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Successful Childcare with Enrichment Focus

Pending

CASH FLOW
$205,379

Specifications

  • Price
    $660,000

  • Revenue
    $841,964

  • Cash Flow
    $205,379

  • Multiplier
    3.25

  • Equipment
    $95,397

  • Down Payment
    12.5%

  • Industry
    Childcare/Youth

  • Location
    Omaha, Nebraska

  • Employees
    17 – 15 FT and 2 PT: includes Assistant Director, Administrative Assistant, Teachers, Assistants and Cook

With increasing gross sales and high profit margin year over year, this stand-alone childcare facility serves children from 6 weeks to 12 years old.  With an all-inclusive enrichment focus, children are exposed to a variety of available activities including dance, music, art and offsite field trips.  State-approved curriculum is in place.

Located in an 11,000 square foot free-standing building that includes an activity center, lunch room, 8 separate classrooms and a playground on-site, the annualized cash flow for 2016 is $205,379.  The center is licensed for 125, has a current enrollment of 120 and a capacity of 150.  Title XX makes up 60-70% of enrollments.  The infant room could be expanded for additional growth.

With an excellent reputation in the community, this full scale daycare pulls from a variety of nearby premium schools.  Transportation to and from school is provided, and school-aged children can enroll for summer camp, and attend full-day child care on school holidays and snow days.  On average 52,492 cars pass through the nearest major intersection.

The current staff of 17 employees (15FT and 2PT) includes an Assistant Director, Administrative Assistant, Cook, Teachers and Assistants.  The current owner’s responsibilities include overall management, bookkeeping and recently serving as the Interim Director. 

In the first year, after debt service of $107,230, a new owner can expect to profit $98,149, thus making a 118% return on their down payment of $82,500.

Business Highlights

  • Capacity/Demographics: Licensed for 125, building capacity of 150, serving children 6 weeks to 12 years of age
  • Enrollment: 120 with 75-90 in attendance on average; 60-70% Title XX
  • Lease: 11,000 sq. ft. free-standing building with activity room, lunch room, 8 classrooms and playground for $8,200/month plus utilities
  • Employees: 17 (15FT and 2PT): includes Assistant Director, Administrative Assistant, Teachers, Assistants and Cook
  • Hours: M-F 5:30AM-6PM
  • Seller Training Period: 90 days of support
  • Growth Opportunities: Add to infant room for additional enrollment capabilities; Add transportation to/from homes

Financial Highlights

  • 2016 Gross Sales: $841,964
  • 2015 Gross Sales: $825,363
  • 2016 Cash Flow: $205,379
  • 3 Year Average Cash Flow (2014-2016): $206,739
  • Assets Included in Purchase: $95,397
    • Vehicles: $45,627 – Two 15-passenger vans
    • Furniture and Equipment: $49,770 which includes ovens, refrigerator, freezer, washer and dryer unit and office equipment
    • Intangible Assets: Website, childcare management software with invoice management system
    • Leasehold improvements: $18,861

Recasted Cash Flow Analysis

Description of Financial StatementP&L Statement
January-December
Tax ReturnTax ReturnTax ReturnNotes
2016201520142013
GROSS SALES$841,964$825,363$712,097$500,218
Net Income Shown on Financial Statement$111,716$184,529$123,446$-586
ADDBACKS
Compensation to Owner$32,500$32,500$32,500$28,750
11% Tax on total W2 Salaries$3,575$3,575$3,575$3,163
Depreciation$0$11,911$13,398$18,003Non-Cash Item
Interest$0$2,458$1,695$1,671Non-onward going expense
Interest: Credit Card$5,961$0$0$0Non-onward going expense
Interest: Line of Credit$2,112$0$0$0Non-onward going expense
Interest: Van$436$0$0$0Non-onward going expense
Amortization$0$2,876$2,876$2,876Non-cash item
Auto Lease (see note A)$11,949$0$0$0No lease payments for Buyer
Contributions/Donations$500$0$0$0Non-onward going expense
Unneeded Assistant Director (see note B)$22,000$0$0$0Unnecessary expense
Overpaid Director (see note C)$11,000$0$0$0Overpaid by $11k/year (Director replacement wage is $34k/year)
11% Tax on Director & Assistant$3,630$0$0$0
TOTAL ADDBACKS$93,663$53,320$54,044$54,463
Seller's Cash Flow = Total Addbacks + Net Income$205,379$237,849$177,490$53,877
Profit Margin24.39 %28.82 %24.92 %10.77 %

Labor was up by 6% to 43% January - October 2016. This affected Cash Flow by $51,000.

