Selling A Childcare Business

Selling A Childcare Business

When it comes to selling a childcare business, many people are tempted to commit one of two mistakes. On the one hand, some may think that the process is easy and will get done pretty quickly, while others may believe that it’s going to be a nightmare and will take forever. Both of these attitudes are incorrect. Selling a childcare business is not easy but it doesn’t have to be a nightmare either. Use this guide to help you understand the ins and outs of selling your childcare business so that you can have a pleasant and profitable outcome for your business exit.

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Barriers to Selling A Childcare Business

Before you get the good news it’s important to understand the reality of the business resale market. The main reality is that most businesses listed for sale don’t sell. In fact, research shows that as many as 70% of them don’t sell. That’s really bad odds. Instead of focusing on the 70% that don’t sell, however, it’s vital to understand why the 30% do sell. According to industry experts the 3 main criteria that determine whether a business will sell are:

  1. Having a motivated seller – Many business owners may be inclined to look at this and say, “well duh”. You have to ask yourself, however, are you really ready and truly dedicated to selling your business? When you decide to sell your business your time will be divided, you will need to organize your financials, and you will need to stay in contact with prospects, your lawyer, accountant, banker, landlord, etc. It’s not rocket science and it’s definitely not impossible but it requires attention and effort.
  2. Having clean books – You cannot estimate the value of having well-documented and easy-to-follow financial records. One of the first things a savvy buyer is going to ask for are historical financials such as completed taxes, profit and loss reports, and balance sheets among other things. If it isn’t easy to piece together your income and expenses or if you have under-reported or incorrectly reported either it makes your business less attractive to a buyer. It also makes it harder for them to persuade a bank to lend them money to buy your business.
  3. Have a competitive list price – The hard truth is that your perception of your business value is irrelevant. The only thing that matters is what value you can back up with hard data. There is no doubt that you have worked hard and that your assets were not cheap but people don’t buy businesses based on what it’s worth to you but on what the market is willing to bear. The only way you are going to derive at a competitive price is to make sure your valuation is thorough and impartial.

Steps To Selling A Childcare Business

Now that you understand what it takes to beat the odds in selling a childcare business, it’s important to know the steps to get the job done. Once you understand the process you will be much better equipped to see your business sale through to the end. Here are the basic steps you need to follow from start to finish to sell your childcare business. They are not by any means exhaustive but are merely intended to give you a basic overview.

  • Valuation – Before you can get to where you want to go you have to first figure out where you are. To sell a business you have to establish a list price. This cant be done arbitrarily. Buyers are too smart to take your word for it. Besides, they will have their lawyer, banker, accountant, and others scrutinize your financial data to see if your ask is justified. You have to do your homework and get this right. It is crucial to the sale of your business.
  • Listing Copy – Writing an ad that you will publish to attract buyers requires one part subtlety and one part creativity. You want to include enough information to entice a potential buyer without giving away too much information. Remember, you don’t want to tip off your employees, your vendors, or your customers that you are selling your business. You need to reveal that at a time that will affect a smooth transition and not hurt your business.
  • Publishing Your Ad – After your ad copy is polished and ready, you need to get it in front of potential buyers. This means you need to find outlets both print and online where you can publish your ad. There are a number of very popular sites both paid and free where buyers go to look for businesses. One of the best-paid options is BizBuySell and of course one of the best free options is Craigslist.
  • Collecting and Vetting Buyers – Once you have your ad published, buyers will hopefully begin to contact you. Once they reach out to you, you should have some kind of NDA or non-disclosure agreement for them to sign ensuring that whatever information that you share with them about your childcare business wont go any further. You also need to have some way to check out their professional and financial background to see how qualified and capable they are to buy and successfully run your business. You can create a form for them to fill out that gives you this information. You can incentivize them to fill out an NDA and background profile by offering them an executive summary of your business in return. You will need to prepare this summary including all the basics of your business including the history, age, location, asking price, assets included, and some type of income and expenses snapshot.
  • Buyer/Seller Meetings – Any buyer prospect who has found your ad and responded, filled out an NDA and buyer profile should be invited to meet with you and see your business. Here you will have a chance to give them an overview of your business while selling them on its merits. You will also get a chance to scrutinize the buyer and see if they really are a good candidate. If the meeting goes well then you mark that person for follow-up within a day or two.
  • Offer – If after the buyer/seller meeting you get a sense that this person would be a good fit then you should follow up with them within 24 hours to see if they want to submit an offer. Ideally, you will have an offer form prepared to give them that lays out the terms of the purchase process including due diligence. You can contact a good business attorney and have them draft an offer form for you. If they decide to submit an offer, then congratulations you are well on your way to selling your business but now the fun begins. Keep in mind, that you will need to have a business attorney prepared to serve as your escrow and closing agent. This attorney will hold the deposit that the buyer will have deposited along with the offer.
  • Due Diligence – Now you are under contract, the process of due diligence begins. This usually means that a buyer has a set amount of time to do a deeper dive into your business (examining financials, asking lots of questions, conducting audits, etc.). During this time the buyer can walk away from the deal as long as they notify you in writing before the due diligence deadline. If they notify you in time they are entitled to a refund of their offer deposit. If, however, they choose to remain in the deal then the clock on closing begins to tick.
  • Closing – Having gotten through due diligence with the deal still intact is a great accomplishment. As the day of closing draws near there are some basic actions that have to take place. First, you have to make sure that the buyer has their funding in place because without closing funds there is no point in closing. Second, you have to make sure that if your business location is leased that the buyer has secured a lease from your landlord. Third, you have to make sure that the closing attorney has begun preparing the required closing documents such as the asset purchase agreement (this is the legal document that transfers your business assets to the buyer), and the settlement statement (a record of the credits and debits for buyer and seller and what money will change hands at closing). Once these steps have been taken then you are ready for the big day.
  • Transition – Now that closing occurs you are free and clear to go and spend all that money, right? Not so fast. Typically sellers will always include some measure of time after closing to assist the buyer in transitioning into the business. This can be long or short depending on the nature of the business and the agreement between the parties. If the buyer wishes to retain your services after the agreed-upon transition time, then they are required to pay you a salary for your time. Once transition occurs then you really are free to enjoy a well-deserved rest from your labors both in running your company and selling a childcare business.

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