Most people are unaware that there is no license to be a business broker. Yes, you heard me – there is no business broker license. A few states, like Illinois, offer a business broker license – which only requires filling out an application and paying a fee – much like a business operation or privilege license. Other than the state of Nevada, which requires an individual to take a 27-hour business brokerage class through one of the real estate schools to become a business broker, no other state requires specific training to become a business broker.
Since starting my business brokerage career in 1995, I have found it unfortunate that specific training and licensing are not required to offer business brokerage services. Often, 70% or more of a person’s net worth is directly tied to their business – no matter how small or large the business. And, when it comes to exiting and selling their business, they could have someone with no training and limited experience representing them. Over the years, I have tried to have an impact on supporting the establishment of licensing and training for business brokers at the state level. Unfortunately, as they say – “follow the money.” There are so few individuals offering business brokerage services. The funds required to create state laws requiring training, successful examination completion, experience requirements, ongoing oversight, and regulatory compliance exceed the state funds and resources available.
No state licensing authority has required individuals offering childcare business brokerage to take specific training about selling a childcare business, ensured they were component through testing, nor required any experience selling childcare businesses. So, as a childcare business owner, it is important for you to understand since there is no “business broker license,” it is up to you to determine if an individual is qualified to represent you in the sale of your childcare business.
See answers to other FAQs that provide guidance on qualifying and selecting a childcare business broker.
Although there is no “business broker license,” all states require individuals representing others in the selling or leasing of real property to have a real estate license. Almost all businesses, other than very small home-based businesses and some completely online businesses, operate out of leased or owned real estate. Some states clearly indicate that business brokers must have a RE license in their state RE licensing laws. However, some states’ RE licensing law is unclear on the requirement for business brokers to hold a real estate license. Therefore, it is common to find individuals offering business brokerage services who are not licensed as a real estate broker.
I have been a licensed RE broker since the 80s and hold an RE license for each state where I sell childcare businesses. To obtain and maintain each of these state RE licenses, I have spent hundreds of hours in RE licensing courses. None of these courses covered any content about selling businesses – nothing – not a thing. All state RE licensing commissions make it clear – when an individual completes the required training, passes the exam, and is awarded a RE license, they are deemed competent to practice residential real estate – selling homes. RE brokers are encouraged to obtain specific training to sell commercial real estate, industrial real estate, farms, and land, or anything other than selling residential real estate – homes. Because the required training to obtain a RE license did not include training in these specialized areas.
Now, most folks are not inclined to spend time and money obtaining a license unless they think it is required by law. Those same folks who avoid getting a RE license also rarely spend any time or money on business brokerage training courses, certifications, or other coursework that would increase their knowledge of business operations, financial management, business valuation, commercial real estate valuation, and other things that could greatly aid in their ability to advise and represent business owners.
As discussed in the Licensing section above, most state RE licensing training focuses on selling houses – residential real estate. The selling of homes is complex enough to require extensive training. Most individuals who obtain an RE license do so to work with individuals looking to buy or sell a home. Only a small percentage of RE brokers sell anything other than residential properties.
Although they do not have any training in selling businesses, some residential RE brokers also occasionally sell businesses. This is more common in small towns and rural areas where it can be common for RE brokers to list and sell all sorts of properties. However, without some training in selling businesses, the residential RE broker may lack the knowledge and skill necessary to accurately value a business and represent a business owner in the sale of their business.
Some commercial RE brokers have obtained extensive, specialized training and certification in selling and leasing commercial properties. However, it is also common to find residential RE Brokers selling and leasing commercial properties without having obtained any training in commercial real estate.
Well-trained and experienced commercial RE brokers may have the skills and knowledge to provide some assistance with the sale or lease of a childcare building. However, they often do not know childcare business operations, how childcare businesses are valued, how to protect the confidentiality, how to obtain financing for both the real property and business nor how to determine if a buyer is qualified to purchase and operate a childcare business.
As with residential RE brokers in small towns and rural areas, it is common to find commercial RE brokers also selling businesses. Some have obtained training in business brokerage, and some have not. As the cost associated with childcare buildings and land has increased, more commercial RE brokers have started trying to list and sell childcare buildings and land. They will often tell you that their primary focus is having the opportunity to sell or lease the real property and only list the childcare business to get the RE listing.
General Business Brokers
Business brokers that list and sell all types of businesses are practicing general business brokerage. General business brokerage is the most common way new business brokers start their career, and it is how I got started in 1995.
Most general business brokers list small to medium-sized businesses, often in a smaller, more local area. Depending on the area population, some general business brokers do not need to go outside of about an hour of their office or home base to find enough businesses to list and sell.
Successful general business brokers who enjoy a long-term career do so because they develop the skill sets to determine which businesses are worth listing, at what price, and which types of businesses create the most buyer interest.
