We get this question in one form or another most every day. The short answer is that you should sell whenever you want to sell. However, your decision to sell (or not sell) is oftentimes shaped by a number of factors. If you recognize these factors and their effect on your decision making process, then you’ll be better equipped to make the best decision for you.

1. LIFE TIMING–Some of our clients talk with us off and on for years before they decide to sell. Whenever you decide to sell, it’s best to sell from a position of strength. Too often, people begin to get tired and the performance of their centers or schools slowly declines. It’s like a pro athlete at the end of sports career. However, unlike the pro athlete, the largest payday in your early education career is most often the last day of your career so it’s important to protect it.

2. ECONOMIC TIMING—As many people learned in the 2008+ real estate collapse and the stock market crash, you can do everything right and still lose…in some cases lose everything. Some of our most grateful clients are the people that sold in 2007. Whether they were watching the economy or just lucky, the difference in selling in a good market versus a bad one can mean a swing of 60% or more in the value of your early education company.

3. HEALTH—Your and your family’s health has a strong influence on your ability to manage or oversee the quality of your program. While most of us will push ourselves much harder to care for the people we care about, there are mental and physical limits for everyone. Make sure to pay attention to these limits. Sometimes, you and your family will do better to take the bigger payday earlier than planned.

4. RETIREMENT—As you approach retirement, it’s a good idea to reduce the amount of risk in your portfolio. Whether your portfolio contains stocks, bonds, derivatives, real estate and / or a collection of companies you don’t want to get caught in a high risk position when you don’t have as many years to recoup losses.

5. NEW CHALLENGES—Many people become very successful in the early education industry. Once everything is well-organized and the company requires less of the owner’s time, many entrepreneurs look for new opportunities. Some people manage to oversee the operations of their early education company successfully after adding a new company, and some early education companies suffer when the owner is distracted by other pursuits. It’s important to know the capacity of yourself and your management team when you begin to step out of the daily operations.

From a purely business perspective, the goal is to always maximize your return on investment. By paying attention to these five primary factors, you will increase your odds of maximizing your returns.

The post How Do I Know When It’s Time To Sell My Early Education Company? appeared first on BFS®.

In every industry and economic cycle, there are always people who believe that they can predict the future usually because they have some business model that’s been right once. This authority will point to their example of being right without discussing how many times they have been wrong and explain that you’re safe if you trust them. From investment banking to preschools, it has been my experience that very few people have this gift and most business models built to predict the future are fatally flawed somewhere, usually in the assumptions made about the very foundation of the model. You know what isn’t flawed…..the present. In the present, the following is occurring in the early education vertical:

1. Buyers are paying the highest prices for childcare companies, preschools, Montessori schools and private elementary schools. This is largely because the demand for centers and schools far exceeds the current supply of centers and schools available for sale. This reduction in available centers and schools is caused by the difficulty in hiring and retaining teachers. When centers don’t have enough teachers, they can’t enroll the students and financial performance suffers. Most people don’t want to sell their centers or schools when they are not performing well. At BFS^®, we’re helping our clients to increase staffing and enrollment.
2. Sellers are retiring with bigger paydays than they ever thought possible.
3. Many centers have received exceptional amounts of grant money, but those funds are being reduced and centers are now pushing themselves to produce higher profits without grant money.
4. Sellers are retiring with bigger paydays than they thought possible.
5. While some banks have become cautious in the wake of a few PPP lending mistakes, banks like our industry and continue to make funds available to us.

Here’s why it’s occurring.

