If your goal is to sell your child care business in 2018, you should start the process today. Why? The average length of time to sell a childcare business is about nine months to a year. Yes, you can give your business away pretty quickly by accepting far less than its true value. When speaking with childcare owners, they are often very surprised to learn that the chances of selling their childcare business within two or three months are very small.
So, why does it take so long?
Good economy vs bad economy. During good economic times with low unemployment, there are fewer buyers for small businesses of all types. Small businesses, those that sell for less than $500,000, and maybe even less than 1 million dollars are often purchased by individuals that have not been able to find a job. So, they buy a business to support their family. The US economy has been steadily improving in recent years with declining unemployment resulting in many folks deciding to accept a job offer instead of taking a risk and buying a business.
Increased regulation. Many rules, laws, and regulations have been implemented in North Carolina over the last decade to increase the quality of childcare. Increased regulation has resulted in raising the quality of childcare, but there have been some negative impacts.
- Staff with higher levels of education expect and should be paid a higher wage. Thus, the labor cost to operate a child care business has increased with a resulting decrease in profitability. Limited profits or losses decrease the ability to sell a business.
- Shortage of employees seeking to work in childcare. Staff with higher levels of education often choose to work for the school system or other large entity that can pay better wages and offers benefits.
- Having sold childcare centers in North Carolina since 1995, often my most likely buyer for a small or medium childcare business was a director, assistant director, or teacher already working in childcare. Once they had a few years of experience working for someone else in childcare, they had the desire and confidence to buy their own childcare business. When approaching these individuals today about buying a childcare business, I often hear, “Are you crazy, I’ve got it hard enough already. I see what the owner goes through – No way, I do not want to own a childcare business.” Heavy regulations decrease the number of individuals seeking to own a childcare business.
Lack of financing. Although the “Great Recession” is almost ten years behind us, it is still difficult to obtain financing to purchase a small business. Many commercial loans require a down payment of 30% or more. SBA (Small Business Administration) backed loans normally require a 15% down payment when purchasing a business, and a 10% down payment if the real property (building and land) is included. For example, the sell of a small, profitable childcare business with real property for a $500,000 total purchase price ($200,00 business and $300,000 real property) would require $60,000 down payment ($30,000 real property (10%) and business $30,000 (15%). There may be some options including seller financing that could lower the required down payment to 10% ($50,000) for the total package – real property and childcare business. However, many childcare buyers do not have the down payment to purchase a childcare business – with or without real property. Lack of financing increases the time to find a qualified buyer with the down payment necessary to obtain financing.
Buyers want different things. Every childcare buyer has his or her vision of their “dream childcare business.” Your childcare business might be the best in your town, well maintained, high state rating, loyal staff, and high enrollment but a buyer that loves your business as much as you do still must be found. Buyers can be fickle and pass on great childcare businesses for very small things.
Protecting the Confidentiality of the Sale. Finding qualified buyers takes time and given a very confidential manner and in which a possible sale must be handled not to damage the business – it takes even more time. Marketing your childcare business without extreme confidentially and doing things like putting a for sale sign in the yard, listing your childcare business on the internet with lots of pictures, name and street address, telling everyone you know that you want to sell your childcare business will not ensure it will sell. What it will ensure is a loss of qualified staff, loss of children, loss of revenue, and if the enrollment drops too low, you may be forced to close your childcare business or spend months or years rebuilding enrollment before you can attempt to sell the business again. (Not all businesses are as sensitive to confidentiality as child care. Most folks do not care who owns the Convenience Store on the corner. However, parents are very concerned about who owns the child care business their child attends, and the teachers and staff employed by the center.) Protecting confidentiality requires careful marketing, with a structured process designed to locate qualified childcare buyers without folks that should not know – finding out your childcare business is for sale. Protecting confidentiality increases the length of time necessary to create a successful transfer.
Now, for the good news, with planning and sufficient time, almost every childcare business can be sold. However, to receive a fair price for your childcare business in 2018, you need to start now – preparing your business for sale, putting things in place to take the business to market, hiring a business broker that specializes in valuing and selling childcare businesses and of course preparing yourself emotionally and mentally to sale the business.
If you have questions about what to do next – how to go about all of this? Give me a call; I am happy to discuss your goals, provide you information about your options, and the process – no obligations, and all conversations are confidential.
Donna S. Dailey M.Ed., LREB, BEC, SBA
President and Broker
Solutions 4 Child Care
P.O. Box 38185
Greensboro, NC 27438