7 Things That Can Derail Your Childcare Center Sale

Most childcare sales don’t fall apart for dramatic reasons. They fall apart for small, fixable reasons that nobody addressed in time. The seven things that can derail a childcare center sale tend to repeat across deals, and almost all of them can be fixed before buyers ever see them. This guide walks through each one, with specific guidance on how to identify and resolve the issue twelve to eighteen months before going to market.

Honest Buck Accounting has been working with childcare operators on sale preparation since 2013. Across that experience, the same seven issues come up over and over again. Sellers who address these issues proactively close at their asking price. Sellers who don’t end up renegotiating from a weaker position, or worse, watching the deal fall apart in late diligence. This is the fourth piece in the five-part series on selling a childcare center, following the work to clean up your P&L before you sell and prepare for what childcare buyers look at during diligence.

Why These Things That Can Derail a Childcare Center Sale Matter

Generally, sellers underestimate how fragile the sale process becomes once the offer is signed. Specifically, buyers walk away or renegotiate offers based on findings that the seller could have addressed months earlier. As a result, the average childcare transaction loses three to fifteen percent of headline value during diligence. In addition, some transactions fail entirely.

By contrast, sellers who proactively address common deal-killers go into diligence with answers instead of vulnerabilities. Furthermore, they preserve negotiating leverage rather than giving it to the buyer. According to recent BizBuySell market data, small-business transactions where sellers proactively disclose and address issues close at significantly higher rates than transactions where issues surface during diligence.

The seven things below come from actual childcare sale engagements. Importantly, each one is fixable. However, most require twelve to eighteen months of advance work. Therefore, owners thinking about a sale in the next two years should treat this list as a working checklist.

Thing 1: Cross-Collateralized Loans That Can Derail a Childcare Center Sale

One of the most disruptive things that can derail a childcare center sale is discovering that one building’s collateral secures another building’s loan. Specifically, this happens when an owner expands into a new location and uses equity from the original site to secure financing on the new one. Years later, when the owner wants to sell one site without selling the other, the lender’s collateral position blocks the transaction. As a result, this is one of the most expensive issues to resolve under time pressure.

How to Fix the Cross-Collateralization Problem

First, request a written summary of every loan secured against the business from each lender. Next, identify which assets serve as collateral on each loan. Then work with the lender to determine whether the collateral can be released or substituted. Often, lenders will agree to a substitution if the remaining collateral position remains adequate.

Importantly, this conversation needs to happen at least twelve months before listing. Lenders generally move slowly. Furthermore, the substitution may require an appraisal, additional documentation, or a partial refinancing. Therefore, starting early protects the sale timeline.

Thing 2: Owner Expenses That Can Derail a Childcare Center Sale

Personal expenses running through the business create a credibility problem during diligence. Specifically, buyers find the inconsistencies and start questioning everything else. As a result, even legitimate expenses get scrutinized and challenged. Furthermore, this single issue can derail a childcare center sale at the eleventh hour if not addressed beforehand.

How to Resolve Owner Expense Commingling

Generally, the fix requires three steps. First, identify every personal expense currently running through the business. This includes vehicle expenses for family members, meals that weren’t actually business-related, travel that mixed personal and business, and any compensation paid to family members who don’t actually work in the business.

Next, document each item and remove it from the cleanup-period financials. Then prepare a written explanation for the buyer that acknowledges the historical pattern and shows the restated financials. Importantly, transparency wins here. Specifically, buyers respect sellers who proactively disclose. Conversely, buyers punish sellers who try to hide.

Thing 3: License Capacity Issues That Can Derail a Childcare Center Sale

Another common issue that can derail a childcare center sale: a site is licensed for fewer children than the seller believes, or operates with rooms that aren’t fully licensed. For example, an owner opens a location believing it’s licensed for 50 children, but the actual license issued only authorizes 30. The state may be considering an expansion, but until it’s approved, the site’s value reflects the lower number.

How to Address License Capacity Issues

First, request a current license certificate from each site’s licensing authority. Next, compare the licensed capacity to the actual operating capacity. Then identify any gaps and start the appeal or expansion process immediately. Generally, license expansions take six to twelve months to process. Therefore, this work needs to begin well before listing.

Importantly, if a license expansion is pending, document the timeline and probability honestly. Specifically, buyers will discount unconfirmed capacity to zero unless they have strong evidence the expansion will close. As a result, vague optimism doesn’t protect the valuation.

Thing 4: Unbooked Liabilities That Can Derail a Childcare Center Sale

Sometimes the most damaging things that can derail a childcare center sale are liabilities that nobody knew existed. Specifically, accumulated unpaid sales tax, unfunded retirement plan obligations, unrecorded equipment leases, or settled lawsuits that weren’t properly booked. Furthermore, in nonprofit and church-affiliated childcare operations, these can run into hundreds of thousands or even millions of dollars.

How to Surface Unbooked Liabilities Before Buyers Do

First, commission a pre-sale liability audit. Specifically, this is a focused review that examines every category of potential unrecorded liability. Then book any liabilities that should have been on the balance sheet but weren’t. Importantly, this lowers the apparent value of the business in the short term. However, it prevents the much larger damage of having the buyer find the liability during diligence.