1. Early Education is a desirable industry not just because of its monetary rewards, but because it gives us the ability to do work that makes a real difference.
2. Material cash flow is difficult for buyers to find. One of the things that makes our industry great is the fact that it’s highly fragmented. The huge majority of centers and schools are owned by small business owners. Because most early education companies are relatively small and because financing is abundantly available, there are many qualified buyers.
3. Investors from private individuals to equity funds invest in early education companies, and they want to see a growing return on their investment. The fastest way to grow early education companies (whether they own five schools or 500) is by the acquisition of other centers and schools. And generally speaking, investors are not patient when waiting for a return on their investment.
4. Many owners of early education companies have been holding back and choosing not to sell. The most popular reasons for not selling are…
   
   

   a. Fear that they won’t have enough money to retire comfortably.

   b. Concerns over a potential economic downturn.

   c. Fear that someone will find out about the sale before their company is sold.

   d. Don’t know what else to do after the sale.

In today’s environment, the seller with profits has the new golden ticket.

The post Market Timing in the Early Education Industry appeared first on BFS®.

Sale and Leaseback transactions (SLB) can give you more cash, less debt and allow you to continue operating your childcare company or school without interruption.

These transactions are as simple as they sound. You sell your real estate (not your business) for full market value and simultaneously lease it back from that same person or company. This action can give you less debt, less pressure and the ability to continue making money in your early education business.

The key to a successful SLB is to make sure you get two things.

ONE: A fair sales price for your real estate. The best way to determine the market value for your real estate is to hire a well-qualified, properly licensed real estate appraiser. If you’re not sure exactly how to hire the right real estate appraiser and get the best possible valuation, then see our blog post How To Get The Best Appraisal For Your Childcare Real Estate At The Best Price

TWO: The necessary lease terms to maintain or improve your profits. Like every property, every lease is different but you’ll want to scrutinize the following factors specifically:

A. Base Rent
B. Incremental increases in rent including how the increases are stated in the lease. The right wording can provide you with tax benefits.
C. Common Area Maintenance (“CAM”) charges
D. Property taxes
E. Property insurance
F. Repairs and Maintenance.

In the early education industry, “triple net” (or “NNN”) leases are the most common. In a triple net lease, the tenant pays the rent plus items D, E and F from the list above. Anything can be modified, so don’t hesitate to ask questions. For example, you might say yes to paying Repairs and Maintenance expense but exclude any costs for repairs to the roof or the heating and cooling systems. Everything is negotiable.

If you have any questions, don’t hesitate to visit us at bfsinc.net or call us at 800-467-1774.

The post Sale and Leaseback Transactions appeared first on BFS®.

One thing we have learned in our 30+ years in the early education industry is the importance of key partnerships. We know our clients are better served when highly-functioning, professional brokerage firms pool resources to deliver faster and more effective results.  However, many brokerage firms want to avoid splitting fees or commissions in search of higher profits, and this is completely understandable in a world of traditional thinking.

BFS^® provides licensed brokers in good standing with resources that allow them in many cases to close more transactions and in some cases keep the entire fee.  Imagine having an average of 20 banks competing for the financing of each of your transactions or being able to make a 3% fee without representing a buyer or  seller.  Those resources are available at BFS^®.

What if you (a licensed broker) could use the considerable resources of another brokerage firm while making the same or more money than when you work alone?  We’re not talking about closing twice as many transactions and splitting fees.  We’re talking about making more fees from the same number of closings…or having more closings…or both.  We’re talking about delivering better transactions for buyers and sellers where “better” is defined as transactions in which sellers get the monetary rewards they deserve and buyers get the bargain they expect for their investment.  We’re talking about working with licensed professionals who can provide everything from the all too critical financing to necessary ancillary services that create these better transactions.

BFS^®, its full service real estate brokerage firm and its licensed brokers in 42 states offer several services that can make your clients happier and your company more profitable. Whether it’s our firm or any other, there is never a good reason for a brokerage firm to fail a client without trying everything possible to serve the client’s interest.  We’re here to help when you need to go beyond standard operation procedures or when you want to deliver the best service instead of just acceptable service.

