Child Care Due Diligence Checklist

Key Takeaways

Write the checklist as a register with four columns: request, source, responsible party, and the decision the answer changes.
Sequence around third parties. The licensing agency, the landlord, the lender, and any franchisor set the calendar; the seller's filing cabinet does not.
Keep identifiable child, family, and personnel records out of any general data room and route them through counsel under written handling terms.
Every unanswered request becomes an exception with a date, and every exception ends in evidence, price, a condition, or a withdrawal.
Background-check and licensing steps run on their own clocks. Federal CCDF rules cap the state's turnaround on a provider's request at forty-five days from submission (Source: 45 C.F.R. § 98.43, retrieved 2026), so start those items in week one.

Build the register before you request anything

Open a spreadsheet with one row per request. The columns are: what you are asking for, who holds it, who on your side reviews it, the date it is due, the date it arrived, and one sentence on what the document would change if it said something unexpected.

That last column is the one buyers skip and the one that keeps diligence honest. If you cannot describe the decision a document would affect, you probably do not need it, and every unnecessary request slows down the requests that matter.

Send the register to the seller in a single batch rather than in a trickle. Sellers who receive forty emails over three weeks conclude the buyer is disorganized, and disorganized buyers get slower responses on the items that count.

Workstream one: entity, authority, and the right to sell

Formation documents, amendments, and current good-standing certificate for the selling entity
Operating agreement or bylaws, plus the consents required for a sale of this type
Ownership schedule showing every holder of an interest, including trusts and estates
Any buy-sell, right of first refusal, or option that could interfere with the transaction
Assumed name filings and the exact legal name used on the license
Liens, judgments, and UCC filings against the entity, the assets, and the principals
Pending or threatened litigation, demand letters, and administrative proceedings

The entity work matters more than it sounds. A license is usually tied to a specific legal person at a specific address, and a mismatch between the entity that holds the license, the entity on the lease, and the entity on the tax returns is common in family-owned centers and takes weeks to unwind.

Workstream two: the money

Monthly profit-and-loss statements for at least thirty-six months, in the format the accounting system produces
Federal and state tax returns for three years, with any amendments
Bank statements and merchant processing statements covering the same period
General ledger detail, with the ability to drill into any account
Accounts receivable aging by payer type, with a write-off history
Accounts payable aging and a list of every recurring vendor obligation
The seller's add-back schedule with a source document behind each line
Payroll registers by pay period, including overtime, bonuses, and paid time off accruals
Deposits and prepaid tuition held as of the most recent month end
Insurance policies, loss runs, and any open claims

Reconcile in one direction and document it, following the method in verifying enrollment and tuition. Roster to billing, billing to deposits, deposits to the general ledger, ledger to the tax return. A management-software export is management's account of itself, not independent evidence, and the differences between the two are exactly where the interesting questions live.

Workstream three: regulatory standing

Current license, its conditions, approved age groups, and expiration or renewal status
Full inspection history for the facility address and the licensing entity
Complaint records, investigation outcomes, and corrective action plans
Fire, health, and building approvals, and the date each was last renewed
Zoning or conditional use approval and any occupancy limit attached to it
Subsidy or state contract agreements, provider agreements, and payment history
Food program agreements and any review findings
Accreditation or quality rating documentation, with expiration dates

Because each state and territory runs its own licensing system, the scope and public availability of the records in this workstream differ substantially from one jurisdiction to the next (Source: ChildCare.gov, retrieved 2026). Ask the agency directly how a change of ownership in your proposed structure is handled, keep the written answer in the file, and map it against the license transfer timeline for buyers. Do not import a procedure you learned in another state.

If the center participates in the federal child and adult care food program, the agreement is administered through a state agency and is not automatically portable to a new owner (Source: USDA Food and Nutrition Service, retrieved 2026). Treat reinstatement as a task with a timeline rather than a formality.

Workstream four: the people who make the license usable

Staffing grid by room, shift, and age group for the trailing twelve months
Roster of employees with hire date, role, credential, and wage, de-identified if necessary
Credential and training records against the state's qualification requirements
Background-check status for every covered position, confirmed as status rather than as results
Open positions, current vacancies, and the duration of each vacancy
Turnover by role for two years, separating leads, assistants, and support staff
Employment agreements, non-competes, bonus plans, and any accrued obligations
The director's tenure, credential, contract status, and intentions after a sale

The director question deserves its own answer in writing. If the seller is the director, you are replacing a job, not just an owner, and the replacement cost belongs in your earnings model before you discuss price. Work the coverage math through analyzing staffing grids and ratios rather than assuming one salary covers it.

