Worked examples make valuation logic auditable because every conclusion can be traced to revenue, labor, occupancy, owner duties, and market evidence. The examples below are hypothetical teaching cases—not forecasts, appraisals, or suggested prices. They show why two centers with similar tuition revenue can have different transferable cash flow and why a clean bridge matters more than choosing the most flattering multiple.
Key Takeaways
- Reconcile reported earnings before applying any market factor.
- Define SDE and EBITDA consistently with the buyer’s post-closing roles.
- Use revenue and per-slot figures as cross-checks, not substitutes for profit analysis.
- Separate operating value, real estate, working capital, debt, and discrete capital needs.
- Show base and downside cases rather than hiding uncertainty in one point estimate.
Example one: owner-operated single site
A center collects $1,080,000 and reports pretax income of $116,000. One owner's wages and benefits are $84,000. Records support $8,000 of personal vehicle cost and $12,000 of one-time litigation expense. Preliminary SDE is $220,000. The owner directs the center; a buyer who will direct it may use $220,000 before other adjustments. An absentee buyer needs a qualified replacement costing $82,000 plus $14,000 of payroll burden, producing $124,000 of buyer-relevant cash flow.
Using the published BizBuySell median sold SDE multiple of 2.72x merely as an illustration yields $598,400 on owner-operator SDE and $337,280 on the absentee view. The gap is caused by labor assumptions, not market magic. A conclusion would need relevant comparables, license continuity, lease, enrollment, and condition analysis before selecting a factor.
Example two: rent-free owned facility
A company reports $340,000 of SDE and occupies a seller-owned building without rent. A qualified property analysis supports $126,000 of annual market occupancy cost, including property charges assigned to a tenant. Rent-normalized business SDE is $214,000. The building is appraised separately at $1.4 million.
At an illustrative 2.8x, operating value is $599,200. Adding the separate property indication gives $1,999,200 before debt, working capital, repairs, tax allocation, and other adjustments. Multiplying $340,000 and then adding $1.4 million would capitalize free occupancy twice. If the seller keeps the building, the executed lease must match the rent and term used in the model.
Example three: enrollment recovery claim
A 120-slot center has 78 paid FTE enrollment and trailing revenue of $1.25 million. The seller's forecast assumes 102 FTE within six months and adds $210,000 of profit. Diligence shows twelve open teaching positions, two unusable rooms, a waitlist with duplicates, and no signed starts. Historical normalized EBITDA is $185,000.
The base case values current maintainable cash flow. A supported improvement case uses 90 FTE after funded hiring and repairs, subtracting recruitment, wages, marketing, and ramp time. The 102-FTE case remains a buyer plan, not historical earnings. An earnout could allocate some upside if carefully defined, but the valuation should not capitalize unverified enrollment as though already collected.
Example four: multi-site cost correction
Three sites report $900,000 of site contribution before central costs. The group records $170,000 of central expense, yet sustainable finance, HR, regional oversight, and enrollment support cost $330,000. Corrected EBITDA is $570,000, not $730,000. Site C also loses $45,000 before $70,000 of deferred repairs.
Build site-level schedules, allocate central costs, and show Site C as continue, repair, close, or divest cases. Do not claim a platform premium merely because three licenses share ownership. Paid transaction evidence must support the selected group factor, and the model must include the organization a buyer needs on day one.
Reconcile market checks
Suppose a final single-site case has $240,000 of SDE and $1.1 million of revenue. An illustrative 2.8x earnings factor indicates $672,000; the BizBuySell reported median revenue factor of 0.66x gives a $726,000 cross-check. The difference is $54,000. Review the subject's 21.8 percent SDE margin against source definitions, then examine rent, wages, owner labor, age mix, and revenue quality.
Do not average the two figures automatically. If revenue includes a temporary grant or expenses omit market management cost, the revenue indication is less probative. If normalized margins are credible and the earnings comparable set is strong, earnings may carry greater weight. Document that reasoning.
From indication to purchase-price bridge
Assume reconciled operating value is $675,000. The deal includes $95,000 of ordinary furniture and equipment already reflected in going-concern earnings, so it is not added again. It excludes $60,000 of excess cash and $210,000 of debt. A $40,000 playground remedy will be completed by the seller; if not, the agreement provides a documented closing adjustment. Normal working capital is delivered under a defined target.
