Childcare Valuation – What you need to know

How to value childcare business accurately is essential if you are serious about selling. Naturally, the Buyer’s Valuation is usually very different from what the Seller believes the school is worth. There is not a precise method for Childcare Valuation, but here, we will explain how to get a more accurate number.

Owners are usually emotionally attached, and they factor their years of hard work into their calculation, but these emotions get in the way of the Childcare Valuation. The first step to successfully arrive at a price is to make sure that we look at the business objectively.

The “Potential” of the business – a common mistake.

Experienced buyers who might be looking for attractive opportunities, and it is common for the Seller to promote the “potential” of the business as an asset they expect to have that extra value as part of the Valuation.

A center for sale that has room to grow or improve is more attractive to buyers that could take advantage of that potential but is also a risk. The Buyer needs to implement changes and often invest money, with the expectation of having a reward after doing so. Expect that an educated Buyer is going to base the offer on the current situation of the company.

Childcare Valuation based profits multiplier

There are several methods used to arrive at the best Childcare Valuation possible. To start, we use the last three years of taxes and financial statements. These are some of the “Rule of Thumb” for how to value childcare business. It is crucial to look at every rule that applies to the center before deciding.

The EBITDA multiplier.

These formulas are commonly used in the childcare industry:

  • Use a multiplier of 2.5 to 4 times the EBITDA for business only.
  • For business and Real Estate, this multiplier is up to 7.
  • The Seller’s Discretionary Cash Flow (SDCF).
  • For small centers with less than 100 total capacity, 2 to 2.5 times the SDCF is considered normal.
  • For the Valuation of centers with a licensed capacity between 100 and 200, the multiplier to be used is between 2 to 3.5 times the SDCF.
  • For centers with 200+ capacity, 3 to 4 times the SDCF.

Annual revenue multiplier.

The annual income multiplier is less common but sometimes necessary to see the whole picture of a specific Childcare Valuation. Between 30% to 45% for business, and 140% to 300% of the yearly revenue for the company and Real Estate Included.

A multiplier of the EBITDA and SDCF are the most commonly used methods for Childcare Valuation, but the final price depends on things like the condition of the real estate building, (if applicable), the number of locations, and years in business, among others factors.

Based on License Capacity

License capacity is also a good indicator of how to value childcare business. For centers, without Real Estate the factor is between $1,000 and $2,500 and for Business including Real Estate, $6,000 to $14,000.

All of this, of course, is a guide to set a reasonable on how to value childcare business. The Seller must expect a lower offer than the original price and needs to be ready for negotiations. The final price depends on variables like the market, “supply and demand” at the moment, motivation from the Buyer, financing options, among other things.

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Related: — Selling a Child Care — Contact us

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