During recent Childcare business and freehold negotiations, some purchasers have not been able to secure finance via the traditional bank lending process which has changed significantly after introduction of the new lending regulations in 2022.
Another limiting factor is the high interest rates which have increased the cost of borrowing and mortgage payments.
To overcome this issue, negotiations have been facilitated with Vendor finance, also known as seller financing, to achieve a successful sale.
To achieve fair market value for the sale of a Childcare business, there are a number of factors to consider.
1. Knowledgeable and Willing Parties: Fair market value is determined when both the buyer and seller are acting in their best interests and possess reasonable knowledge about the value of the childcare business and associated real estate. This ensures that neither party takes advantage of the other.
With the receipt of the July 2023 funding payment, we are now receiving clients’ full year financials to 31 March 2023. Reviewing these there are some trends of increasing expenses coming through which warrant mention.
With the rising cost of living front of minds for all of us, there are potential opportunities for all owners to take a closer look at their expenses and see if any of these can be reduced to improve financial performance :
The first quarter of the year has certainly been interesting with the continued disruption of Omicron working its way throughout NZ.
This has impacted the centre operations with occupancy, meeting staff ratios while many have been isolating and rising costs.
Our advice to all business owners continues to be that they keep a close eye on their financial management to ensure costs are keep in balance with revenue and help navigate through increasing rents, wages and general expenses that is impacting all business owners in current economic times.
When negotiating a business purchase, it is easy for the Buyer to think they have all the power in the negotiation, and that the Seller is so motivated to achieve a sale, the Buyer has all the control.
This is not always the case. To achieve a sale “it takes Two “ ; a willing buyer and a willing seller.
In a recent sale I have been involved with the buyer and their solicitor were placing a number of demands on the sellers during the due diligence process, expecting them to agree without hesitation to achieve a sale.
At Childcare Sales , we are often approached by people who enquire about the cost of a business and then ask themselves the question, “Maybe it would be cheaper to start my own childcare business rather than buy one”.
Whilst, in theory, starting your own Childcare business sounds exciting, invigorating, and melting with positives, the reality is actually quite different. In the childcare sector it is going to get a whole lot harder to do a new start-up with the proposed ‘Network Management’ regulations being introduced by the Ministry of Education from 1 August 2022.
In recent weeks we have come across business owners who tell me they have a “private buyer” for their childcare centre, so would not require our services. In principle this probably sounds good to business owners with “no commission to pay”. In reality, and from my experience, they are unlikely to be achieving the best possible outcome for the sale of what is possibly their largest asset.
The importance of planning for the future of your childcare business can not be underestimated. A business plan provides you with a clear road map and strategy to grow and achieve your business goals and financial objectives but of equal importance is the Exit plan. How are you going to optimise the value for the business you have created?