How to Evaluate a Child Care Center for Sale

Key Takeaways

Three ratios computed from the teaser will tell you whether a listing deserves a site visit: revenue per licensed seat, payroll as a share of revenue, and occupancy cost as a share of revenue.
The adjusted earnings figure in a listing is a claim, and the single most common flaw is an owner-director whose replacement salary was never deducted.
A center's licensing record is frequently public, but what the agency publishes and how long it keeps records differ by state (Source: ChildCare.gov, retrieved 2026).
Visit twice, at drop-off and at pickup, because a center staffed for the midday lull looks nothing like a center staffed for the 5 p.m. crunch.
Put access, timeline, and exclusivity in the letter of intent; leave final price adjustments for confirmatory work.

The first hour: what a teaser can actually support

A listing package typically gives you licensed capacity, current enrollment, trailing revenue, an adjusted earnings figure, rent, and an asking price. That is enough to compute three ratios, and those three ratios sort most of the market.

Take an illustrative listing: licensed capacity 110, claimed enrollment 104, trailing twelve-month revenue $1,250,000, payroll $560,000, rent $132,000, adjusted earnings $310,000, asking price $1,050,000. The arithmetic runs as follows.

Revenue per licensed seat is $1,250,000 divided by 110, or about $11,364. Now compare that with what a full seat should generate. If the center's published full-time rates average $265 per week across its age bands and it bills fifty-one weeks a year, a fully enrolled full-time seat produces roughly $13,515. The center is collecting about 84 percent of that, while the teaser claims 95 percent enrollment.

That gap is the most useful thing the first hour produces. It is not evidence of dishonesty. Part-time schedules, sibling discounts, staff-child discounts, subsidy rates below private tuition, and uncollected balances all explain it. But the seller now owes you a specific answer, and the answer determines whether the enrollment claim means what you assumed. Closing that gap properly is the work of verifying enrollment and tuition against collected cash.

Payroll at $560,000 is 44.8 percent of revenue. Occupancy cost at $132,000 is 10.6 percent. Neither number is good or bad on its own, but together they leave 44.6 percent for food, supplies, insurance, utilities, management, and profit, and you can immediately see whether the claimed $310,000 of earnings fits inside that space or has been helped along by add-backs.

Recasting the earnings claim

Ask for the add-back schedule with a source document behind every line. Then rebuild it yourself. Here is the same illustrative center, recast the way a lender's credit analyst would read it.

Line	Amount	What the buyer should do with it
Reported net income	$95,000	Starting point, taken from the tax return
Owner salary and payroll taxes	+$91,500	Legitimate add-back only if the role is genuinely discretionary
Depreciation	+$38,000	Add back, but note the replacement cycle it conceals
Interest on seller debt	+$41,000	Add back; your own debt service replaces it
Owner vehicle and health insurance	+$23,600	Verify against the ledger before accepting
One-time legal fee	+$12,000	Accept only if the matter is closed and documented
Seller's stated adjusted earnings	$301,100	Close to the $310,000 in the teaser
Replacement director salary	−$72,000	Required if the owner directs the program and you will not
Deferred maintenance run rate	−$18,000	Annualized cost of work the depreciation add-back hid
Buyer's usable earnings	$211,100	The number your lender will actually size debt against

The teaser said $310,000. The number you can finance is $211,100, roughly a third lower, and not a single dollar of the difference came from a dispute about facts. It came from asking who does the work and what the building will need.

Run the debt-service math next. Assume an $840,000 note amortized over ten years. At an illustrative 10.5 percent, annual debt service is roughly $136,000, which is a placeholder rather than a quote, since pricing and term are set by the lender that underwrites the credit. Against $211,100, coverage is about 1.55. Against the seller's $301,100, it would have looked like 2.2. The distance between those two coverage ratios is the distance between a deal that survives a slow spring and one that does not.

The site visit: two hours that outweigh the spreadsheet

Go twice if the seller's confidentiality arrangement allows it. Arrive once near 8 a.m. and once near 5 p.m. The midday center is the easiest version of itself.

Watch transitions rather than steady states. Ratios hold easily when twelve toddlers are seated at a table and break during the move to the playground, the diaper rotation, and the fifteen minutes when one teacher is at lunch and the floater has not arrived. A center that handles transitions calmly has depth on the schedule; a center where the director is physically covering a room during your tour is telling you that it does not.

Read the walls. Posted license, current inspection notice, evacuation plans, and allergy postings are usually required to be displayed, and an expired or missing posting is a cheap question with an expensive answer. Look at the infant room first, because it is the most expensive room to staff and the most closely regulated.

Outdoors, check the depth and condition of playground surfacing under and around equipment, the condition of fencing and gates, and whether equipment is sized for the ages actually using it. The Consumer Product Safety Commission publishes a public playground safety handbook that many states reference in their own standards, but the handbook is guidance rather than a self-executing federal rule, so confirm what the licensing agency in that state actually enforces (Source: U.S. Consumer Product Safety Commission, retrieved 2026).

