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Buying A Preschool: Important Evaluation Tips From A Preschool Broker


Buying A Preschool Important Evaluation Tips

The traditional way of evaluating a preschool business is to calculate the real adjusted net income, which is found in the salary or profits to the owner, plus any other benefits the owner might receive. These could be dividends in a corporate arrangement, or health-care benefits, transportation expenses reimbursed, an office in the home that is expensed to the business, a retirement plan, and a number of other options that owners of businesses give to themselves as benefits. These items add to the adjusted net income of the business for sale and should be fairly easy to discover with a business that has good records. This exercise is a good starting point for anyone in their search for an opportunity.

The salary or profits will show up on the Schedule C of a Federal income tax return, or for a California Corporation in the corporate return and/or in the quarterly payroll reports. The other items should be in the tax records as well.

Once you are familiar with the basic numbers referred to above, the next thing is to look at the facility; its location geographically, its location logistically {taking into consideration accessibility}, the average household income of the surrounding community, the average home prices for that community, then to the school's enrollment, the schedule of tuition, the marketing that has been used by the business, the numbers of employees, their salaries and benefits, the school calendar, the numbers of vacation days in the calendar, the schedule during the summer, the number of years at the location, and the reason the owner is selling. These are important considerations, there are others. If the building is not for sale, the terms of a new lease are of primary importance. If the building/real estate is for sale, is the asking price comparable to other commercial properties in the vicinity.

If the school is a traditional preschool, staffing is somewhat simplified compared to the needs of a Montessori preschool. In a traditional preschool, the staff will have certain educational requirements and experience requirements set down by the Department of Social Services. In a Montessori preschool those requirements apply, but in addition at least one teacher for each 24 children should be a trained and experienced Montessori lead teacher. If a preschool has a well-seasoned staff in place for either a traditional preschool or a Montessori preschool, it is usually not wise to make big changes. Parents will not be pleased, and other staff members will not be pleased. Even if it appears that salaries seem a tad high, there are other considerations in finding extra cash flow in an existing business. It might be better to consider a more gradual implementation of policies that you might want to institute rather than creating waves with drastic changes, potentially effecting your enrollment and possibly intimidating or  making adversaries out of staff members.

The wonderful opportunity you are looking for in a preschool may not be staring you in the face when you first look at the books, calculate the current profits, or view the facility in person. It may not be on the busiest boulevard in the city, the gross income may be low, the salaries high and the rent a bit too high. The furnishings may seem a bit worn and the playground equipment might need replacing and updating. The opportunity you are seeking is sometimes just a little under the surface buried under other facts, such as; tuition that is too low and could be raised, inattentive management of staffing needs during certain times of the school day, under-utilization of daycare opportunities and after-school programs that could significantly increase income, unnecessary or lavish expenses that the school, parents, children or staff would not even notice if those expenses ceased.

The point is; the perfect, up and running school may be out there. But it may not be for sale right now, and may never be as far as you are concerned. If it were, the price would almost certainly be higher than the school described above, with all its seeming imperfections. This is where we find the diamond opportunities. Low tuition can be raised gradually in a school that is fully enrolled, and even if a few parents decide to leave, the net result on your income could be zero or close to it. Then you can build a base of parents that are willing to pay the fair market tuition that the school should be able to command. For a school that is under-enrolled, in just a year or so, or even sometimes in just a few months or weeks with aggressive marketing and advertising, enrollment can be doubled. I have seen this done many times. School programs can be refined and expanded to bring extra income, and will make the school more attractive to busy, professional parents. Money spent on out-dated forms of advertising can be better invested in an effective internet presence and campaign. Careful oversight and placement of staff as the numbers of students on campus change throughout the day can save thousands of dollars per year or month. Add to this your determination to give your customers; your parents and their children, the best value and most wonderful preschool experience you can possibly give them. These are the ingredients for making a success out of an opportunity that may not seem all that promising at first glance.

Then consider that the shortcomings of the preschool you are investigating can be excellent bargaining points to present to a motivated seller. Whether it be the terms of financing, the actual purchase price, or other concessions you might seek from a seller such as training or transition assistance, if approached thoughtfully you can use every fact of the business to help you in negotiations. Even if every concession doesn't come your way, you can still find the diamonds in the rough-looking opportunity before you. It really is up to you to refine those diamonds.

Melvin About This Author: Victor Kiklowicz is a licensed Realtor in California with many years of personal experience in the Montessori preschool business. He has also been involved in the successful sale of these schools. Victor is familiar with the licensing requirements and the steps involved in selling and buying a licensed preschool facility. He can be reached at 626-797-4906.


Categories: BizBen Blog Contributor, Buying A Business, How To Buy A Business



  Helpful Resources To Assist In Selling And Buying California Businesses
Rick Carlson, Business Broker - Southern California

You Will Never Feel Lost In The Shuffle. Many Brokers Simply Send Out An NDA And That's The End Of Communication. All Buyers Receive A Personal Meeting With An Ace Acquisition Specialist So They Can Recommend The Perfect Business For You. Phone Rick direct at 800-985-4939.

Michael Davidson, Business Broker - Southern California

Los Angeles Business Broker providing M&A quality services for Small Business Owners. We leverage our technology and expertise to Simplify & Expedite the Business Sales Process. Matching the right buyer with the right business is how we define success.

Matt Sadati, Business Broker, SF Bay Area, Northern CA

I have Engineering and Law, JD degree, with over 30 years of experience in all phases of entrepreneurship. During the past 15 years my concentration has been in business of mergers and consulting. I have owned and operated over 33 businesses each having one to 30 branches.

Chris Seaman, Business Broker - San Diego County Area

Founded in 1994, First Choice Business Brokers has accelerated to become one of the most successful Business Sales Organizations in the world. Our team of agents have gone through extensive training to become experts in the field of business brokerage. Call Chris at 858-578-4111 for more info.

William Park, Business Broker - Southern California

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Michael Floorman, Business Broker, BTI, San Francisco Bay Area

Business Team, San Jose (Campbell) located in the Pruneyard Towers at Bascom and Hamilton. Established in 1981 Business Team with over 6600 sales to date has 1000 business listings to choose from, paid Google advertising. We offer highly trained and experienced professionals.

Peter Siegel, MBA - SBA Loans, Non SBA Financing Assistance

For over 25 years I have provided niche business purchase financial advisory and loan placement services with SBA and Non-SBA Loans, Retirement Plan Conversions, Private Investors, etc. Financing amounts available: $20K to $7MM. Call today to get pre-qualified or receive financing: 866-270-6278.

AJ Rana - Business Broker, San Francisco Bay Area

Professionals who understand the importance of world class business brokerage service and the value it can create. Specializing in assisting sellers and buyers with retail stores, restaurants, hospitality & lodging, manufacturing operations, distribution companies, e-commerce and service businesses.


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