We offer:

1. An exceptional referral fee program where licensed brokers can earn fees from one to three percent of each sale without producing a single buyer
2. Consistent and efficient financing options
3. The ability to increase buyer and lender confidence through professional business valuations and furniture, fixtures, and equipment (FF&E) valuations
4. Industry specific knowledge and resources to help save the difficult transactions

Whenever you’re ready, visit our Professional Brokers Page at www.bfsinc.net , give us a call toll-free at 800-467-1774, watch our YouTube Channel  or see our topic-specific blog to help you with the items that concern you most.

All the best,

Brad Barnett
President, BFS^®
Don’t settle for less than a proven early education company—Talk with BFS^® for the Expertise and Individual Attention you deserve.

The post Making Brokers and Their Clients Successful appeared first on BFS®.

This is part two of a two part blog post. CLICK HERE to read Part 1.

3.  Timing a transaction. In today’s market, timing can be absolutely crucial.  Here are a few timing factors that can influence the results of your transaction:

a.  Is the buyer changing financing sources? Whether the buyer utilizes funds from a bank, investment bank, private equity fund, a REIT or a rich uncle, whenever the source of funds changes in the middle of a transaction you face the risk that the new source of funds won’t like the buyer’s transaction with you in spite of the fact that the old source approved the transaction.

b.  If the buy is a smaller company, have they made any recent acquisitions or divestitures?  Are they working through the changes related to a recent purchase?  Have they sold anything that improved their cash position or reduced their outstanding debt?

c.  Do they already have other centers in your area? Are they simply enlarging their local market share or are they trying to establish a new market?  The tenacity for and the value of a transaction comes from the motivational source.

d.  Are your competitors trying to sell to the same buyer?

e.  How many acquisitions is the buyer attempting at the same time as your transaction?

f.  Is the buyer trying to close the transaction by the end of their company’s fiscal year so they can utilize the tax advantages?

4.  Size of your company.  All buyers do not work from the same set of acquisition parameters, and each will likely have parameters other than the size of your company (profitability, regional location, their infrastructure, their regional management resources, your management team…etc.) that will affect their level of interest in your company.  However, with all else equal, the market value of childcare companies and school chains (business components—not real estate) will typically show material increases when a company has at least one of the following characteristics:

a.  More than $3,000,000 in annual revenues.

b.  More than $5,000,000 in annual revenues.

c.  More than $10,000,000 in annual revenues.

d.  Three or more centers with healthy enrollment and a combined Licensed Capacity of 450 or more in a single market.

e.  Five or more centers with healthy enrollment and a combined Licensed Capacity of 500 or more in a single market.

So, above some minimum targets, selling multiple centers will normally get you a materially higher return on investment, but it is important to recognize and manage the right factors at the right time.

The post Is my multi-unit childcare company or my chain of schools worth more if I sell multiple centers simultaneously instead of one location at a time? (Part 2 of 2) appeared first on BFS®.

The answer is Yes, as long as your company “makes sense” for the prospective buyer(s).  The closing sales price can be as much as 60% higher for a small chain of centers or schools when compared to the sales price for selling a one or two center company.  This math is not the lottery version of selling centers and schools.  This is a very normal, realistic practice.  For clarity, we are not talking about related real estate.  We are talking about the business component only.  Going forward, we’ll also use the words “center” and “school” interchangeably.

Here are some of the factors that determine whether a selling company “makes sense” to a potential buyer(s):

1.  Buying multiple centers from one selling company:  This scenario is the favorite for buyers.  This enables the buyer to review the financials for only one company and acquire multiple locations.  For example, when a buyer buys a chain of five centers then they complete due diligence for only one acquisition.  If they purchase five centers one center at a time, then it is approximately five times more work for the same results.  The buyer also suffers higher costs as attorneys, CPAs, real estate appraisers, Phase 1 inspectors…etc. have to be paid for each transaction.  While the cost ratio isn’t a perfect five to one, transactional costs are definitely less for a buyer that purchases a well-organized chain than a buyer that buys five single center companies.

