Sell Day Nursery
When selling your property portfolio you should make sure you are aware of all the options as it can hugely affect a lot of imperative aspects.
When selling your day nursery you will need to get as much information about your business together so that you can present your business to get the best price.
It is not unusual for a nursery business operator to significantly over value the business. You may be emotionally involved and any offer is going to be an insult if it doesn’t represent a over valuation.
The emotional valuation is invariably down to the ‘sweat, blood and tears’ that have into the business building it. The realisation when they do not get the offers they want dawns upon them after months of the day nursery being on the market – that they are only going to get what is being offered by a buyer.
The Day Nursery owners usual response, when it doesn’t sell is to blame the agent and then they put it with another transfer agent for another few months. Overvalued day nurseries will not sell whoever they are listed with.
Just to re-iterate the sale price is based upon a bank valuation – as most buyers will need bank finance.
When considering buying a Day Nursery you need to be looking at those offering more than 60 children’s places. The numbers make them more efficient to operate and hence a greater profit can be achieved. Hence, the reason that they carry a premium price. These tend also to be purpose built – as can be seen with national day nursery operators.
There are many day nurseries with less than 35 places that are heavily owner operated a d tend not to make a the profits of bigger ones and if your one of them, then you need to look at the sales price and valuation more keenly.
When valuing a nursery business then you need to consider three areas;
- The goodwill of the business which comprises;
- Qualitative – Customers and potential customers demographics
- Quantitative – Accounts
- The Property
- The condition
- Freehold or Leasehold
- If leasehold then the terms and conditions of the lease. (These can have an immense factor on the valuation of the business)
- Fixtures and Fittings
A buyers bank lending is vital to the purchase of the day nursery. Freehold properties attract typically 75% of lend as it is against bricks and mortar, whereas leasehold lending carries greater risk and therefore less gearing. Buyers looking for leases need to aim for 25 years and the seller needs to negotiate a better lease if it is less than 10 years.
The main factor as to the valuation of a Day Nursery is to determine EBIT.
EBIT is the measurement of the profit a day nursery makes from its operations, making it the “operating profit.” It does not take into consideration interest nor tax and focuses on a nursery’s ability to generate earnings from operations.
This is the key figure which will determine the purchase price of the business – not the property. The multiple that many banks or buyers use is between 1.3 and 2.5 for day nursery with a lease and 4.75 to 6.25 for a freehold property
Once established, a multiplier can be applied to the EBIT figure to give a valuation of the business. The multiple is determined by the market forces at the time of sale. The current market is paying a multiple of 1.25 to 2.5 EBIT for leased premises and 4.5 to 6.25 EBIT for freehold premises.
This isn’t ‘set in stone’ and a buyer of sell day nursery needs to take in a qualitative factors. This is what is the feel of the business is. Having chats with the parents of the children at the nursery, asking staff what they think, and trying to uncover why an owner is selling. This is a process that the seller must also think of.