Count cars at pickup. If the parking lot holds nine families at 5:15 p.m. and the roster claims 104 children, you have learned something about part-time scheduling that no report would have volunteered.

Questions worth asking the director, not the owner

How many lead teacher positions are open right now, and how long has each been open?
Which rooms are closed or capped below their licensed capacity, and why?
What was the last inspection finding, and what changed as a result?
How many families gave notice in the last ninety days, and where did they go?
What does the waitlist actually contain: deposits, or names?
Who covers opening and closing, and what happens when that person is out?

Ask these with the seller's consent and inside the confidentiality framework your attorney sets up. If staff do not yet know the business is for sale, do not become the person who tells them.

Check the licensing file before you spend money

Most states publish some form of inspection and complaint record for licensed programs, and the scope, format, and retention period vary considerably from one agency to another (Source: ChildCare.gov, retrieved 2026). Pull whatever the state makes available for the exact facility address and the exact legal entity, because a center that has changed hands or moved may have records split across identifiers. Reading the licensing inspection history well is a skill of its own.

While you are with the agency's materials, ask how it handles a change of ownership for this provider type and this transaction structure. Whether a license can move with the business, whether the buying entity must apply independently, and what inspection or approval steps are triggered are state questions with state answers, and a rule from a neighboring state will mislead you.

Factor in background-check lead time before you promise anyone a closing date. Under federal CCDF rules, the responsible state or territory must carry out a provider's criminal background-check request as expeditiously as possible and in no more than forty-five days from submission (Source: 45 C.F.R. § 98.43, retrieved 2026). That is an outer bound rather than a typical turnaround, and if you intend to serve as director yourself, your own clearance may sit on the critical path.

What belongs in the letter of intent

The letter of intent is where you buy access and time, not where you finish the price. Ask for a defined diligence period, a document list with dates, exclusivity, and a clear statement that sensitive records flow through counsel with restrictions on use and return.

Set the price with an explicit mechanism for adjustment rather than a single number defended in advance. State that the price assumes the earnings you recast, the lease terms you were shown, and the enrollment you were told, and that a material variance reopens the conversation. That framing is honest and usually easier for a seller to accept than a lowball number with no reasoning attached.

Leave the working-capital and prepaid-tuition treatment visible in the letter. Tuition collected before closing for care delivered after closing is real money and a real argument, and settling the principle early costs nothing.

Evaluation errors that repeat

Buyers treat licensed capacity as a revenue forecast. Licensed capacity is a legal ceiling that assumes rooms are configured and staffed; the seats you can actually sell are limited by the narrower of room layout and available qualified staff, which is what analyzing the staffing grid is for.

Buyers average twelve months of enrollment and miss the trend inside it. A center that averaged 104 children can be a center that started the year at 118 and ended at 91. Always ask for the monthly series, never the annual average.

Buyers accept the owner's add-backs and forget the owner's hours. If the seller works fifty hours a week across directing, enrollment tours, billing, and covering rooms, the replacement cost is frequently more than one salary.

Buyers fall for a clean building and ignore a thin bench. Paint is cheap and a tenured lead teacher is not. Of everything on a site visit, staff tenure is the hardest thing to buy back after closing.

Frequently asked questions

How long should it take to evaluate a listing before making an offer?

Roughly an hour for the teaser math, a half day for the site visit and follow-up questions, and one to two weeks for the recast once the seller provides statements. If a seller will not support that pace with basic documents, the delay itself is information about how confirmatory diligence will go.

Can I rely on the seller discretionary earnings figure in the listing?

Treat it as a claim to be tested, not a number to be accepted. Ask for the add-back schedule line by line and the source document behind each entry. The most common overstatement is not fraud; it is an owner-director whose unpaid labor was never replaced with a market salary in the adjusted figure.

What should I look for during a site visit?

Staff-to-child coverage during transitions, the condition of infant and toddler rooms, how the director handles an interruption, posted license and inspection documents, playground surfacing depth, and how many parking spaces are used at pickup. Visit at 8 a.m. and again at 5 p.m. if you can.

What if the seller refuses to share enrollment data before an LOI?

Ask for de-identified summaries instead of records: enrollment by room and age band, aggregate payer percentages, and monthly collected tuition. A seller who declines even summary data is asking you to price a business you have not seen, which is a reason to move on rather than to bid.

Is an unusually low asking price a good sign?

It is a question, not a bargain. Low prices in this sector usually trace to a short or unassignable lease, an open licensing matter, a director who is leaving, enrollment that has already fallen, or deferred building work. Find which one applies before you decide whether the discount is adequate.

Do I need my own broker to evaluate a listing?

You do not need one to run the math, but the listing broker represents the seller. If you engage your own adviser, confirm in writing who is representing whom, how compensation works, and whether any conflict exists, because those arrangements are governed by state law and vary.