He Closed on a Child Care Business Friday — and Couldn’t Open It Monday

What one owner’s child care business purchase taught him about the due diligence you can’t afford to skip.

You found the perfect child care center. The numbers look good. The location is right. The teachers want to stay. You close the deal on a Friday, plan to reopen Monday, and then — you can’t open.

That’s exactly what happened to one of our clients. His story is a cautionary tale for anyone considering a child care business purchase.

What Went Wrong With This Child Care Business Purchase

Our client closed on his second child care center. The plan was seamless: sign the deal, rehire the existing teachers, and keep the doors open without missing a beat. He’d save bigger renovations for summer.

But about a week and a half before closing, an inspector discovered significant deferred building maintenance. Cracked tiles, structural wear, and other issues had been quietly accumulating under the previous owner. The inspector denied the license to operate.

The deal still closed. But instead of welcoming children on Monday morning, our client had to notify every enrolled family that the center would not be opening. His other location was already at full capacity. Parents had to scramble for alternative care with almost no notice.

The Silver Lining

Once our client assessed the scope of repairs, he made a smart call. It didn’t make sense to patch things up piecemeal just to reopen quickly, then tear everything apart again over the summer. Instead, he did the full renovation now.

That decision will save money long-term and deliver a better facility. He’s on the other side of it now and in good spirits. But those first few weeks were stressful, expensive, and avoidable.

Why Deferred Maintenance Derails a Child Care Business Purchase

Deferred maintenance is one of the most common hidden costs in any child care business purchase. Previous owners — especially those looking to sell — may cut back on upkeep. This boosts short-term profitability on paper. What looks like a well-run center can hide tens of thousands in repairs.

Here’s what makes child care different from most acquisitions. Your building doesn’t just need a general inspection. It needs to meet child care licensing standards, which are stricter than standard commercial requirements.

Fire safety, sanitation, building codes, and environmental health all must pass. If the building doesn’t meet these standards, you don’t get a license. Without a license, you don’t have a business.

8 Steps to Protect Your Child Care Business Purchase

Whether this is your first center or your fifth, here is what we recommend every buyer investigate before signing.

1. Request the Full Inspection and Licensing History

Don’t just ask if the center is currently licensed. Pull the complete inspection history. Look for violations, complaints, corrective action plans, and follow-up visits. A center bouncing between compliance and non-compliance may have systemic problems.

Most states make this information available through their child care licensing division or an online safety portal. Review every report before you proceed.

2. Commission an Independent Building Inspection

Never rely on the seller’s word about the building’s condition. Hire your own inspector — ideally one experienced with child care or educational facilities. Have them evaluate:

• Roof, plumbing, HVAC, and electrical systems
• Flooring, walls, and structural integrity
• Playground equipment and outdoor surfaces
• Fire suppression and alarm systems
• ADA compliance
• Drainage and moisture issues (especially in flood-prone areas)

These aren’t cosmetic concerns. Any one of them can delay or prevent licensing.

3. Understand the Lease

If you’re purchasing the business but leasing the space, the lease is critical. Review these elements carefully:

• Remaining term and renewal options
• Rent escalation clauses
• Who handles capital expenditures and major repairs
• “Make good” clauses that could cost you at lease end
• Restrictions on modifications you’ll need for licensing

A 15-year lease with aggressive rent increases quietly erodes profitability. A short-term lease with no renewals leaves your entire investment exposed. Understanding your occupancy costs as a percentage of revenue is essential before you commit.

4. Verify Enrollment and Attendance Data

Occupancy drives revenue, but headline enrollment numbers can mislead. Ask for actual sign-in and attendance records. Compare them to the roster.

Look at enrollment by age group. Infant and toddler rooms typically generate higher revenue per child than pre-K classrooms. A center that appears “full” may be weighted toward lower-margin age groups. Understanding key performance indicators like full-time equivalency and revenue per classroom helps you see the real picture.

5. Audit Staffing and Payroll

Labor is typically 50–60% of a child care center’s operating costs. Before you buy, review:

• Current staffing ratios versus state requirements
• Staff tenure, turnover rates, and open positions
• Wage levels compared to local market rates
• Benefits obligations (health insurance, retirement, PTO)
• Any pending workers’ compensation claims

High turnover or below-market wages are red flags. You may inherit a team that’s about to leave — or one expecting a raise from the new owner. Staffing challenges are one of the biggest operational risks in child care today.

6. Review Regulatory and Compliance Requirements

Child care is one of the most heavily regulated industries. Beyond the building, make sure you understand:

• State licensing requirements for the new owner (background checks, training, certifications)
• Local zoning and land use approvals
• Health department and fire marshal sign-offs
• Required insurance coverage (liability, property, workers’ comp)
• Any pending complaints or investigations

A change in ownership can trigger a re-inspection. Don’t assume the previous owner’s license transfers automatically. Having an up-to-date employee handbook and compliance documentation in place is essential from day one.

7. Get a Professional Business Valuation

A proper valuation goes beyond multiplying EBITDA by an industry multiple. It should account for physical assets, enrollment stability, staff strength, lease terms, competitive landscape, and deferred costs.

This is your best tool for negotiating a fair price — and for knowing when to walk away. If you’re planning a big financial move, do your homework first.

8. Examine the Financial Statements With an Expert

A child care business purchase has unique financial dynamics that a general accountant may miss. You need someone who understands:

• How to read a child care P&L (tuition revenue by age group, subsidy income, seasonal patterns)
• What “normal” operating margins look like in this industry
• Where costs may have been understated to inflate profitability
• How to model projected cash flow post-acquisition

Your projections should include the cost of any repairs, staffing changes, or lease obligations you’ll inherit. Understanding what drives profitability in child care is critical before you sign.

The Bottom Line on Your Child Care Business Purchase

Our client’s story had a happy ending. He’s a smart operator with the resources to pivot and renovate now rather than later. But not every buyer is in that position.

A licensing denial after closing can mean months of carrying costs with zero revenue. It can mean families lost to competitors and a renovation budget you didn’t plan for. The best time to uncover these problems is before you close — not after.

If you’re considering a child care business purchase, we can help. From financial due diligence to post-acquisition advisory, Honest Buck Accounting specializes in helping child care business owners make smart, informed decisions. Schedule a discovery call to learn how we can support your next move.

Honest Buck Accounting specializes in accounting, tax, and advisory services exclusively for the early childhood education industry. Visit honestbuck.com to learn more.