Valuing your school accurately is essential if you are serious about selling. The value of an specific school is an opinion, not a science. Naturally, the buyer’s valuation is usually very different from what the seller believes the school is worth. Owners are usually emotionally attached and they factor their years of hard work into their calculation, but these emotions do not count in the valuation of the school.
One common mistake that owners tend to fall into is trying to promote the “potential” of the business as an asset and they expect to get paid for that potential. An school that have room to grow or improve, could be more attractive to buyers who could take advantage and are interested on that potential; however an offer from any educated buyer will most likely be based on current financials.
To appraise an school correctly, we should start with the last three years of taxes and financial statements. There are several methods used:
- EBITDA multiplier.
- SDCF multiplier.
- Annual revenue multiplier.
- Based on the license capacity.
A multiplier of the EBITDA is the most common path used for a child care center or school valuation without real estate. Schools with the real estate included, are usually appraised based on annual revenue or license capacity. The method and the multiple used will also vary depending on factors like:
- Licensed capacity. Centers with a higher capacity tend to be more profitable.
- Condition of the real estate building.
- Number of locations.
- Years established.
The owner should be flexible with the price, because the valuation is considered a range, where the final price will depend on several variables like the market, “supply and demand” at the moment, motivation from the buyer, financing options, etc.