Many Childcare Centers owners unfortunately sell when their centers is less profitable than it could be. There are lots of things that can be done to make a center more profitable and either the current owner can do those things that are necessary (… and of course, get a higher price when the center is finally sold), or the buyer after she/he takes over can do those things that are necessary to increase profitability (… and of course, the buyer is not going to pay a higher price for the work they do to increase profits.).
Over the years, we have looked at many financial statements of childcare centers, and the first things we do when analyzing a center’s profitability is to:
compare expenses as a percentage of revenue to industry averages and ranges
compare revenue and expenses on a per child basis to industry averages and ranges
compare line-item expenses to industry averages and ranges of line-item expenses.
We have found that many centers in financial trouble spend money on expenses that may be nice to have, but are not necessary to stay in business. Also, childcare owner often do not review enough details when they do review their center’s profitability.
If your center is not as profitable as you think it could be, you should review the following:
Revenue – review “non-paying”, “slow-paying” parents and those parents that have substantially reduced fees because of their economic problems. We have heard from many owners that unfortunately often parents take the children out of a center when the receivables balance grows to large, so keep a close watch on receivables or you may lose enrollment!
Review your center’s rates and compare it to all competitors rates.
Ask yourself: Are there any government programs that could be used to bring in more revenue? But, also ask: Could my center make more money if I eliminated a government funding source? (For example, would you make more profits if your center did not have the Georgia Pre-K program?)
Of course, if you are looking to buy a childcare center and want to estimate the potential opportunity to increase the profits of that center, you can review the above also.
For ideas for increasing the profitability of Childcare Centers
Increase profits to increase valuation
Budgeting – The budgeting process conducted throughout the year helps the Business Owner focus on everything that can increase sales and profitability.
Financial statements – If the Business Owner doesn’t receive reliable Income statements, balance sheets, and cash flow information – on a monthly basis – soon after the end of each month, the business needs to make changes.
A Business Owner simply cannot manage their business effectively without this information – and that’s the owner’s principal responsibility . . . to manage.
The above process will increase profits and valuations.
This process will increase valuations simply because the company has a process.
Check back soon. More on this subject will be here soon.