The Essentials: Sell — Child Daycare Center

How are daycare centers valued?

Small centers are commonly priced as a multiple of adjusted earnings (EBITDA or seller's discretionary earnings), often quoted somewhere around 3 to 5 times, with the upper range for stable, near-full enrollment and clean inspections. Some buyers also look at price per licensed slot. Real estate is typically valued separately if you own the building. Adjust earnings for owner pay, one-time costs, and above-market rent, and expect a buyer to normalize a director salary. Two to three years of enrollment history matter more than a good recent quarter.

How does the license change hands?

State child care licenses generally do not transfer automatically. A buyer typically files a change of ownership or new license application, submits background checks, policies, and director qualifications, and passes an inspection. That can take several weeks to a few months. Ask your licensing agency for its current process before you list, and build the timeline and closing conditions around it. Many purchase agreements make closing contingent on license issuance, and some states allow a short transitional arrangement, so confirm what is allowed.

Which records will a buyer review?

Prepare three years of profit and loss statements, tax returns, monthly enrollment by age group, tuition rates and any discount policy, payroll and staff tenure, and subsidy receivables from programs funded under the Child Care and Development Fund. Add licensing inspection reports and any corrective action plans, incident logs, insurance history, the lease, and equipment lists. Reconcile revenue to bank deposits. A buyer will also ask for the waitlist with dates and age groups, since a documented waitlist supports higher value.

What happens to staff and families during the sale?

Parents often choose a center because of specific teachers, so turnover after closing can drive withdrawals. Ask the buyer to commit to keep key lead teachers and directors at similar pay, and consider retention bonuses paid at 6 and 12 months. Decide when and how to tell staff and families, typically after signing a letter of intent and before closing, with the buyer present. A prepared message that explains what will not change, such as hours, curriculum, and tuition for the first year, reduces panic.

How much does deferred maintenance and compliance history affect price?

A history of licensing citations, especially for ratios, supervision, or background checks, lowers the multiple and can trigger an earnout tied to future inspections. Fix visible issues before marketing: playground equipment and surfacing, peeling paint, worn flooring, and broken fixtures. Repairs commonly return more in price than they cost, and they also protect you from a price reduction late in due diligence. Get a pre-sale inspection of playground equipment by a certified playground safety inspector if you own the equipment.

What deal terms should you negotiate?

Most sales are asset sales, with the buyer purchasing equipment, furnishings, curriculum materials, and goodwill, and the seller keeping the entity and liabilities. Expect a non-compete of two to five years within a defined radius, plus a non-solicitation clause for staff and families. Negotiate a transition period of 30 to 90 days, treatment of prepaid tuition and deposits, and who pays for licensing fees and inspections. If you seller-finance part of the price, secure it with a note and collateral. A business attorney and CPA should review the tax allocation.

What should you do in the twelve months before selling?

Treat the last year as a tune-up. Fill open slots, especially infant and toddler rooms that carry the highest tuition, and raise rates if they lag the local market so trailing earnings reflect current pricing. Bring inspection files up to date and correct every citation. Standardize handbooks, staff job descriptions, and parent communication so a buyer inherits systems, not your memory. Promote or hire a director who can run the center without you, since owner-operators who work 60 hours a week are hard to replace. Keep spending steady, but avoid large equipment purchases that will not pay back before closing.

What role do brokers, lenders, and taxes play?

Specialized child care brokers can market confidentially to operators and chains, usually for a commission in the range of 8 to 12 percent, though rates vary. Buyers often use SBA 7(a) loans, which means lender review of your financials, lease, and license status, and a longer closing. Sellers should consult a CPA on how the price is allocated among equipment, goodwill, and a non-compete, because allocation changes tax treatment and is reported on IRS Form 8594. If you own the real estate in a separate entity, decide whether to sell it with the business or lease it to the buyer.

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