2.  Buying multiple centers simultaneously from multiple selling companies:  This scenario is the second favorite for most buyers.  It requires more effort and cost on the part of the buyer, but it still allows the buyer to save time and money.  Extending from the example in #1, buyers would rather buy five centers from two selling companies than from five selling companies for the same reasons discussed in #1.  However, this dynamic can cause transaction closings to be delayed significantly.  Sales that are supposed to close 90 days after the LOI (Letter of Intent) is signed can stretch to a year or more if the transaction isn’t properly managed.  We’ve heard the horror stories over the last 30+ years, and the only thing that’s worse than a transaction that takes a year to close is a transaction that takes a year and doesn’t close.  Generally speaking, anything that causes your transaction to stretch-out (including waiting for due diligence on another seller’s company) is usually not good for you.  Conversely, many transactions are completed this way, and this scenario or structure can be better for everyone involved.  The BFS^® team has completed many “roll-ups” over the years.  The key for the selling company is to be able to see as much of the proverbial playing field as possible.  The key for buyers is to have a well-organized, focused acquisition team and dependable financing.  Note:  Many buyers say they can close quickly for all cash particularly when multiple centers are available.  There is every reason to believe that buyers do want to close quickly and that they will pay you all cash at closing, but desire or passion without focus and ability usually leads to frustration.  It is very important to know your circumstance.

Make sure you check out part 2 of this blog post. This is part two of a two part blog post. CLICK HERE to read Part 2.

The post Is my multi-unit childcare company or my chain of schools worth more if I sell multiple centers simultaneously instead of one location at a time? (Part 1 of 2) appeared first on BFS®.

Getting the best real estate appraisal for your childcare real estate for the best price is a function of four things.

1. Knowing the type of appraisal you need
2. Hiring the right appraiser
3. Reviewing the appraisal.
4. Researching and asking the right questions of your appraiser.

First, not all appraisals have the same purpose or cost so it’s important to tell the appraiser exactly what you need from your appraisal.  If you simply ask for “an appraisal of your childcare”, then you can receive bids that may range from a $1,000 to more than $12,000 for a single “childcare”.  In this circumstance, you are looking for an appraisal that tells you the value for your land and building(s) only.  This type of appraisal is commonly referred to as a “Bricks and Mortar” appraisal (also called a Limited Use or Restricted Use Appraisal).  All markets are different, but this type of appraisal will usually cost about $2,500, and it will tell you the current market value of your land and building(s) only—not the value of your business component.

Second, hiring the right appraiser means knowing that all appraisers are not the same.  When given the opportunity, try to hire appraisers who are “MAI” qualified.  While the MAI designation isn’t required to get a professional appraisal, appraisers with this designation tend to be better qualified for the work.  When you are interviewing appraisers, ask them if they typically do all of their work for banks.  It’s not always true, but many appraisers who work exclusively for banks tend to provide appraisals that are less focused on maximizing the market value of properties and more focused on collateralizing the bank loan amounts of those properties.

Third, many people receive the appraisals they buy and accept the appraisal as perfect.  Many times they are perfect.  However, it is a good practice to review the appraisal and see if the appraiser used the best comps available for your property—not just an acceptable number of comps.  General information on similar properties sold in your area can be accessed via the internet, a friendly local real estate broker, business brokers specializing in early education properties or simply people you know who have sold their childcare properties.

Fourth, if you find information that you feel should have been used in your appraisal, contact your appraiser as quickly as possible and ask him or her to revise the appraisal accordingly.  As long as the new information is applicable to your property, the appraiser will normally revise the appraisal at no cost to you.  Remember, whether the increase in the appraised value of your property is $5,000 or $50,000, it will be value earned with a relatively small amount of effort on your part.

Please tell us if you found this article helpful….or tell us what other topics you would like for us to discuss.

The post How To Get The Best Appraisal For Your Childcare Real Estate At The Best Price appeared first on BFS®.

Always talk with an accountant or CPA before deciding the best way to send used childcare equipment to its next life.  Used equipment can certainly be sold on-line via the usual and well-known vendors, but it can also be donated to other schools or centers in need, orphanages, foster homes, local parks and recreation centers. Donors may receive tax benefits from these donations made to charitable organizations.