The headline enterprise indication is not the seller's check. Equity proceeds depend on included cash, debt payoff, transaction expense, tax consequences, and closing adjustments. A valuation report should show the bridge so readers do not compare enterprise value, asset price, real-estate value, and net proceeds as though they were the same number.
File-building checklist
- Revenue reconciliation to billing, remittances, tax returns, and bank deposits.
- Reported-to-normalized SDE or EBITDA bridge with document support.
- Owner-role map and replacement labor for the intended buyer model.
- Rent normalization and separate real-estate treatment.
- Paid FTE enrollment, age mix, staffing grid, and capacity constraints.
- Selected market evidence with period, sample, definitions, and exclusions.
- Base, supported improvement, and downside calculations.
- Enterprise-to-equity and closing-proceeds bridge without double counting.
Decision record
| Step | Route-specific evidence | Review action |
|---|---|---|
| 1 | Revenue reconciliation to billing, remittances, tax returns, and bank deposits | Mark verified, assumed, or unresolved; record the date and reviewer |
| 2 | Reported-to-normalized SDE or EBITDA bridge with document support | Mark verified, assumed, or unresolved; record the date and reviewer |
| 3 | Owner-role map and replacement labor for the intended buyer model | Mark verified, assumed, or unresolved; record the date and reviewer |
| 4 | Rent normalization and separate real-estate treatment | Mark verified, assumed, or unresolved; record the date and reviewer |
The file should explain how daycare valuation example changes either maintainable cash flow, a discrete asset or liability, the probability of continuity, or the relevance of market evidence. Do the same for normalized SDE worked example and child care EBITDA bridge; do not merely list them as favorable or unfavorable. Quantify a recurring effect in the normalized statement, keep a one-time remedy in the closing bridge, and put an unresolved third-party decision on the conditions calendar. Then rerun the full model after the evidence changes. This discipline lets a reader distinguish a valuation input from a negotiation position and prevents a single concern from being counted in earnings, in the selected factor, and again as a dollar deduction.
Review the conclusion before relying on it
Tie every adjustment to a dated source and the same financial period used in the valuation. Keep facts, assumptions, and third-party decisions in separate columns. A verified recurring expense changes maintainable earnings; a one-time capital item may be deducted or allocated in the transaction; a consent or approval risk may require a condition rather than an arithmetic haircut. Avoid applying both an earnings reduction and a second price deduction for the same exposure.
Prepare a base case, a supported alternative, and a downside. State which party performs each owner role, who controls the facility, which assets and liabilities transfer, how tuition deposits and receivables are treated, and what working capital remains. Show any market multiple as an evidence input—not a promise. BizBuySell’s published results describe a mixed category of reported transactions and do not isolate this page’s exact fact pattern.
Have an independent reviewer trace at least one revenue item, one payroll or owner-labor adjustment, one facility or regulatory item, and one source-derived assumption back to original records. Lock the dated version used for an offer or listing recommendation. If diligence changes an input, preserve the old version and issue a new bridge so the negotiation history remains understandable.
This analysis is not legal, tax, licensing, lending, or appraisal advice. Attorneys interpret agreements and structure documents; agencies decide approvals; lenders underwrite credit; tax professionals address allocations and consequences; qualified appraisers value property or prepare formal valuation work for their stated purpose. A useful broker analysis makes those dependencies visible rather than pretending to replace them.
Frequently asked questions
Are these worked examples estimates for my center?
No. They illustrate calculation methods with hypothetical facts. A company-specific conclusion requires reconciled records, relevant transaction evidence, and current regulatory and facility diligence.
Why do the examples start with earnings instead of revenue?
Revenue does not reveal labor, rent, age mix, owner duties, subsidy timing, or required management. Revenue is useful as a cross-check after cash flow is normalized.
Can I average the SDE and revenue indications?
Not mechanically. Investigate why they differ and weight the method that best matches the subject, evidence, and buyer operating model.
Where is real estate included?
It is separated from operating value. The operating company is charged market-supported occupancy cost, and an appraisal addresses land and building when included.
Do the marketplace multiples set a listing price?
No. They are broad reported observations from a mixed category. Selection requires comparable closed evidence and company-specific risk analysis.