Succession Planning: 7 Tips for Increasing the Market Value of Your Childcare Business

January 25, 2021

Succession planning is a strategic process that helps you prepare for the future of your childcare business, including the potential sale of your company to prospective buyers. Even though you may not want to consider selling your childcare company now or in the near future, it is in your best interest to consider how to maximize the value of your company so that years down the road, you can successfully transition out of your position as daycare owner and/or director. The following article offers seven tips for increasing the market value of your daycare business today to help you prepare for what the future may bring.

Why Start Succession Planning Now?

You love your childcare business, and you have no immediate plans to retire, pursue other business opportunities, or leave the childcare industry. So why do you need to think about a succession planning strategy now? Here are just a few reasons why it?s never a bad idea to begin the succession planning process:

  • Building the foundation of a high value childcare business can take years. You already know that a successful childcare company isn?t built overnight. It takes months and years to grow all the different aspects of your business that contribute to a high market value: good financial records, robust enrollment numbers, a great reputation in the community, a dependable staff of teachers you love, and more. Give yourself time to grow in these areas and you will see the benefits today and in the distant future when you?re ready to sell.
  • Selling a childcare company can be a slow process. You don?t want to make the mistake of comparing the sale of a childcare business to the sale of a house when you look at how long your business could be on the market. Whereas it may take an average of three to four months to sell a house depending on the real estate market, it may take an average of one to two years to sell your childcare business. You will do yourself a disservice if you wait until you are burnt out to sell your daycare. You may not have the patience or endurance to wait for the right buyer if you?re desperate to get out immediately.
  • You never know what the future holds. Where are you going to be in five, ten, fifteen, or twenty years? It may sound like a simple question to answer, and certainly you can make a five-year plan and onward to help you envision the growth of your childcare company. But the truth is, you can?t be absolutely certain what your life will look like in the distant future. Whether you develop a passion for another business opportunity between now and then, or you want to spend more time with new grandchildren, you want to plan for life?s variables ahead of time. Succession planning now can help you make the right decision no matter what circumstances look like down the road.

Now that you know why succession planning is important, let?s take a look at seven practical ways you can implement succession planning to maximize the market value of your childcare business and make it attractive to potential buyers.

7 Tips for Increasing the Value of Your Business with Succession Planning

Get Your Finances in Order Today. Potential buyers will want to see your financial records, including monthly revenue and expense statements and corporate tax returns. When you have this information easily accessible, you will benefit from the clean financial recordkeeping both now and in the future when you want to sell. The experts at Honest Buck Accounting can help you get your financial records in order today!

Boost Your Full-Time Equivalent Enrollment. At any given time, you want to be sure you are enrolling the maximum amount of full-time equivalent children in your daycare program. Not only is this going to boost your profitability while you?re in business, but it will also increase the market value of your childcare company when you do decide to sell to a potential buyer. Prospective buyers will definitely take note of how many full-time equivalent children you have enrolled at your daycare center because the numbers have a direct impact on your profit. Calculate your FTE ratio and work on increasing that number.

Earn a Great Reputation in Your Community. A childcare business with a great reputation in the local community has a high value to potential buyers. As you probably already know, it takes a lot of time and effort to earn a great reputation with the families in your community. Work on establishing a great name for your childcare company by providing the highest quality childcare service you can. When you go to sell your company, your reputation will proceed you.

Maintain and Upgrade Your Childcare Center. You can increase the value of your daycare company by maintaining your facility and making necessary upgrades along the way. Are the children you care for thriving in your facility? They should be. Peeling paint, leaky plumbing, overcrowded classrooms, and other signs of neglect not only create an unpleasant atmosphere for families you serve, but they also detract from the value of your business in the eyes of prospective buyers.

Build a Valuable Team of Employees. It?s understandable that throughout the course of running your daycare business you will inevitably experience employee turnover. The childcare industry has some of the highest employee turnover rates in the market, but as your employees come and go, work on creating a culture where valuable team members are encouraged to stay and grow. As you invest in your team members, you can keep your eye out for those employees who have the potential to step into bigger roles and help keep your daycare going strong through times of transition. When you do sell your company, this will help create a more seamless transfer of leadership and encourage the continued success of the business you have built.

Consider Your Own Successor. This is a tough one for a lot of business owners. If your position as the owner or owner/director of your childcare company is absolutely crucial to the day-to-day operations of your business, you will want to start thinking about how you can transfer some of your knowledge and responsibilities to the person you want to fill your own shoes someday. Mentoring a member of your team who shows promise for future leadership could help you make a future transition more successful.

Give Yourself Enough Time. You probably didn?t decide to open a childcare business overnight. You may have strategized and planned for months or years before finally taking the leap and starting your dream business. Deciding to sell your company will most likely take time too. Some daycare business owners contemplate the decision to sell for years before they take action. The important thing is to give yourself enough time to work on a succession planning strategy that will guide you through the successful sale of your business.

Does the idea of succession planning feel overwhelming? The Honest Buck team of accountants can help! Schedule a discovery call with us to learn how we can help you grow your business and build succession planning into your long-term business strategy.

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