For larger equipment that doesn’t easily transition to smaller venues, it can be evaluated / appraised and sold to other companies.  Furniture, Fixture and Equipment (“FF&E”) valuations from the free rough estimates to detailed reports are provided by BFS^® for playground equipment, cribs, cubbies, kitchen equipment, buses, vans, cots, children’s furniture, changing stations, beds and more than 200 other items found in childcare centers nationwide.

Sometimes this equipment is simply discarded without regard to its remaining useful life.  Unless the equipment is unsafe, there are always children and organizations who want access to this equipment, and it’s not hard to find someone who will take it.

Please tell us if you found this article helpful….or tell us what other topics you would like for us to discuss.

BFS^® will gladly provide you with the most detailed, professional evaluation/appraisal of your FF&E available in the market today. Click Here for more information.

The post What Can I Do With Used Childcare Equipment? appeared first on BFS®.

If you talk with enough brokerage companies, you will likely receive every answer from three weeks (not true) to a year.  The amount of time it takes to actually sell your childcare company varies from 120 days (about a 20% probability) to a 11 months….and occasionally it takes more than a year to sell a childcare.

The amount of time is directly related to nine factors that can be affected by the seller or seller’s representatives.  The factors are as follows:

1. BROKERAGE FIRM – Choose the right one as a professional brokerage firm organizes and coordinates all of the professionals involved in the sales transaction.  If the brokerage doesn’t lead, then the buyers, attorneys, appraisers, inspectors, CPAs, lenders (banks / private equity firms), SBA personnel, and licensing representatives don’t know what is needed or when to act.

2.  BUYERS – Make sure they are always qualified financially and educationally.  Many potential buyers will not survive the rigors of the due diligence, financing and licensing processes on the way to closing a transaction.  Given the current marketplace, it is more important than ever to be sure that buyers are well-qualified.

3.  LENDERS – Make sure that buyers have dependable lenders.  From private equity firms to credit unions, sellers and buyers need to know more than “the lender is interested”.  Know that the lender understands the early education industry and makes loans for the acquisition of companies in this specific industry.

4.  ACCOUNTANT / CPA – At some point in your transaction (assuming it is handled properly) you are going to be asked the following question:  How to you want to accept the money?  Make sure your CPA is prepared to answer the question with all of the best options for you specifically.  Remember, the only part of the money that counts for you and your family is the part you get to keep.

5.  ATTORNEYS – Hire the right type of attorney.  Attorneys typically focus on an area of expertise.  Your attorney may be the best patent attorney in the world, but that doesn’t make him or her the right person to guide the legal parameters of your transaction.

6.  LOAN DOCUMENT ORGANIZERS – Whether the function is fulfilled by a bank or a mortgage broker, make sure they have a track record for contributing to loans that close.  Any company can accept fees and get half way through the process.  Don’t be afraid to ask about a track record.  It could save you fees, time, energy and frustration.

7.  LICENSING PROCESS – If your transaction is going to close, then it is going to be blessed by state licensing.  Given the need for discretion in our industry, it is imperative to be well-prepared for this conversation as well as timing the conversation perfectly.

8.  CLOSING – Always have the closing managed by a professional law firm, title company or escrow company.  It isn’t very expensive, and it helps ensure that nothing is overlooked.

9.  TRANSITION – Many people are so focused on getting through closing that they forget the importance of transitioning the centers or schools smoothly to the new owners.  When a transaction is managed properly, buyers and sellers will be well-organized and template documents will be provided to buyer and seller so the transition is as comfortable as possible for the seller, buyer, staff and parents of the centers or schools involved.

Please tell us if you found this article helpful….or tell us what other topics you would like for us to discuss.

Click Here to see more blog posts on selling a childcare company, Montessori, preschool, or special needs school.

The post How Long Does It Take To Sell A Childcare Company? appeared first on BFS®.