A business is an investment unlike any other. The investment of money, countless hours of personal time not to mention the sweat and tears of uncertainty. A decision to buy or sell a business is not one taken lightly. This is even more true today given the challenges and losses people have faced during the recent downturn in our economy. The investment in a childcare business in many ways is no different than others; however, in some ways it is very different. First and foremost, it’s a very personal business. Relationships are formed between the staff and the customer, the business and the community. Slight deviations can sometimes disrupt the harmony of these relationships. Deviations like marketing the business for sale or transitioning key staff members. Here at NGRI we understand the complexities and nuances of the childcare industry. We use great care to protect the integrity of the business throughout the process and find ways to deliver value-added solutions to all involved.
There are several types of real estate that are commonly utilized by childcare and educational operations. Each have their unique qualities and purpose.
This is the most preferred by operators. Sometimes owned by the operator but many are Net Leased (especially popular with national operators). Most are designed and built specifically for their intended purpose. Some of the benefits of this type of building are, higher visibility, full control of your building and surroundings, ample parking and playground space.
- Inline (Plaza/Strip Center)
This is a popular choice because of its availability. This type of property tends to be challenged for playground space. Many times, designated parking spaces are fenced to make room for a playground. Unfortunately, you usually don’t have control over who your neighbors are; however, the increased traffic flow in this type setting can provide a true benefit.
- Commercial Condo (office, Industrial, Retail)
Can be leased or owned. Generally has the same challenges regarding playground space as a strip center. This is a popular choice in areas where large employers exist or densely populated areas with high traffic.
- Vacant Land (for new construction)
Starting from the ground up requires a significant investment of liquid cash and time. This can be a challenging process.
These have gained in popularity. Many developers now build these into their plans as an amenity. These are usually built right into the apartment building structure, occupying a certain number of consecutive units.
- Home Conversions – Residential homes are often converted to commercial use when permitted by local zoning.
As a long established specialty firm, we have had the unique opportunity to work with many various types and sized centers. Whether you are an investor wishing to buy or sell a Net Leased property, a childcare business owner looking to retire, or a first time owner looking to make a name for yourself in the education industry we are your number one resource and a one-stop-shop for all your Early Childhood Education Investment needs.
An accurate measure of business value is one of the most important factors in planning the sale of a childcare business.
The value will play a major role in the following areas:
- A point of discussion for beginning the sales process.
- The level of activity or interest the sale will receive.
- The availability of financing for the potential buyer.
First and foremost, will the price point work for the seller and their investment goals. If not, the discussion of selling may lend itself to a discussion about preparing the business for sale in the future. Second, a value that is in line with the market will generate a greater amount of interest, which in return will result in a faster sale. Experience has shown that a growing number of buyers would rather pass on an opportunity than offend a seller with an offer that is not within a reasonable range of the asking price. Third, and also very important to any transaction is the businesses ability to attract favorable financing if any at all.
We offer several types of valuations:
- Short form in-house analysis – We start every potential sale engagement with a short form in-house business analysis. There is no fee for this and is included as part of every potential sale engagement we are involved. This is done through interview and analysis of certain financial data we request and receive from the business owner. The in-house analysis is for our purpose and is not provided to the business owner. It is used for discussion purposes only as we contemplate a possible sale transaction.
- Limited engagement summary analysis report – If the business owner is looking for something tangible that can be used to benchmark their business growth or as part of exit planning, we offer a limited engagement summary analysis report. The summary analysis report is a more detailed version of the in-house analysis and contains our analysis along with various visual charts and comments. The business value in this report is provided as a range in value which would be considered reasonable under normal market conditions. This report is available for a nominal cost.
- Summary Appraisal Report – This report is for those instances where a true Opinion of Value is needed but does not require a full comprehensive appraisal report. These are commonly used as part of business financing applications, partnership dissolutions, and various other applications where a summary Appraisal Report is allowed. These reports follow accepted methods of valuation standards and range in price depending on the complexity of the engagement.
- Full Appraisal Report – When nothing short of comprehensive will do. This report is a highly detailed comprehensive report that follows accepted methods of valuation standards. These are commonly used as part of legal disputes and tax issues. Prices vary depending on the complexity of the engagement.
You are a franchise business owner and you’re thinking about selling. What are your options? First, you’ll probably want to let your franchisor know you’re thinking of selling. It is possible that they may already have a qualified candidate in their system that would be interested in your location. It may be an existing franchisee but it could also be a new franchisee in waiting e.g. they are approved and waiting for a suitable location to become available. Regardless, you should always reference your franchise agreement regarding the procedures required for a re-sale.
