Childcare CFO / Desert Score
Nine weighted questions that determine whether a childcare acquisition holds up after close. Answer as you go and the score updates. Nothing is sent anywhere unless you ask for the breakdown.
The deal
How full is it?
How many kids the license allows, against how many are actually enrolled. Then ask why there is a gap.
Does the owner work there?
If the seller runs the place day to day, you have to hire someone to replace her. That cost comes out of the profit.
Where does the tuition money come from?
Families paying directly, or state a state program. Either can work. What matters is whether it is spread out or concentrated in one place.
Do families pay on time?
Whether the money actually arrives when it is due. This is the same problem whether you are waiting on families or waiting on the state.
Is enrollment going up or down?
Look at it month by month for two years, not yearly totals. That is where a slow decline hides.
How long have the teachers been there?
You have to keep a set number of adults per child. That means staying open depends on people who can quit.
What is the rent situation?
How much, how many years left, and whether it goes up.
What shape are the records in?
Simple record-keeping is normal at this size. Records nobody can follow is a different problem.
Does the license transfer to you?
Some places it comes with the sale. Some places you have to apply for your own.
When were the big things last replaced?
Roof, heating and air, playground, floors. Go look at them. Do not read the paperwork.
Optional: will it cover the loan payment?
If the current owner works at the center, subtract what you would pay a director before you enter this. Otherwise the number will look better than it really is.
Reading your score
This is a second opinion, not a decision. It tells you where to dig and what to negotiate about. It cannot see the seller sitting across from you, or the neighborhood, or the families who have been coming for ten years. You still have to use your judgment.
Questions
A scorecard for buying a childcare center. It asks ten questions about the place you are looking at and gives you a score out of a hundred, plus a plain list of what is weak. The ten questions are the ones that, in my experience, most often change a price or end a deal: how full it is, whether the owner works there, where the tuition money comes from and whether it arrives on time, which way enrollment is heading, how long the teachers have stayed, the rent situation, the shape of the records, whether the license transfers, and what condition the building is in.
Because the profit is last year's number and you are buying next year. Two centers can show the exact same profit and the exact same asking price and be completely different deals. One keeps making that money after you take over. The other does not. These ten questions are about which one you are looking at.
Not always. A low score means either the price should come down or something needs fixing before you sign. Some of these problems are very fixable. A center with real problems at a price that already accounts for them can be the best deal on the table. The score tells you what to negotiate about, not what to do.
It compares the money the center has left over each year against what your loan payments would be. Banks call this debt service coverage, or DSCR, and most want to see at least a dollar twenty-five coming in for every dollar going out to the loan. If the owner works at the center, subtract what you would pay a director before you enter the earnings figure, or the number will look better than it is.