How are Childcare Center Businesses Valued? – Rules of Thumb
There are many rules-of-thumb ways to value a childcare center business.
Here are some “Rules of Thumb” valuations we are aware of. Depending on how good or bad the “rule” is, approximately 50% of childcare centers would sell for more than these “rules of thumb” and 50% would sell for below. This is why we do not use them to calculate valuations.
Problems with using rules-of-thumbs:
- If your Business is sold at a value estimated by a rule-of-thumb that is too low, you will give up money.
- If your Business is marketed at a rule-of-thumb that is too high, your Business will likely NOT sell.
- If your offer to an owner is based on on a rule-of-thumb that is too low, you may not buy a center that you really want to buy.
- If you buy a center at a price estimated by a rule-of-thumb that is too high, you will over-pay for the center.
We show them below so you can see the variations in them and how inaccurate they could be when applied to a center:
- Percentage of Annual Revenue – Sometimes, this rule-of-thumb is 55% to 60%, and others use 30% to 45% of annual revenue for the business value only
- Percentage of Annual Revenue – 140% to 300% of annual revenue for the value of the real estate and business together
- Multiple of Sellers Discretionary Cash Flow (SDCF) for the business value only – For centers licensed for under 100 children: 1 to 2 times annual SDCF; for centers licensed for 100 to 250 children: 2 to 3.5 times annual SDCF; for very profitable centers licensed over 200 children: 3.0 to 4.0 times annual SDCF. SDCF is also referred to as Adjusted Profits. It is calculated as: EBITDA + the Owner’s Compensation.
- Multiple of Earnings before Taxes (EBIT) for the business value only – 3 to 4 times annual EBIT.
- Multiple of Earnings before Interest, Taxes, Depreciation, & Amortization (EBITDA) for the business value only – 3.5 to 4.5 times annual EBITDA.
- Based on licensed capacity – $1,000 to $2,500 per child for the business value only
- Based on licensed capacity – $6,000 to $14,000 per child for the real estate and business together
Contact us to discuss childcare valuations, or request a valuation.