Anyone considering the purchase of a day-care center must be concerned with calculating its value. While value is often in the eye of the beholder, and sellers and buyers may have very different ideas about the value of a particular day-care center, there are some universal business principles that can help sellers, buyers, appraisers and insurers agree upon the financial valuation of a day-care center business. Each valuation method yields a unique picture of the "real" value of the day-care center.
Calculate the day-care center's "balance sheet" value by adding together all of the center's assets, including real estate, tangible property such as fixtures and furniture, and any financial assets, and then subtracting the center's financial liabilities (debts, taxes owed, etc.).
Determine the value of the day-care center's business by dividing the amount of money needed to purchase the center by the amount of net operating profits that can be expected from the business each year. This figure is called the "ROI," or "return on investment," and represents the percentage of gain to be expected from the money spent to buy the business. (For example, a $100,000 profit on a one-million-dollar business is a 10-percent ROI.)
Discover how much debt a day-care center can support by performing a cash-flow valuation. By considering how much more money the day-care center receives each month over and above the center's total expenses per month, you can determine the resulting "cash flow," which indicates how much the center could afford to pay on a loan each month and continue to operate.
Estimate the center's value in terms of performance by starting with its average profit over the past three to five years, and then multiplying that figure by a multiple of three, five, seven or 10 years, depending upon the state of the business and the profit expectations of the potential buyer or insurer.
Consider the impact of any intangible assets on the value of the day-care center by considering its long-term customer base, how much goodwill it has in the community, its reputation for excellence, fund-raising potential, etc. While valid considerations, these intangible qualities are extremely subjective and difficult to quantify--beware of relying too heavily on their value in your calculations.
Any or all of these methods may be considered as factors in the valuation of a day-care center as a business. Frequently, such figures are used to determine a range that indicates the center's "fair market value."
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