Exit Plans

Childcare Brokers provides exit planning consulting to owners. Childcare business owners are so busy addressing everyday challenges of running their centers that they often postpone the critical task of planning their inevitable business exits for another time. That’s a problem.

A common mistake of many business owners is of being burnt-out and working in their businesses well past the point where they find it to be either fun or challenging. If this describes you, you may want to consider selling before its profits and value decline. If you are not ready to retire, you may make more money in a new business, which is fulfilling or energizing, which you acquire and manage after selling your current business.

Waiting can cause problems that can be the difference between liquidating your childcare business and selling/transferring. Example:

  • I was working with a buyer to buy a school that had two locations that he had identified to buy. The owner of the school was elderly, and because of her health, never visited the schools, but managed them from her home. The owner wanted to sell because of her health. The buyer made a very good offer (Over $1 million for the two school locations – for the business only), however, the seller did not accept it.
  • Eighteen months later, the buyer again approached the school owner, and made a second offer. However, because the business had suffered in those 18 months, the offer price was half of the original offer. This time, the school owner accepted the offer, but, because the school did not have any financial reports or tax returns for the last year, the buyer could not buy the school until all financials were completed.
  • Six months later, the school owner had completed the financials & required tax returns, and the profits had continued to go down, causing the buyer’s offer to be cut to 30% of the original offer. The school owner did not accept this lower offer.
  • Six months later, the two schools closed down.

In this case, because the school owner did not have an exit plan, the owner lost over $1 million!

If you are thinking about selling your childcare center and wondering when might be the best time and how to get there, you’ve come to the right place. Childcare Brokers provides trusted business exit planning to the childcare industry.

A business exit strategy means having a plan for:

  • The succession or transfer of ownership of your business when you retire. Sell to 3rd party, director, co-owner, or family member.
  • The unexpected – including an unexpected offer, financial hardship, disability or even death.

These are the four keys of business exit planning:

  • Determine the business value now. Will the sale of your business help you obtain financial security?
  • Choose when to sell.
  • Take action to increase the value of the business.
  • Use the proper sales process to sell your business.

Choose When to Sell

Is the amount of money you will receive from a sale enough to accomplish personal, financial, and estate planning goals?

If not, for the next one to five years, do you have the drive to manage the day-to-day details of the childcare center business to increase its profits? Are you willing to continue with the intrinsic risks of business ownership that can reduce its value?

Do you believe that your Childcare Center will be worth more in a few years then it is now?

We have helped dozens of business owners with their exit planning over the years.

To learn about maximizing the value from the sale of all or part of your company, minimizing taxes when you transfer the business, understanding business transfers to family members, or any other questions that particularly interest you concerning the business sale process, please contact us. Working with business owners in their exit planning and getting ready to sell in the next few years is a part of our practice which we provide significant value to current business owners. We would be happy to brainstorm business exit options with you or to discuss any questions you may have.

What problems can develop if there is no exit plan… and the Childcare Center Owner dies?

Continuity of Business

  • Bank Financing – Usually PERSONALLY Guaranteed by Owner – bank will re-examine
  • Capitalization Shortfall – Business Owners periodically personally capitalize their companies because they keep little money in the companies.
  • Obligations under the lease – if personally guaranteed, and the lease is scheduled to renew before a sale, Landlord will be less likely to renew lease without guarantees

Loss of Key Talent – The Owner!

  • The Owner’s talents, experience, relationships with customers, employees, and vendors may be difficult to replace.
  • If the owner was the director for licensing, the center may have to close, or it may be expensive to replace with a good director. If the center has a employee as the director, what happens if that employee director leaves, or asks for a raise?

Loss of Employees and Customers

  • Without a continuation plan immediately implemented, key and non-key employees will wonder where their next paycheck will come from.
  • When the workforce leaves, parents will pull their children out of the center, and creditors may call in loans.
  • Resulting losses require payment from Owner’s estate.

Childcare Center Business Owners are generally unprepared for Exit Planning/Business Sale

Few have a group of professionals (Business Sale Consultant, CPA, financial planner, attorney, succession planner, insurance specialist …) to meet as a group to review:

  • Owner’s goals
  • Financial performance & market conditions
  • Tax & legal issues
  • Business Valuation update – track work on value enhancements
  • Estimate of proceeds from future business sale
    Likelihood of achieving Owner’s retirement objectives
  • Exit Plan options and team recommendations
    Plan for succession to future generations
  • Tell the Business Owner when the business is NOT ready to sell  & when to sell.

Most childcare center owners are too busy managing the business to concentrate on Exit planning. Every major decision should consider valuations.

Is death the Business Owner’s exit strategy?… If so, the IRS will make all the decisions

Exit planning is done to ensure that business value is maximized at time of exit, the personal and business goals of the exiting party are met, and that tax burdens are minimized. With my experience and knowledge, I am able to coordinate with your accounting, tax, legal, & personal financial advisor to help identify after-tax valuation goals and objectives, to implement improvements, or I can simply provide one element of the overall process.

Poor exit planning can be a major contributing cause to failed business divestitures. So call me to discuss you particular situation.

We can help you using Exit Planning consulting to help you make a decision or just to understand the options better. We can:

  • Discuss the current childcare market of buying and selling childcare centers and the options for selling now or later. (And, options for selling/transferring to family members.)
  • Discuss whether you should sell now or later based on your own personal situation.
  • Advise as to what can be done to increase the value of your childcare center in addition to just increasing its profits.
  • We are not tax experts, but, because we deal with selling businesses all the time, we see want good tax planners are recommending. If all you have is a tax preparer, instead of a tax planner, we could help you save taxes.
  • Pre-qualifying your business with business lenders for if you want to sell soon, or if you want to grow your business and will need financing to do so.
  • If it is going to be several years before you sell, we can refinance your current business loan.

Most potential childcare buyers are not experts in getting business loans. Make sure that if you agree to a deal price, that the buyer can secure the financing needed. We can provide a sample non-binding Letter Of Intent (LOI) for a childcare center that could be used as the basis of the negotiations between the buyer and seller. The issues addressed in this LOI will allow both the seller and buyer to minimize the hours required by an attorney to negotiate “business” issues (price, seller financing terms, transition period, non-compete period & distance), so that attorneys can concentrate on preparing the Definite Purchase Agreement and negotiating the legal agreement.

  • If you considering whether you should exit your childcare center soon or even in the next 5+ years, are you ready to get started with using our consulting expertise to help you determine if (or when) you should sell, or to brainstorm business exit options? Click the “Add to Cart” button and then go to the Checkout at the bottom of this page to enter the number of hours before submitting your payment. Before submitting your payment, you can also go to the Request a Childcare Valuation page to select the type of valuation you would like.

To talk to an experienced childcare financial consultant on exit planning for your center, contact: JayWhitney@ChildcareBrokers.com 770-410-7581

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