the brand on the sign. They are lending against the likelihood that this business still has the same number of children enrolled and financial performance in six months, twelve months, eighteen months, and into the future – with you running it. Lack of childcare experience decreases the likelihood that the enrollment and financial performance will continue under the new buyers ownership/
The owner decides whether their business may be presented to you at all. Every business we represent is listed confidentially under an agreement that gives the owner the final word on which buyers see it. We present buyers to the owners. The owner decides. Owners routinely decline buyers with no childcare operating experience, and that is their right. They are protecting their employees, children, parents, their community, and their legacy.
Most buyers with no childcare experience will not receive the seller’s permission to discuss their business nor a lender’s approval on a loan application.
What the lender is looking at
Buyers new to buying a business tend to assume a lender is only evaluating their credit score and their down payment. That matters, but that is only part of the qualification process. What the lender is genuinely worried about is ongoing enrollment and financial performance.
Enrollment is the entire asset of a childcare business. A childcare business with 120 children enrolled and a waiting list is a valuable business. The identical building with 70 children enrolled is often not financeable at all. No other assets on the balance sheet change that fast, and nothing else can move that far in ninety days.
Although a well-maintained, clean childcare facility is part of a family’s decision when first selecting the center, it is not the primary reason for choosing the childcare business, nor is it why they stay. They stay because they trust the people caring for their child. When ownership changes, and the parents sense uncertainty, some of them start looking for other childcare options. When a lead teacher leaves and a familiar face is gone from the classroom, more of them look – it can quickly turn into a downward enrollment spiral. A lender who has financed childcare acquisitions before has watched this happen, and they will include reviewing it as part of the underwriting process.
Until you have worked in childcare, it is impossible to understand childcare fully. Buyers with no childcare experience often have no concept of how even small changes can have a major negative impact on the childcare business. For example, every state’s childcare licensing has mandatory staff-to-child ratios. If you lose two teachers in the same week and cannot replace them, you cannot simply run short-handed the way another business might. You might have to close a classroom. Closing a classroom means sending children home, and children sent home frequently do not come back. A staffing problem converts into a revenue problem within hours or a few days, and a childcare business buyer who has never managed a childcare staffing crisis is the inexperienced buyer a lender least wants to risk approving a loan for.
Why the owner cares just as much, if not more
Our seller clients have typically spent twenty to thirty-five years building these businesses. Their staff has been with them for a decade or more. Their families chose them, often for a second and third child. What happens after closing matters to them in a way that surprises buyers who are used to other kinds of small business transactions.
It is also frequently a financial question for the seller, not only a sentimental one. Where a transaction includes seller financing, the owner is carrying part of your risk – even if it is a small amount of owner financing. An owner holding a note has a direct interest in whether you can operate the business well enough to pay them.
“But the listing says there is a management team in place”
Yes, most large childcare businesses have a management team
It does, and that is an accurate description of how the business runs today, under its current owner. It is not a commitment to you.
We do not ask an owner to tell their director that the business is for sale to reassure a buyer that the management team knows and has committed to staying. Disclosing a sale prematurely is the single most damaging thing that can happen to a childcare business. The director resigns or begins looking. Staff hears about it within a day. Families hear about it from the staff. By the time the transaction closes, the enrollment a buyer and the lender was underwriting has moved.
So nobody is going to confirm to you — or to your lender — that the current management team will stay and carry an inexperienced owner through the first year. Your lender knows this. It is why a management team on paper does not substitute for your own operating experience in underwriting.
Replacing the director does not solve it
A common response at this point is: I will bring in my own qualified director, or a partner with childcare experience.
In our experience, this makes the loan approval and the entire situation worse, not better. Lenders understand that installing a new director at the same moment ownership changes compounds exactly the risk they were already concerned about — two unfamiliar faces instead of one, and a much higher probability of enrollment loss with a monthly loan payment due. Partners and co-owners brought in specifically to satisfy a requirement also have a way of withdrawing when the process gets long, and the diligence gets real.
And remember, one of the goals of many childcare business owners–sellers– is protecting the long-term loyal employees that often helped them build their successful business. Trying to convince an owner that they should sell their childcare business to a buyer that is going to fire the director, assistant director – the management team on day one will not go over well with the childcare business owner nor the lender.
What counts as experience
Direct childcare experience
Directly working in a licensed childcare business is what qualifies as childcare experience: owning a center, serving as a director or assistant director, or in an administrative role with responsibility for staffing, enrollment, licensing compliance, and the budget. Or, depending on the number of years of experience, a childcare lead teacher or assistant teacher.
Yes, some lenders will consider similar backgrounds and work experience — education administration, healthcare administration, or operating a multi-location service business with heavy staffing and regulatory demands. Work experience like these will help strengthen your loan application. However, the lender will not view them as an equal experience substitute for having worked in a licensed center.
Some things buyers offer as experience that are not considered childcare experience include being a parent, having a child in childcare, babysitting nieces and nephews, working in the nursery at church during Sunday school, coaching a little league football team, or having researched the industry thoroughly. None of them answer the question the lender and the owner are asking: “Do you have direct experience working in a licensed childcare environment?”
If you are not ready yet
Getting childcare experience is far easier than most people assume. Childcare businesses across the country need employees – assistant teachers, floaters, school-age program teachers and assistants. Put in your application – even if you are only working a few hours a week in the school age program or summer camp – that counts as childcare experience. The longer you work, the better qualified you will be, and equally important – it will give you first-hand knowledge of what it is like to work in childcare. You may find that you love it – or, as many buyers have found after working in childcare – it is not what they thought it would be and end their search to buy a childcare business.
Information about requirements for working in a childcare business can be found at the state licensing websites below:
GA Department of Early Care and Learning: https://www.decal.ga.gov/CCS/Default.aspx
NC Division of Child Development and Early Education: https://ncchildcare.ncdhhs.gov/
SC Department of Child Care Early Care and Education: https://scchildcare.org/
TN Department of Human Services: https://www.tn.gov/humanservices/for-families/child-care-services.html
VA Department of Education: https://www.childcare.virginia.gov/home-childcare
During our initial engagement with each childcare business owner we represent, we discuss what they are seeking in a childcare buyer. Almost 100% include childcare experience as one of the requirements. Unless their business is a franchised concept, where the franchiser will provide initial and ongoing training and support. Most childcare owners will not allow us to present their childcare business to buyers who do not have childcare experience.
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