Buying a childcare center – A simple guide
Starting or buying a daycare requires contracts for the acquisition of assets, for the Real Estate, financing, and more. Sometimes Buyers think that they will get a better deal if they find a daycare for sale by owner. The fact is that any savings regarding the purchase will likely go to the Seller. Buyers have a better chance when the Seller is aware that the Buyer is considering alternatives preschool businesses for sale.
Finding the right school
Most of the preschools offered for sale are kept confidential. They are either advertised with no information or not advertised at all; that is why finding the right Buying a childcare center is not as easy as it is with other businesses.
Any owner of well-established childcare or daycare will require the school name and address to remain anonymous. A childcare center for sale out of the MLS system, (MLS requires address and pictures) you are dealing with an inexperienced broker. A commercial Real Estate company like Lluna Investments that specializes in the field is the best answer when buying a childcare center, and won’t cost you anything as a Buyer.
Contracts and negotiations
Commercial real estate contracts and Purchase Assets Agreements have many clauses. Buyer and Sellers will have enough on their plates. Inventory of assets, due diligence periods, non-compete clauses, leases, financials, licensing, and much more. This is why most of the time, the so famous “Letter of Intent” should be avoided. Let me explain.
Unless you are dealing with large and complex institutions, a letter of intent will do nothing but complicate things. The basic idea of a Letter of Intent is to set the framework for a future contract. It serves no other purpose and is a non-binding agreement. The point of the Letter of Intent is to be clear on specific terms before writing an entire contract.
For attorneys this is ideal, however letting attorneys write the contract from when buying a childcare center complicate things for the Buyer and the Seller and many times is a deal killer. Once again, let me explain.
Standard contracts from the Board of Realtors and Business Brokers of Florida are well-known contracts, written by unbiased attorneys. This is in our opinion the best way to start because these contracts do not offer special treatment and have no surprises.
Of course, both parties will have an opportunity to have their respective attorneys look at the contracts, and make any necessary changes. There are addendums already in place for this purpose.
Under Contract – Now what?
Taking over an established daycare operation requires to deal with many applications, inspections, and the review of the financials. The challenge here is to keep it confidential until closing.
To the contrary of what some first-time buyers think, most of the due-diligence is best when done off-premises. A CPA is helpful, especially if analyzing the acquisition of more than one center. It is essential to understand that a CPA only looks at the bottom line, not at the operations. They “know-how” as a childcare operator is what you need to make sense of this due-diligence time.
A CPA will tell you if the school made money or not, but a good operator can pinpoint red flags. For example:
- Why do they have this many teachers during a specific time? Or Yes, they make good money, but they always out or ratio!
- They are not accredited but have tons of subsidising kids.
- The parents are not enrolling, and you see important things that should be changed.
If a Buyer does not have experience with childcare operations, there are some good child care advisors with personal experience in the field to help with all these questions.
Due-Diligence also gives the Buyer time to make sure that any changes he or she deem necessary are possible and authorities will allow it.
Financing an acquisition is an especially intimidating for Buyers and Sellers. When buying a childcare is not like financing a residential real estate transaction. There are many options available for this like SBA guarantee loans, seller financing, home equity loans are all commonly used.
We at Lluna Investments can help with financing through an SBA-approved lender if the buyer and the business qualify. Financing is available for buyers acquiring businesses with or without the real estate, starting at only 10% down payment and up to 25 years.
The most basic eligibility requirement for SBA loans is the ability to repay the loan from cash flow. But the SBA also looks at personal credit history, management experience, collateral and owner’s equity contributions.
At Lluna Investments, we partner with Non-Bank SBA lenders that offer more attractive loans that the regular Bank loans with SBA guarantee. One of the most notorious when buying a Child Care with Real Estate is that these Non-Bank SBA Lenders will NOT require to guarantee the loan personally.
For more detail information, read our section of Financing.
To apply for a childcare license, you will need to close first on the deal. The County cannot process an application for a license unless you have already a place you can call your childcare. What could be done, is having a preliminary inspection so they can help you determine what will be required from the buyer once the transaction is closed.
There are also some other applications including Food Program, Early Learning Coalition, among others that, the approval process can be accelerated if early steps are taken.
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