The best way to value a privately held day care business is using the Multiple of Seller's Discretionary Cash Flow method. This valuation method generates to most reliable estimate of value as it uses recent sales of similar day cares, as well as the performance of the day care being valued. To arrive at the valuation you must first calculate the day care's seller's discretionary cash flow.
Seller's discretionary cash flow is determined as follows: Start with the business pretax earnings, add non-operating expenses , add unusual or one-time expenses, subtract non-recurring income, add depreciation and amortization expense, add interest expense, subtract interest income, add back a single owner's total compensation, adjust compensation of all other business owners to market value and add back other owner's expenses that a buyer would not incur when they take over the center.
The next step is to determine the multiples of comparable sales. This is determined by dividing the selling price of these comparable sales by their sellers discretionary cash flow. These multiples are then applied to your day care's seller discretionary cash flow, to arrive at a range of value for the center.
This computation of value can be somewhat complex, require seasoned judgements and access to database of comparable sales, making it difficult for an individual owner to perform it on their own. The Day Care Exchange has experienced professionals who perform these valuations and who have access to a vast database of comparable sales. We provide this valuation service free of charge, and with no obligation, to day care owners. Just go to our Valuation Request
page to get yours.