In October 2016 these changes were made to realign labor costs:

A. Auto Lease for Director (no longer have the lease vehicle). It is extremely uncommon to pay personal lease for a Director

B. Had 2 assistant directors through early September (now only have one). Best practice is to have one assistant director. 

C. Overpaid Director - State average is $33,000-$35,000/year. Paid $44,000/year

In November and December, labor costs were back to normal.

  • Profit Margin consistently above 20% from 2014-2016
  • Positive growth in Cash Flow from 2014-2016
  • Addbacks included for unneeded second Assistant Director and portion of Director's salary over the state average increases Seller's Cash Flow

Program Details

The business offers services to the following age groups:

  • Infant I – 6 weeks to 6 months
  • Infant II – 6 months to 12 months
  • Toddler I & Toddler II – 12 to 18 months
  • Twos and 2/3 Transition Room – 2 years to 3 years
  • Preschool I& II – 3-4-5 years
  • School Age – 6 years – 12 years

Staff Information

The staff of 17 includes 15 full time and 2 part time staff.  Teachers and assistants, who make up the majority of the staff, are paid $9 to $12 per hour.

Valuation Details

The Firm Business Brokerage used a Cash Flow Valuation methodology to determine the Purchase Price of the business.  The formula used is as follows:

Cash Flow       x          Multiplier          =          Price

“Cash flow” is the sum of net income plus any owner perks and non-onward going expenses.

“Multiplier” is a prescribed number between 1 and 5 determined by a 100-point, 20-question rating system used to determine the business valuation (average is 3).

The Three-Year Average Cash Flow (2014-2016) is $203,608.  The prescribed multiplier is 3.25.  

With this information, the computation result follows:

$206,739         x          3.25     =          $671,901

The List Price for the business is set at $660,000.

Funding Example

Purchase Price:                       $660,000

12.5% Buyer Down Payment:  $82,500

12.5% Seller Financing:           $82,500                                                                  

75% Bank Loan:                      $495,000

Seller Financing 4-year term at a rate of 4.50% equals a monthly loan payment of $1,881

Bank Loan 7-year term at a rate of 5.25% equals a monthly loan payment of $7,055

After business expenses and annual loan payments of $107,230, a buyer would retain a net operating income (profit) of $98,149.

A down payment of $82,500 results in a 118% return on investment in the first year!

At a proposed Purchase Price of $660,000 with the terms listed above, the coverage ratio is 1.92. 

Attachments

For your further information, I have attached the following documents to this email:

  • Business Summary
    • Identifies important business information in an organized quick-reference format
  • Recasted Cash Flow Analysis
    • The owner’s profit is the sum of business net income + any owner’s perks & any non-onward going expenses (cash flow)

Purchase Price:

$660,000

$
%
OR
$
%
OR
$
Years
%

Bank Loan Needed: $

Years
%
$
$
$
$
$

Funding Details

Business:

Offer Price: $

% Buyer Cash Down at Closing: $

% Seller Carry Back via Promissory Note: $

year term at a rate of %

% of Purchase Price secured by Buyer and Seller

Total Bank Loan Need: $

% of Purchase Price

Desired Loan Type:

Desired Bank Terms: year term at a rate of %

Total Business Assets, Inventory, and A/R: $

Total Undercollateralized Loan: $

Loan Payments

Monthly Payment to Bank: $
Yearly Payment to Bank: $
Monthly Payment to Seller: $
Yearly Payment to Seller: $
Total Monthly Debt Service: $
Total Yearly Debt Service: $

Conclusions

Fixed Charge Coverage Ratio

The bank will require a minimum ratio of 1.5 to be lendable.

Cash Flow:
$
Annual Debt Service: $
RATIO:

Buyer's Net Operating Income (NOI)

The amount of money the Buyer will retain as profit.

Cash Flow:
$
Annual Debt Service: -$
NOI:

Buyer's Return on Investment (ROI)

The rate of return on the Buyer's down payment.

Down Payment: $
NOI:
ROI: %

Attachments

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210 N 78th St. 2nd Floor
Omaha, NE 68114

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The Firm Business Brokerage is not a real estate brokerage and therefore the staff will not handle any aspect of the lease, sale or purchase of real estate.