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Sale and Leaseback of Your Early Education Company

There are many ways to structure and sell your early education company in whole or in part. You can sale your business and real estate in an all cash deal. You can sell your business and lease your real estate to the new owner of the business. This is one of the structures that allows you to sell while keeping an ongoing income from your company. Sale and Leaseback is another way for you to sell and keep an ongoing income from your company.

If you own the real estate for your early education company, all of the following improvements can be made with a Sale and Leaseback transaction. Every case is different, but all of these goals are reasonable and feasible.

  1. Increase your profits
  2. Increase the market value of your business
  3. Lower your occupancy cost
  4. Eliminate or reduce your debt
  5. Increase your cash holdings
  6. Decrease your taxes
  7. Increase the number of buyers qualified to buy your company
  8. Continue to use the same facility(ies)
  9. Expand your early education company faster
  10. Move toward retirement without doing it all in one step

The one change is……Sell your real estate and keep your business. It’s done all the time. You can sell your real estate and simultaneously secure a lease under your terms and accomplish everything on the list above. Here is a typical example to show the difference with and without real estate.

Let’s say you’re going to invest $2,000,000 in a childcare center or school. You spend $600,000 for a business component that produces a return (EBITDA) of $200,000 a year and $1,400,000 for the real estate. Your annual return on investment for the business component is 33% ($200,000 / $600,000). In the last 15 years, the average return on unleveraged commercial real estate is 8.8% per the National Council of Real Estate Investment Fiduciaries (NCREIF). 

So on a pre-tax basis, $2,000,000 invested at 33% yields $660,000 a year to you. Two Million dollars invested at 8.8% yields $176,000 a year to you. Owning the center / school described here (business and real estate) yields $323,200 a year to you. It’s the same money invested in the same industry…with remarkably different returns. This isn’t a new idea. According to CBRE, the U.S. commercial sale and leaseback market volume was $8.95 billion in 2012, up 149% from $3.6 billion in 2009. Many of the largest and most successful early education companies in the country utilize this practice to better their companies……So can you.

As always, please contact us if you have any questions.