If you own a childcare center and you are reading this, it is likely that you are at least starting to think about selling your business. We understand that there are many reasons for not selling. If you are like many business owners, you enjoy running your business and it is hard to image what you will do with your life if you did not work at your childcare center each week.
Common Reasons Why Owners Don’t Want to think of Selling
- Not being a business owner will reduce one’s social status and sense of respect in the community.
- Being a business owner gives meaning and purpose to one’s life and the owner is unsure what he/she will do after a sale to provide a life purpose because playing golf and rocking in the rocking chair all the time is likely to provide it.
- The owner has many rewarding relationships with employees, vendors, customers, and other business relationships that will likely wither without the common bond of the business. Just thinking of losing these relationships causes apprehension in the owner.
- The future is unknown after a sale and the owner does not have a vision of what he/she will do.
- The financial rewards of business ownership.
If you can relate to these, then know that you are not alone. However, maybe you have thought of what you will do after you sell.
Common Options that Former Owners do When They are not so Actively Running Their Business
- Spend more time with family… especially grandchildren.
- Hobbies or recreational activities… either you are currently involved in these, back when you had more time… you were involved and want to dedicate more time to these, or you want to get involved in new activities.
- Expand you knowledge or extend your creative side in fresh ways.
- Volunteer, favorite cause, politics, spiritual service
- Starting or buying a new business that has greater or new opportunities that can’t be pursued because of the demands of the childcare center.
- Wanting a more diversification of investments or less risk that having most of their wealth tied up into just one investment (the childcare center).
At some point, every business owner leaves his or her business – by the owner’s choice or otherwise. The key is to know when to sell. We understand that there are many personal and business issues that effect your timing decision to sell.
Issues to Consider
Is selling your business important to you and your family’s goals in the next few years? Should you sell your business now or in a few years? Issues include:
- If you do not have the same focus, intensity, and passion for managing the day-to-day details of the business as you had when you were growing the business, will the business suffer and its value suffer?
- Are you willing to continue with the intrinsic risks of business ownership that can reduce its value? (Risks include: economic slowdown, key employees leaving, new competitors, fewer young children in the area, declining health …)
- Will growing the business for a few years before selling it really make you much more money than if you sell now?
These questions are almost misleadingly simple to ask, but to answer them requires thought and action on your part.
Do you find yourself thinking about getting out of your business? Are you wondering how to groom a successor? Is passing your company on to your children becoming increasingly unlikely? Are you getting tired of fighting the alligators and want a different challenge?
Of course, some childcare centers are burnt out and do not enjoy running the childcare center anymore. We also understand that there are many reasons for selling such as retirement, health reasons, you may feel that there are better opportunities to make money elsewhere, partnership disputes, and of course the worst reasons for selling: the owner’s untimely death or disability.
Whether you are just starting to think of selling or have thought about it long and hard, there is one un-escapable truth… being a childcare center owner likely hinders you from spending more time on other activities or opportunities.
Stories of Childcare Center Owners Who were Unsuccessful in Leaving Their Businesses
We have worked with business owners considering selling their businesses for many years and worked with Childcare Center owners since 2003. You can hopefully avoid their mistakes:
- Bob – who owns a franchised childcare center under reported revenue to both the IRS and to the franchisor to such an extent that actual profits were $100,000 higher than on the income tax returns. He thought he was saving about $40,000 yearly in taxes and franchise fees. At age 65, he made the decision that he wanted to sell and contacted Childcare Brokers. We explained that because of the lower profits (and the manual bookkeeping system he used to hide the revenue), the business was likely to sell for at least $250,000 less than what it would have valued for if he had good books & records and had reported all revenue. We secured a very good offer from a buyer based on the reported profits, and Bob rejected it. The best time to sell a business is when it is doing well. Unfortunately, with changes in the economy, Bob’s center is not doing very well and he is still operating it in his 70’s.
- Mary – owns a childcare center that is not doing well and cannot even afford to pay Mary a salary for her time managing the center. Mary contacted Childcare Broker to explore a sale. Based on the expected market value if the center sold, Mary would lose enough money because of her personal guarantees on the loan, that she concluded that she could not afford to sell. Unfortunately, because of the situation, Mary does not enjoy managing the center anymore and that burnout feeling prevents her from making the plans necessary to turnaround the center.