General business brokers often do not have in-depth knowledge of any particular type of business. They are mainly focused on listing good, solid, saleable businesses. And only spend their time with serious, qualified buyers.
Brokers that practice general business brokerage can be a good option for childcare owners seeking to sell a small or medium-sized business under 75 licensed capacity. The local general business brokerage firm will be more likely to have individual buyers looking to purchase a small or medium-sized childcare business. The general business broker may not know much about childcare businesses, so an owner may need to help them learn what they need to know about the childcare industry to sell the business.
Most business brokers specializing in childcare often only list large centers; some only list and sell multi-unit operations. Should you own a small or medium childcare business, your best bet is to meet with several local business brokers, determine their experience and knowledge in selling businesses, and select the one you feel most comfortable with. If your childcare business is large – say licensed for more than 75 or the ability to be expanded, working with a business broker that specializes in childcare is your best option.
Brokers specializing in childcare will have the knowledge and skills to accurately analyze and value your business. Brokers specializing in childcare businesses will also have a database of individual and corporate buyers looking for centers like yours. Since general business brokers work across multiple industries and businesses, they rarely know the buyers looking to purchase larger childcare businesses. They may know a few, but the business broker specializing in childcare databases will contain hundreds of buyers, not just a few. The broker specializing in childcare will also have the market knowledge and expertise to help you obtain the highest value/best offers for your childcare business
Childcare Specialty Business Brokers
Over time, business brokers specializing in childcare have gained the experience and knowledge necessary to help owners of particularly large and multi-unit childcare businesses.As I write this article, I celebrate my 28th year as a childcare business broker. During those years, I have worked with hundreds of childcare business owners across multiple states. Selling a childcare business requires extensive knowledge of the industry, each state’s licensing requirements, program operations, financial management, knowledge of the special use real estate associated with a childcare business, and numerous other things. This knowledge is only gained through the full-time specialization of selling childcare businesses for many years. Business brokers that list and sell all types of businesses will rarely have the level of childcare industry-specific knowledge required to provide you with the best representation.
If the business buyer knows more about the childcare businesses than the business broker representing you, guess who loses? That is correct – you! To ensure you receive the highest value for your childcare business and increase your chances of a successful transaction, select a business broker that specializes in child care – not a business broker that lists and sells all types of businesses, not a commercial real estate agent that may understand real estate but has little knowledge about a childcare business, not a residential real estate broker that sells houses, and not any other individual or advisor whose primary business or service offering is anything other than selling childcare businesses – fulltime.
“Selling your child care business, you only get one chance to do it right. Do-overs are rare.”
If you are considering selling your child care business within the next few years. You will want to carefully select the best child care business broker to represent you to ensure you receive the highest value for your child care business and increase your chances of a successful transaction. Although there are many things that you need to know about each individual and company that assists with the sale of a child care business, here are five things you should consider when selecting a child care business broker.
Child Care Industry Knowledge
When I started my business brokerage career in 1995, for a few years, I listed and sold all kinds of businesses – restaurants, manufacturing businesses, retail stores, and businesses that offered various services to other businesses or individuals. My first child care business listing was in late 1996, with a closing in the spring of 1997. Although a small transaction, it had its share of complexity and problems. Working through all the licensing issues, helping the buyer obtain financing, and the many inspections required to transfer a child care business is where I learned about the “business side of child care.” Over time, more and more of my listings were child care businesses, so I decided to specialize in selling child care businesses.
As I write this article, I celebrate my 28th year as a child care business broker. During those years, I have worked with hundreds of child care business owners across multiple states. Selling a child care business requires extensive knowledge of the child care industry, each state’s licensing requirements, program operations, financial management, knowledge of the special use real estate associated with a child care business, and numerous other things. This knowledge is only gained through the full-time specialization of selling child care businesses for many years. Business brokers that list and sell all types of businesses will rarely have the level of child care industry-specific knowledge required to provide you with the best representation.
If the business buyer knows more about the child care businesses than the business broker representing you, guess who loses? That is correct – you! To ensure you receive the highest value for your child care business and increase your chances of a successful transaction, select a business broker that specializes in child care – not a business broker that lists and sells all types of businesses, not a commercial real estate agent that may understand real estate but has little knowledge about a child care business, not a residential real estate broker that sells houses, and not any other individual or advisor whose primary business or service offering is anything other than selling child care businesses – full-time.
Child Care Business Valuation Experience
Child care businesses are unique and require extensive child care industry and business operational knowledge to accurately analyze the financial information and provide a value range for the child care business. Just the differences in state licensing requirements can result in significant differences in business profitability and value.
