Valuing a Daycare Center
The daycare center industry is on the rise. With more individuals and households having two income earners, the need for daycare services continues to increase. Nearly 50% of the industry includes small daycare centers – those with less than 25 employees. This industry is highly fragmented because entry costs can be significantly high. Because of the high entry costs, dozens of daycare centers are bought and sold each year. Whether you plan on selling a daycare or plan on buying a daycare, it is important to understand the fair market value of a daycare.
The value of a daycare is impacted by many different factors. Peak Business Valuation works with many individuals who are buying or selling a daycare. We also help individuals who are looking to expand and grow a daycare. One of the first steps in any of these situations is understanding the value of a daycare. Through a business valuation, you will understand what impacts the value and how to grow a daycare. Below we discuss some of the factors used in valuing a daycare. Keep in mind the below factors are only a guide. For more specific information about valuing a daycare you are looking to buy, sell or grow, schedule a free consultation with Peak.
Market Multiples for a Daycare
- SDE Multiple Average: 2.39x – 3.35x
- EBITDA Multiple Average: 2.99x – 4.37x
- REV Multiple Average: 0.48x – 0.78x
** Disclaimer: These multiples have been provided for educational purposes only. Multiples are based on companies with revenues between $1-$5 million. As such, the information provided does not constitute valuation advice and should not be acted as such. These multiples do not represent the valuation opinion of Peak Business Valuation or any of its valuation professionals. Instead, you should seek the guidance and advice of a qualified business valuation professional with respect to any matter contained in this article.
Valuing a Daycare Center
A valuation expert often relies on an SDE (seller’s discretionary earnings) multiple to value the business. This is due to SDE taking into consideration the sale of similar daycares, and the recent performance of the daycare being valued. For more information see What is a Valuation Multiple?
By understanding what a daycare is worth, you can take steps to increase the value of a daycare. This is helpful whether you are expanding a daycare, buying a daycare, or looking to maximize the value of your daycare before selling. Below are several factors that impact the value and some ideas to increase your daycare center’s value. If you are searching for a more extensive business valuation, schedule a free consultation with Peak Business Valuation. Be sure to also take a look at Valuation Multiples for a Daycare.
Key Success Factors
Peak Business Valuation values daycare centers on a regular basis. Below are several key success factors that can help distinguish your daycare business and increase the value of a daycare center. For more ideas see Value Drivers for a Daycare.
First, daycare centers that receive the highest valuations typically are larger establishments. These daycare centers have a licensed capacity of over 100. Larger daycare centers also tend to have the highest profit margins. While having the license capacity matters, enrollment can impact the value just as much.
Next, consistent enrollment is key to maximizing the value of a daycare. The longer the history the better. Those with longevity of enrollment close to capacity receive the highest valuations.
Next, the location of the daycare center can have a significant impact on the value. Daycare centers in high-population urban or suburban areas typically have the highest demand. These areas also tend to have higher disposable incomes because of dual-working households.
The quality of the interior and exterior of the center can also impact enrollment. As well as drive enrollment prices if well kept up. A great location, a well-kept facility, and ample amenities can boost the value of a daycare. Buyers of daycare centers will be looking at these factors.
A high-quality team can help your daycare center stand out from competitors. Well-trained, and loyal staff can increase the valuation of a daycare. In addition to education, many daycare centers in specific states also require licensing and certification.
Last, offering a variety of special programs and educational opportunities can help set you apart from other daycare centers in the area. Doing so can broaden your market and be a more attractive investment for potential buyers.
There are many important items to consider when valuing a daycare. Understanding the value of a daycare center is important whether you are buying, selling, or growing a daycare. A valuation expert will help you understand the fair market value. They can also help identify opportunities to maximize the value of a daycare center. Be sure to check out our other articles on Valuation Multiples for a Daycare and Value Drivers for a Daycare.
Schedule Your Free Consultation Today!