- Peter – owned a childcare center, decided to retire and sold it. Peter moved to an upscale golf community near a beach, and was planning to buy a smaller business to give him something to do during his retirement. However, he found that there were no appropriate business opportunities to buy. Retirement became boring. He began doing things just to “kill time”… life was meaningless and did not give him a purpose. He became overweight and developed health problems.
- Jill – owned and operated a successful childcare center for many years. She became interested in politics and became a member of the city planning board that took up much of her time. Jill considered selling her business soon after joining the city planning board, but instead hired an additional employee to replace her. After a year of spending very little time on business, Jill decided to sell and contacted Childcare Brokers. Because the director did not manage the costs as well as Jill had managed the costs, the profits fell during the past year and the center’s value had gone down. Against our recommendation, Jill also told the director and assistant director of her desire to sell her center because these two employees had been with Jill many years. Together, these two key employees tried to securing the financing needed, but they did not have the personal financial strength to do so. Unfortunately, many of the potential business buyers that were interested in Jill’s center lost interest when they found out that the director and assistant director had tried to buy it. This is because in the buyers’ opinion, once the director and assistant director had experienced the “potential” of becoming entrepreneurs, it made it more likely that they would leave the center once a new owner acquired it and that would reduce its future revenue.
- Wanda – owned a childcare center and decided to sell it and retire if she could get the “right” price. She listed it with a business broker who marketed it for the price she wanted. The marketing attracted potential buyers but no offers and the broker became reluctant to spend much time on Wanda’s center because he knew it was overpriced and unlikely to sell. After two years of marketing inactivity, Wanda contacted Childcare Brokers to sell her center. After valuing her center, we marketed it for a price that would sell. We found that many potential buyers were aware that Wanda’s center had been listed for sale for many years and unfortunately did not want to spend their time looking at it because they thought that there must be problems because other potential buyers had looked at it and rejected it. Wanda’s center sold, but, most likely at a price lower than it would have sold for if it had initially be priced closer to its true business value.
- Sarah – owned a successful childcare center had just one problem… she could not say NO when a family member needed a job. Sarah employed full-time her two sisters, mother, niece, and a cousin. She wanted to fire them all except for one sister, but could not bring herself to do it. This was even after she was advised that the business was less profitable (i.e. less valuable) than it should have been because of all the family employees. Childcare Brokers sold her center, but it was at a lower price than it could have been.
In the above examples, the names and identifying information have been changed to respect privacy.
If you are like many business owners, your business is your life and approximately 80% of your net worth is tied up in the business.
When you sell your childcare center is a very personal decision based on many factors, but in general, a successful business sale involves:
- You have a plan for your life post business sale.
- The business sale provides you enough money to provide for your new life, or allows you the opportunity to make more money elsewhere.
- The childcare center continues to operate successfully.
- You have a rewarding life post business sale.
When is the Best Time to Sell?
I have heard off-the-cuff opinions such as:
- Only when you get the highest Price.
- I will not sell unless I get all cash.
- Do not sell unless you know what you want to do next.
- Everything is for sale… for the right price.
- If it is a good business that makes money, then don’t sell.
The above answers just address the price and terms…but there is much more in a business owner’s decision to sell.
Examples of Business Owners Talking in their Own words About Opportunity Costs.
These Owners Should Consider Selling.
- Burn Out – “My childcare center has been good to me. I am proud of it. It was fulfilling. For a while though, I have not been having much fun and it has been boring. I know I could do more with the center, and it has lots of potential. However, I just do not want to put any more energy into it.”
- Another Business Opportunity – “My childcare center is going well and I could keep running it forever. But, it takes lots of attention and distracts me from a different business venture, with which I believe I can have even a greater success.”
- Owner Skills – “My childcare center has been successful, but based on my talents and experience; I have taken it as far as I can.”
We at Childcare Brokers help Childcare Center owners make their centers more valuable and sell centers. If you don’t have a plan for your life post business sale and you live in the Metro-Atlanta, we recommend www.MargoGeller.com who works with business people on profound personal transitions.