Five Things to Consider When Selecting a Child Care Business Broker

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 – fulltime.

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.

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.

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.

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.