Although there are many things that can prevent or delay a child care owner from exiting their business, the number one reason is Value Gap. What is Value Gap? Value Gap is the amount of money needed or desired and the actual value of the child care business – how much it is worth and how much you need. It is true that 70% or more of most business owners’ net worth is tied up in their child care business – particularly if the real property – child care building and land is also owned by the child care business owner.
Unfortunately, like most business owners, the owners of child care businesses do not engage in formal exit planning several years before they need or hope to leave the business. An important aspect of exit planning is determining the current value of your child care business and if owned the associated real estate. In addition to the knowledge of current value, you also need to know the estimated funds required after exiting the business – to fund retirement, support your family’s lifestyle, buy a vacation home, financial gifting, start another business – all the things you need to or hope to fund from the sale of the business. If the value of the child care business is less than the estimated funds needed, there is a “Value Gap.”
In some situations, no matter how much the child care business is improved and value increased, the “Value Gap” will not be met – the business will never be able to fund all the needed or desired things after exiting. However, reasonable post-exit funding needs and working to improve the child care business focusing on value acceleration can help lessen the “Value Gap.” One of the keys is time – there must be enough time to focus on value acceleration before the desired exit timeline.
As you can see, procrastinating and putting off formal exit planning can result in not being able to exit your child care business when desired – because of an unaddressed “Value Gap.” It is never too soon to start planning your exit and working to improve the value of your child care business.
In Solutions 4 Child Care Exit Planning consulting and workshops, we start with an in-depth personal and business assessment to gain a clear understanding of where you and your business are in the process of preparation to exit. Then we analyze the business and real property to develop a value range and a value acceleration strategy to lessen the chance of a “Value Gap” preventing or delaying your desired exit timeline. We encourage you to attend one of our Exit Planning Workshops or contact us about our exit planning one-on-one consulting.