What’s a Preschool Worth?

Views: 30 Comments: 0 0 Post Date: October 20, 2020

“Children are the world’s most valuable resource and its best hope for the future. – John F. Kennedy”

We all know this intuitively, which is why we try to send our children to the best schools, starting from their first-day care. Have you wondered how the people behind the scenes of such preschools run things on a daily basis, while educating your children and ensuring their safety?

Let’s see what a preschool is worth…

Running a preschool or daycare is a tough job. Children who depend on you, staff that looks up to you, parents that trust you with their most precious future, and regulators who watch your every move like hawks surround you…

There are about 600,000 private and non-profit preschools in America, collecting annual revenue of over $60 billion, with 1.6 million employees majority of them employee fewer than 25 employees.

 

Rule of Thumb! Does any of the below sound familiar? A home purchase should cost less than an amount equal to two and a half years of your annual income. Save at least 10-15% of your take-home income for retirement. Have at least five times your gross salary in life insurance death benefit. Pay off your highest-interest credit cards first. These are examples of rules of thumb. They are not meant to be used as specifics, but as general guidelines.

A preschool’s value depends mostly on three factors – size; reputation and loyalty; enrollment and earnings; facilities and compliance; and real estate.

The value varies from 1-4x of Seller’s Discretionary Earnings (SDE).

SDE = EBITDA + Owner’s Compensation

If real estate is included, depending on the location, and size of the facilities, the value can be two to three times the business’s value.

Twain once said, everything should be made as simple as possible, but not simpler.

The key to running a successful school is to think of your school as a community of friends. Do the students come to school kicking and screaming, or they can’t wait to see their friends? Are the parents involved in the school’s community? Are the teachers happy and go the extra mile?

Preschool is not a business that will make you rich overnight. But if you work on building a community day after day, the cumulative effects of that effort snowballs over time.

Bharat Kanodia – Founder and Chief Appraiser

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