Workstream five: the building

Lease with every amendment, plus the estoppel and consent the landlord will actually sign
Assignment and change-of-control language, and what the landlord will require to approve
Remaining term, options, rent escalations, and who controls each option
Responsibility allocation for roof, structure, mechanical systems, and site work
Property condition assessment, and mechanical system ages with service records
Playground equipment inventory, surfacing type and depth, and any known deficiencies
Environmental reports if the lender requires them, and any prior site uses of concern
Accessibility considerations, since child care centers are treated as public accommodations under the Americans with Disabilities Act (Source: U.S. Department of Justice, retrieved 2026)

Playground surfacing is a recurring surprise. The Consumer Product Safety Commission's public playground safety handbook is widely referenced but is guidance, and what the licensing agency in that state actually enforces is the standard you will be held to (Source: U.S. Consumer Product Safety Commission, retrieved 2026).

Workstream six: families and contracts

Current enrollment agreements and the tuition schedule in force
Notice and withdrawal terms, and whether rates can be changed and how
Discount policies, including sibling, staff, and employer arrangements
Waitlist with dates and deposit status, not just names
Employer or school district contracts and their assignment terms
Software, curriculum, and franchise agreements, with transfer or consent requirements
Vendor contracts with auto-renewal or termination penalties

A workable forty-five day calendar

Period	Primary work	Third-party dependency	Gate at the end
Days 1–5	Register issued, data room opened, counsel engaged	Landlord contacted for consent process	Complete request list acknowledged
Days 6–15	Financial reconciliation and earnings recast	Lender receives preliminary package	Recast earnings agreed internally
Days 11–25	Licensing agency inquiry and record review	Agency written response on transfer path	Approval path documented
Days 16–30	Staffing, credential, and turnover analysis	Background-check submissions begin	Staffed capacity confirmed
Days 20–35	Building, systems, and playground assessment	Inspector and landlord estoppel	Capital list priced
Days 30–40	Exception log resolved into price and conditions	Lender credit decision	Purchase agreement terms settled
Days 40–45	Updated schedules and closing readiness	Consents in hand	Proceed, renegotiate, or withdraw

The overlaps are deliberate. Agency inquiries and background checks start early because they are the items you cannot compress, and the financial work runs in parallel because it depends only on the seller.

Running the exception log

An exception log is one page: the item, the date it was raised, why it matters, who owns it, and the resolution. Four resolutions exist, and naming which one you chose is the entire discipline.

Obtain better evidence when the gap is informational. Adjust price when the problem is bounded and quantifiable, such as a mechanical replacement with three quotes. Convert to a closing condition when the outcome determines whether you can operate, such as a consent or an approval. Withdraw when the log shows a pattern rather than a list.

Accepting an exception is also a legitimate outcome, but write down who accepted it and what it might cost. Unwritten acceptance is how a buyer discovers in month four that nobody ever resolved the fire inspection question.

Privacy rules that govern the whole file

Child care diligence touches information about children, families, and employees that has no business circulating among bidders. Set the rule at the start: de-identified summaries by default, redacted documents where detail is needed, and identifiable material only through counsel with written limits on use, storage, and deletion.

Background-check status is the clean example. You need to know that every covered position has a current, valid clearance. You do not need the underlying reports, and asking for them creates an obligation you have no reason to take on.

When the checklist tells you to stop

Diligence is a decision process, not a completeness exercise. A finished file does not mean a good deal; it means you now know enough to choose.

Stop when the approval path cannot be described in writing by the agency that controls it. Stop when the landlord will not commit to an assignment on terms your lender accepts. Stop when reconciled collections cannot support debt service under a realistic staffing model. And stop when the exception log fills with items that all point the same direction, because that is a business telling you something the documents never will.

Frequently asked questions

How long should the diligence period be?

Forty-five to sixty days suits most single-site center purchases. The binding constraint is rarely the documents; it is the third parties, including the licensing agency, the landlord whose consent you need, the lender's credit committee, and any franchisor approval. Build the calendar backward from whichever of those takes longest.

Who needs to be on the diligence team?

At minimum an attorney experienced in business transfers in that state, an accountant who will rebuild the earnings, and your lender. Add a licensing consultant if the state's change-of-ownership path is unfamiliar, and a building inspector if the lease puts structural or system repairs on the tenant.

What should never go into a shared data room?

Identifiable child and family records, individual medical or allergy files, incident reports naming children, completed background-check results, and personnel files with protected information. Ask for de-identified or redacted versions, and route anything genuinely identifiable through counsel with written handling and deletion terms.

What do I do when a requested document arrives late or not at all?

Log it as an exception with a date rather than chasing it informally. Then pick one of four outcomes: obtain substitute evidence, price the uncertainty, convert it into a closing condition, or withdraw. Silence that never becomes an entry in the log is how buyers close on things they never actually checked.

Should findings change the price or become closing conditions?

Measurable and bounded problems belong in price, escrow, or a holdback. Problems whose size you cannot yet bound, or that determine whether you can legally operate at all, belong in conditions. A roof quote is a price adjustment; an unresolved licensing matter is not.

Can I speak with staff and families during diligence?

Only with the seller's written consent and on an agreed schedule, usually late and with the director present. Early contact risks the resignations and withdrawals that destroy the value you are buying. Write the sequence into the agreement instead of leaving it to judgment.