There are nearly 655,000 day care centers across the United States providing childcare for about 25% of children under the age of 5. With the changing nature of working parents, the day care industry is rapidly expanding. It has a historical growth rate over the last five years of 3.5%.
As you can see, the need for childcare is growing. Whether you are looking to expand, buy, or sell your day care center knowing what drives the value can help you be prepared. Focusing on the factors that impact the value of your day care center can help you grow and maximize your company. The following discusses several factors that impact the value of day care centers.
The licensed capacity of a day care center directly impacts the value. Centers with large capacities typically greater than 100 are the most valuable. However, centers that are operating at or close to full capacity also receive high valuation multiples.
Keep in mind the larger the licensed capacity the more labor-intensive the daycare center becomes. Labor is one of the largest expenses for a daycare center and if not monitored can decrease revenue margins.
In addition, the higher your licensed capacity the more children you can enroll. High levels of historic and recurring enrollment command a higher valuation multiple. Having a long-term customer base shows stability which increases the value of your company.
Program & Educational Offerings
The variety of programs and educational opportunities increases revenue. Many day care centers have implemented after-care programs and summer camps to attract a broader market. Day care centers that offer flexible hours and cater to the varied needs of working parents are more appealing and attractive.
Additionally, there is a growing market for day care centers that specialize in learning environments. These centers offer a variety of activities from learning and reading, to art and creative projects, and physical and outdoor playtime. These diversified centers are often attractive investments to potential buyers.
Many day care centers can take advantage of government subsidies and other grants. Federal, as well as state governments, provide a variety of subsidies, including fee relief for low-income families. These subsidies increase demand for certain day care centers. The largest source of government funding for day care centers comes through the Child Care Development Block Grant (CCDBG).
Brand Recognition & Reputation
The reputation of a day care center is pivotal in attracting initial interest from prospective clients. Your reputation and brand recognition also help you stand out from your competitors. The most valuable daycare centers have excellent brand recognition in their communities. This value is typically accounted for within the goodwill of the business.
National, regional or local franchises with an established reputation typically receive higher valuations. Not only do franchises earn the trust of clientele, but they also provide greater support to the business. Popular day care franchises include Kiddie Academy, Children’s Lighthouse, Lightbridge Academy, Kids R Kids, Genius Kids, the Goddard School, Primrose Schools, among others.
Location is key. Many parents want to be able to drop off and pick up their children at a day care center that minimally increases the length of their commute. Carefully consider the location and amount of working traffic that passes by.
Establishing a day care center near affluent neighborhoods may also be strategic. Day care centers in these areas can often charge higher enrollment fees as the level of disposable income is higher. Higher enrollment fees can positively impact the profitability of the day care center.
Lastly, the quality and upkeep of the day care location is imperative. Spending time making the location attractive both inside and out will increase the value and attract potential business.
Understanding what drives the value of your day care center will enable you to set goals to maximize the value. Whether you are looking to buy or sell a day care center, you need to know how to value your business. Determining the value of a day care center can be complicated.
As such, a business valuation professional uses their judgment, experience, and relevant information to determine the value. A business valuation will not only help in determining and fair market value but will also analyze your strengths and weaknesses and assess how you compare to your competitors.