For nonprofit childcare operations in particular, work with the board to address governance gaps that allowed liabilities to accumulate unbooked. As a result, the buyer sees both the corrected financials and the governance fix that prevents recurrence.

Thing 5: Short Lease Terms That Can Derail a Childcare Center Sale

A site with two years remaining on its lease commands significantly less value than the same site with eight years remaining. Specifically, buyers price this carefully because their financing depends on lease security. As a result, owners selling locations with short remaining lease terms should expect substantial discount conversations. In some cases, short lease terms derail a childcare center sale entirely when buyers can’t secure acquisition financing without the security of a long lease.

How to Extend Remaining Lease Terms

First, identify any site where the remaining lease term is under five years. Next, open negotiations with the landlord twelve to eighteen months before listing. Then work toward either a lease extension or a written option to extend. Importantly, the landlord may want concessions in exchange. Therefore, the cost of extension needs to be weighed against the value preserved at sale.

For owners who control the real estate through a separate entity, the math is different. Specifically, the related-party lease structure becomes part of the transaction. Furthermore, buyers want fair-market-value terms reflected in the lease. Otherwise, they adjust the offer to reflect what a market-rate lease would cost going forward.

Thing 6: Director Turnover That Can Derail a Childcare Center Sale

Each site’s director represents continuity risk for the buyer. Specifically, a director who started six months before listing raises immediate diligence concerns. Why did the previous director leave? What was the transition like? Has the new director stabilized? As a result, recent turnover translates directly into a price discount.

How to Mitigate Recent Director Turnover

Generally, the fix isn’t replacing the new director. Instead, it’s documenting their performance, supporting their stabilization, and preparing a clear narrative explaining the previous transition. Specifically, owners should document the new director’s enrollment performance, staff retention numbers, and parent satisfaction metrics since taking over. Furthermore, they should be prepared to explain the prior director’s departure honestly.

Importantly, leadership depth below the director matters as much as the director themselves. Therefore, a strong assistant director or lead teacher tier reduces the perceived continuity risk. Centers with a track record of strong employee retention across the leadership tier preserve more value at sale.

Thing 7: Inconsistent Financials That Can Derail a Childcare Center Sale

Buyers want to see three years of restated financials with consistent treatment across all years. However, sellers often restate the most recent year aggressively while leaving prior years untouched. Specifically, this inconsistent treatment looks like cherry-picking. As a result, buyers reject the restated EBITDA number entirely or apply discounts to compensate. Notably, inconsistent prior-year treatment is one of the easiest issues to fix and one of the most common reasons it can derail a childcare center sale.

How to Achieve Consistent Three-Year Restatement

First, identify every adjustment applied to the current year. Next, apply the same methodology to the two prior years. Then document the methodology so the buyer can verify consistency. Importantly, this work usually requires reconstructing prior-year journal entries or producing supporting schedules. Therefore, it takes time.

For multi-location operators, the monthly KPI tracking habit at the per-location level makes this work dramatically faster. Specifically, operators who already track per-site performance can produce three years of clean restated financials in weeks rather than months.

How These Issues Combine to Affect the Sale

Individually, each of these things that can derail a childcare center sale produces a modest discount. However, in combination they compound. Specifically, a seller with cross-collateralized loans, commingled owner expenses, and short remaining lease terms can lose twenty to thirty percent of headline sale value during diligence. In addition, some buyers walk away rather than work through multiple issues.

By contrast, sellers who address all seven items proactively typically close at their asking price. Furthermore, they close faster, with fewer post-closing disputes. As a result, the cumulative impact of addressing the full list far exceeds the sum of fixing each item individually.

The broader market context reinforces the importance of proactive preparation. Notably, the Child Care Aware of America 2025 Price and Supply report documented the first decline in U.S. childcare center supply in years. Consequently, well-prepared sellers in a tightening supply market are positioned to receive premium offers. Conversely, poorly prepared sellers leave that premium on the table.

Getting Started on the Fix List

The right way to address these seven things that can derail a childcare center sale is to start twelve to eighteen months before going to market. Specifically, the first ninety-minute conversation with a sale-prep advisor identifies which items apply to the specific operation. Then a focused engagement addresses each one in priority order.

For multi-location operators thinking about a sale in the next two years, the right move is to start the work now. Importantly, the items that take longest to fix (cross-collateralized loans, license capacity expansions, lease extensions) need the most advance notice. As a result, the operator who waits until six months before listing has already missed the opportunity to fix the most impactful issues.

Honest Buck Accounting works with multi-location childcare owners on sale preparation since 2013. To explore which of these issues apply to your specific business, schedule a Sales Readiness conversation.

This is the fourth piece in a five-part series on selling a childcare center. Next week’s piece is the complete guide that ties the series together, with a downloadable checklist for owners actively preparing for a sale. To get each piece delivered as it publishes, subscribe to the Honest Buck newsletter.