Business brokers not specializing in child care will rarely have the industry knowledge needed to price a child care business accurately. And, of course, if the real estate associated with your child care business will also be sold, the business broker must also know how to value special use commercial real estate, i.e., the child care building, exterior site improvements, attached playground structures, and other asset value aspects of a child care business that are often attributed to the real property value.
Knowledge of Child Care Buyers and Their Acquisition Targets
A business broker that specializes in selling child care businesses will have hundreds of buyer contacts. These buyers should not just include the large regional and national child care chain operators. The business broker should also have numerous smaller child care chain operators and qualified individual child care buyers in their database.
Hundreds of buyers want to acquire a child care business or multiple child care businesses. But that does not mean your child care business will match their defined acquisition target – demographics, public and private pay percentages, tuition rates, program specifics, culture, facilities, etc. Only business brokers specializing in child care will have this granular knowledge needed to match your child care business with the best buyers – buyers looking for child care businesses like yours.
How Mergers and Acquisitions Are Financed
In commercial real estate and business brokerage, there is a saying, “If you can finance it, you can sell it – if you can’t finance it, you can’t sell it.” Child care businesses and the associated real estate (if also being sold) are not small ticket items. The money to finance the deal must come from somewhere – a bank, private equity group, REIT, or some other source. Studies have consistently shown that about one out of every five businesses (all types of businesses) offered for sale each year are sold. This includes those businesses offered for sale by owner and those represented by business brokers. Now, that is a sad statistic! The primary reason for this is the businesses are overpriced, and there is no way to obtain financing. Or, the numbers do not make sense nor provide enough of a return on investment for a private equity group to pay the asking price.
Therefore, it is essential that the child care business broker you select knows how to value your child care business and associated real estate accurately and can also assist the buyer with obtaining financing. In addition, be able to support the business and real estate value when working with all types of buyers – individuals, child care chain buyers, private equity groups, and real estate investment companies.
Proven Transaction Process That Protects Confidentiality
Given the uniqueness of child care businesses, the transaction process must be specifically designed to facilitate the successful transfer of a child care business. And, of utmost importance is the broker’s ability to protect and keep the transaction confidential. Child care owners often hire a real estate or business broker that lists and sells all types of businesses or properties, and the necessary processes and systems are not in place to protect confidentiality. Even a small breach of confidentiality can result in the loss of teachers and enrolled children. The child care business broker you select should have many systems, procedures, processes, and confidential marketing methods and know many things to do and not to do – all designed to protect confidentiality and your child care business.
I hope these five things to consider when selecting a child care business broker are helpful for you. If I may assist you, please call me at 336-617-3181 – All calls are confidential, and there is no obligation.
Most childcare business brokers are hired by the childcare owner to represent them in selling their childcare business. The seller most often compensates the childcare business broker at the closing of the sale of the business.
Each childcare business brokerage firm sets its commission or compensation fee amounts. The fee often depends on the size of the transaction. For example, a business brokerage firm may charge a larger percentage of the sale price (total transaction value) for the sale of smaller childcare businesses with lower selling prices. And it is common for the brokerage firm also to have a minimum fee – particularly for smaller childcare businesses. Unfortunately, the childcare business broker can take far more time and work to sell a small to medium-sized childcare business. This is because individual buyers most often purchase small and medium-sized childcare businesses. When working with individual buyers (not corporate buyers), the childcare business broker often must provide more assistance to the experienced buyer, including more time answering questions, explaining the process, helping the buyer obtain financing, etc. The childcare business broker could often sell a larger childcare business to a corporate buyer with less time involved and earn a higher commission. The brokerage fee may seem very high for small- to medium-sized childcare business owners. However, it is important to understand the value of the childcare business broker’s time, the experience and expertise they provide, and the ability for you as a childcare business owner to have the assistance of an expert and the increased likelihood of a successful sale of your child care business.
The fee or commission structure for the sale of large childcare businesses or multi-location childcare businesses will often be calculated using what is referred to as the Double Lehman Formula, with larger transactions resulting in a lower overall percentage commission.
The Double Lehman formula is as follows:
- 10% of the first million dollars of transaction value plus
- 8% of the second million plus
- 6% of the third million plus
- 4% of the fourth million plus
- 2% of everything after that
What About Co-Broker?
As covered in “Selling a Child Care Business and Co-Brokerage,” Co-brokerage is not common in selling businesses.
I hope find this information helpful. If I may assist you, please call me at 336-617-3181 – All calls are confidential, and there is no obligation.
For additional information, please visit the interactive section “Working with Child Care Business Brokers,” which includes extensive information, articles, tips, and Frequently Asked Questions, all designed to help you select and work with the best child care business broker for the successful sale of your child care business when the time comes for you to exit your business and start the next chapter of your life.