Preparing for Diligence Ahead of Your School’s Sale
Due diligence is the comprehensive appraisal of a business by a prospective buyer to assess the company’s assets ahead of its sale. This process leaves no stone (or piece of paper!) unturned in your early education business. By gathering and organizing your company documents now, you will be setting yourself up for a smoother transaction in the future. Below are 3 key steps to take to better prepare for due diligence ahead of the sale of your school.
1. Setup systems and processes.
As a seasoned childcare owner, you most likely already know the many programs and systems available to better run and track enrollment, manage staff hours, and execute tuition billing. However, many owners aren’t using the full functions of these programs or taking advantage of the reports they can run. The following are just a few ways you can make better use of the programs you already have:
Run monthly enrollment reports by class or age group and save these records digitally. Having 2-3 years of historical monthly enrollment by class or age group will be key during your sale.
Run monthly or quarterly reports to track hourly pay rate changes and make sure to keep staff information current in your system. Even running reports to track staff turnover can be helpful.
Run monthly profit & loss statements and balance sheets and save in Excel format. Buyers like to see at least the last 3 years of your financial statements.
If you don't have any current systems in place, start small and start now. A simple Excel spreadsheet is all you need to get started tracking your school components with tabs for monthly enrollment by class/age group, key data for your recurring staff roster, vehicle information, etc.
2. Organize your documents into “buckets.”
Once you have effective tracking systems in place, organize your reports into our recommended “buckets.”
Corporate – legal entity names, articles of incorporation, vendor contracts, etc.
Financial – tax returns, profit & loss statements, balance sheets, bank statements, etc.
Operations – historical & current tuition rate sheets, employee handbook, etc.
Staff / HR – staff roster, employee contracts, employee benefits, etc.
Licensing & Legal – licenses & permits, inspection reports, pending or past litigation, etc.
Facilities & Real Estate – property ownership or lease, floor plans, etc.
Marketing & IT – marketing & sales materials, domain names, logo files, etc.
The bottom line is to keep all important documents handy and in a place that you can easily locate and access.
Click Here to Download our Sample Diligence Checklist!
3. Work with professionals.
To ensure your financial records are accurate and reflect the true financial health of your childcare business, we recommend working with an accountant to clean up your books ahead of your sale. It is important to properly record income and expense items in the correct time period and to the correct line item, as well as identify any owner expenses that might be removed following the sale. An experienced early education transaction team (hi!) is also a great asset for a successful sale — guiding you through the process, helping value your business, and ensuring you have all the necessary documentation prepared.
By following these steps, you can streamline your diligence process when the time comes to make your exit from your early education business. If you’re interested in learning more about how best to prepare for the future sale of your school, don’t hesitate to contact our team at info@hingeadvisors.com.