RDK’s Lucie Wright offers advice to anyone thinking about selling a childcare business…
Throughout Redwoods Dowling Kerr’s 30 years in the childcare sector there has always been one particular element positioning itself at the forefront of every sale. That element is, of course, the emotional attachment that nursery owners feel towards their businesses. This sector is one which is enveloped in passion and commitment, making owning a nursery every bit a vocation as it is a business choice.
Whatever the catalyst behind the decision to sell a nursery, it is rarely ever a choice which is taken lightly. Nursery owners sell for a multitude of reasons, commonly ranging from retirement, to the consolidation of a group, to a desire to spend more time with loved ones. As you would expect with such a sensitive process, our clients can often find it difficult to make judgments which are free from emotional ties. At RDK, we provide comprehensive and practical advice to ensure our clients are able to drive toward a successful outcome, whilst taking account of the sentimental attachments. Below are some of the tips we offer to owners who have chosen to sell their nursery business.
At the very outset, it is worthwhile to have an understanding of the background work involved before a childcare setting can even come to market. We would always advocate speaking with a specialist property agent and advise taking this step (where possible) around 18 months to two years before you envisage selling your nursery. This allows for time to make the necessary preparations and considerations, ensuring you realise the true value of your investment. For exit strategies, we recommend speaking with a broker as far ahead as 5 years before you anticipate a sale. At RDK we are currently working with several corporate clients, implementing acquisition strategies over the next few years with a view to market the group for sale at a much later date.
Choosing the broker you feel is best equipped to handle your sale is the next difficult decision, and there are a number of important considerations to take into account. Your broker must be someone you feel comfortable talking to on a regular basis, someone with whom you feel you can establish a good rapport and, most importantly, someone whose input you both value and trust. A proven track record of sales is essential and any reputable brokerage will be able to provide you with many recent examples of sold nurseries. You may also wish to ascertain the level and quality of the marketing material you will receive, and it would be worthwhile to establish the company’s presence in the market place. These things are an indication of the level of exposure your sale will achieve.
Whilst it can often be tempting to choose the broker who will place the highest price tag on your business, it is imperative, particularly in the current climate, that your nursery is priced realistically. Overpriced nurseries will only stagnate on the market for long periods of time, unable to sell. Make sure you understand how the broker has reached their proposed sale price and don’t be afraid to challenge them: A good broker will be able to explain what they have based their figure on and, in accordance with the amount of nurseries that they sell, should be able to provide you with supporting market evidence.
You will need to consider whether you wish to sell the freehold or the leasehold of your business. To reach this decision it is useful to have an idea of the type of buyer to which you hope to sell, as well as to understand the mechanisms behind each structure of sale. A freehold sale means you relinquish ownership of both the business and the property, whereas with a leasehold sale you retain the property and effectively become a landlord who leases the property to your buyer. Remember, you can only sell your business once, but with a leasehold sale you will receive one amount for the sale of the business, and another amount for the bricks and mortar value should you wish to sell the property at a later date.
Perhaps the most obvious piece of advice Redwoods Dowling Kerr give to our clients is the recommendation that they put themselves in a buyer’s shoes. Does your nursery look attractive? Is there anything you can do to boost its aesthetic appeal? Once you’ve taken these considerations into account, speak with your broker about what is likely to benefit your sale: Spending £10,000 on new computers will certainly appeal to a buyer, but it won’t add £10,000 in value to your nursery. On the other hand, investing money into extending the garden or children’s areas may well increase your sale price. Simple improvements such as a lick of paint or tending the garden can make all the difference and can be enough to make up a buyer’s mind about whether or not they will take their interest further. Cleanliness and tidiness also go without saying, and ensure all electrics and waterworks are working properly and any repairs are taken care of.
We encourage our clients to be diligent in ensuring the necessary paperwork is in order and up to date. Businesses are sold on the strength of their accounts so it would be wise to speak with an accountant to make certain that that your financials are presented in the most suitable way. As a point of reference, if you currently are including yourself within the staff wages, this could be separated in your financial information as a management cost.
It is vital that you are aware of your obligations as a seller to avoid potential pitfalls during the sale. For example, you must be in possession of an Energy Performance Certificate (EPC), have key health and safety documentation in place and provide evidence that certain procedures – such as planning consents and DBS checks for staff – have been adhered to.
This gives credence to my next point: the importance of establishing an honest relationship with your broker. It is often the case that nursery owners find themselves reluctant to reveal what may be considered ‘negative points’ about the nursery, with a view to ‘paper over the cracks’. However, it is crucial that your broker is aware of potential shortcomings at the outset to enable a sale to move forward and overcome obstacles. For example, if there is asbestos in the nursery or there has been subsidence your broker will have the knowledge to price your nursery accordingly, and can ensure you receive the best advice. It is never advisable to withhold information from your broker because, although a sale may be agreed in the first instance, it will almost certainly fall through when the cracks begin to show. Drawbacks do not mean the end of world – many buyers actively seek a challenge and will relish the opportunity to turn an under-performing nursery around, providing the price is reflective of the opportunity offered. Recently, RDK sold an underperforming nursery which went from offer to exchange within three weeks, and went on to complete in just six weeks.
Trust in your broker is key to a successful nursery sale. At Redwoods Dowling Kerr, we pride ourselves on establishing honest and lasting relationships with our clients. We understand the emotional vein that runs through the selling process and are committed to providing our clients with guidance and support to ensure they achieve the very best out of their nursery sale. After all, it’s a heartfelt business looking after people looking after children.