In many cases, your franchisor may have a re-sale process that, for a fee/commission will either try to sell the business for you or will act as a referral agent referring you potential “pre-Approved” candidates for your location. In the case of a referral, bear in mind you will have to do all of the negotiations, due-diligence, letter of intents, etc. on your own.
Although your franchisor may have a department that deals with re-sales, re-sales may not necessarily be their sole focus. Remember, franchises are in the business of franchising, they are first interested in increasing the number of units in their system. If the franchisor receives interest from a potential new candidate, they are going to first qualify them for a new “start-up” location not necessarily a re-sale unless the candidate specifically requests information about existing re-sales. If, after going through the approval process, the candidate qualifies but preferred location options aren’t available the franchisor may consider any available re-sale options so as not to lose the qualified candidate. The exact process in which re-sales are handled really depends on the franchisor. Some franchises are more open with regard to re-sale availability than are others.
Going beyond the franchise, another option is for you to engage an experienced and qualified broker like New Generation Realty & Investments, Inc. to list your business for sale. When choosing a Broker, there are countless options, so it is important that you look for experience in selling a franchise and knowledge of the industry. You also want to be comfortable with the person you are going to be working because the process can be long and at times complicated.
Here at New Generation Realty & Investments we understand the complexities that surround the sale of your franchise preschool. We will work closely with you and your franchise representative to move a qualified buyer through the approval process. We also understand that confidentiality is of key importance in every respect, we will work hard to keep your sale private.
We understand that many franchises have first rights to purchase your location and/or the right to help you sell it. We work in conjunction with the efforts of your franchise, not against them. We have special contracts for franchise business owners which exclude those rights entitled by your franchise. In other words, you will never be obligated to pay two commissions.
Sometimes all you need is a little direction! In those instances where you are not needing full brokerage services but instead need a little advice, we offer hourly consulting options. Here are some examples where we have helped others achieve results through our consulting services:
- Your lease is up for renewal but you’re thinking of selling in the near future, what should you be aware of?
- A staff member has expressed interest in buying your business, where do you start?
- You are planning to sell in the future but not sure how to meet your return on investment goal?
- Your bottom line shrinking and you want to improve your financial performance!
Do you have a special situation? Give us a call for a complementary phone consultation. You just might be surprised at what you learn!
Financing is an essential part of most childcare sale transactions. In general, buyers do not come to the table with 100% personal funds, even if they can afford to do so. This is especially true of larger transactions. Even large corporate organizations have third-party funding sources when it comes to consummating a purchase.
There are several types of financing options depending on the type of transaction:
- Conventional Bank Financing
- SBA (Small Business Administration) Financing
- Seller Financing
Conventional bank financing is generally reserved for real estate only transactions. These loans are collateralized by the real estate being purchased. Loan to value is commonly 75% – 80%. In other words, the buyer will need to provide an equity injection of 20% – 25% using personal funds. Conventional bank financing is not usually available for business only loans unless the loan can be 100% collateralized by the buyer.
SBA (Small Business Administration) loans are the most common for the purchase of a business. SBA loans can be used to purchase business only opportunities, business opportunities that are combined with real estate and real estate only transactions that are at least 51% occupied by the borrower. It is important to note that the SBA does not provide the loan, they guarantee the loan that a bank or lender makes up to a certain percentage.
Many people are unenthusiastic about SBA loans mainly because of the rigorous process involved; however, there are benefits associated with SBA financing. SBA loans can provide long term financing with no renewal or refinance requirements. This means the loan is fully amortized over the term of the loan, unlike conventional loans where you would be required to refinance or renew at 5, 10, or 15-year intervals. Another benefit not to be overlooked is the lower equity injection requirements. For example, a business wanting to purchase real estate that it currently leases can be done with as little as 10% equity under some SBA programs. A third, and probably the strongest advocate for SBA financing is the leniency in collateral requirements. As stated in the SBA’s standard operating procedures “A loan request is not to be declined solely on the basis of inadequate collateral”. This is a huge benefit, especially for those purchasing business only opportunities where very little tangible collateral is involved.
Lastly is seller financing. Although most sellers prefer not to hold financing, sometimes it is the only way to get a transaction done. There are many scenarios where seller financing may be involved. In transactions where bank financing is not available, sellers may find themselves as the lender, offering to hold financing in amounts near 50%. Other situations may come about where a lender could require the seller to participate in the total lending process as a condition of them making their portion of the loan.
Our years in the business have allowed us to developed strong long-term relationships within the financing communities. We have had the pleasure of being able to help countless people see their dreams come true as childcare owners. As a matter of fact, a large percentage of the transactions handled by our firm are also financed through our networks with our competent and professional assistance.
If you have a need for financing, we welcome the opportunity to discuss with you your options and how we may be of assistance in helping you achieve your goal.
