Selling Your Educational Centre

There are Two Methods of Selling a Business

Asset Sale in Leased Premises

This method of selling a business is required when a company is either a Sole Proprietorship or a Partnership. A Buyer would purchase just your company's Assets, not your Liabilities. Assets would include but not limited to the following

Furniture and Equipment
Materials
Client Lists
Supplier Lists
Fixtures and Chattels
Basically everything on or in the leased premises

Optional items might include the following

Lease contract with Landlord
Security System Lease
Leases on Equipment (photocopier etc.)
Intellectual Property (website, e-mail addresses)
Company Name and Phone Numbers

Does not include

Any of your personal or company liabilities
Any liens or encumbrances
Any lawsuits or other proceedings in process

Share Sale in Leased Premises

This method of selling occurs when a Buyer is purchasing your incorporated company and the Shares of the company. Essentially, Buyer would be purchasing all the Assets and Liabilities of your Corporation. This method includes all the items in the "Asset Sale" method including the Optional Items and all liabilities 

Employees

In both an "Asset Sale" or a "Share Sale" you may be asked to dismiss all your employees giving the Buyer the option to rehire them back. The reason a Buyer would ask you to dismiss your employees is because the Buyer would incur costs involved in taking on your employees. Should the Buyer take on the employees and then at a later date, want to dismiss them, the Buyer would incur costs, subject to their tenure, for Holiday Pay, Dismissal Pay and other possible costs 

                      

8 TIPS TO SELLING YOUR EDUCATIONAL CENTRE

Attention Child Care Centre Sellers - Please Note

Sole Proprietorship and Partnership Owners of Child Care Centres (Asset Sales) interested in selling their businesses now require up to 12 - 18 months or more to complete the sale subject to the Ministry of Education's capacity to approve a Buyer's new license. This makes selling a Sole Proprietorship or Partnership near impossible due to this time frame. It is highly recommended all Sole Proprietorship and Partnership Child Care businesses INCORPORATE today. Selling an Incorporated business (Share Sale) is now the preferred method of selling a Child Care business and will transact within 2 - 3 months.

To learn more about why you need to Incorporate or if you need a lawyer to help you Incorporate, please call my cell at 647 284-8885 and I will be happy to discuss this issue with you.

Be sure to avoid these common mistakes.

1)         Underestimating the amount of time and work it will take to sell your centre

It’s never easy to sell a business. It doesn’t matter what kind of business it is. To get the best price for your centre, you’ll need to spend considerable time ensuring that your premises are actually ready for sale. DECLUTTER, NEAT AND CLEAN SELL. I highly recommend you consider painting the centre. This is the least expensive way to give your centre a total facelift.  Whether the buyer is new to the child care sector or a larger, multi-site child care corporation seeking to expand, they’re going to be more interested in facilities that are clean, organized and well-maintained.

2)          Information about Your Centre That Buyers’ will need to know

In addition to ensuring that your equipment and premises are in top notch condition, you’ll need to gather together all of the information potential buyers will ask concerning your centre. This information package will include among other things, Capacity of the Centre, Registered children, History of the centre, Square Footage, Number of Classrooms, Renovations/Upgrades, Income History, Lease/Mortgage Information, Number of Employees and a Breakdown of Registered Children. There are many other details that the Buyer will ask about. Remember, the Buyer is comparing your centre to others that may be available for sale.

3)         Work with a knowledgeable team

When you’re selling a child care centre, it’s important to work with a knowledgeable realtor or team that’s dedicated to serving your best interests. These are complex transactions that even a very capable and experienced individual would have trouble managing on his/her own. At minimum, you’ll need a commercial real estate broker with experience working with child care properties; a commercial lawyer who has experience working with child care centres or private schools; and a good accountant.

Keep in mind, only about 10% of the people who inquire about the centre you have listed for sale are actually serious enough to have done their homework. They need to arrange for financing, to have a business plan, and to have already made contact with both the Ministry and the municipality. One of the big advantages of working with a knowledgeable team is that the team will not only have systems in place to help you prepare to sell your centre, but also to help prequalify buyers before they take up too much of your time.

4)         What is the Educational Centre actually worth

When an Educational Centre owner/operator first starts thinking about selling his/her centre, their first stop is often their accountant’s office. While having the insight of a good accountant is helpful, the numbers alone don’t always tell the whole story. A commercial real estate broker with experience in Educational Centres will often have a better sense of what a given facility is actually worth, particularly if he or she is conscientious about gathering and reviewing the Seller’s supporting documentation.  There is no absolute price that a centre will sell for. The best any Realtor can do is to give you a ball park price subject to the conditions and trends at the time of listing the centre for sale. It is fair to say that a centre is only worth what a knowledgeable Buyer is prepared to pay and a willing Seller is prepared to take. Note: The most likely Buyer for the centre will be found within the Daycare/Private School community in Ontario. The Buyer for your centre is not likely going to be the people who own the local restaurant or bowling alley.

5)         Assuming selling your Educational Centre is the only option

Before you invest time and money in preparing a package for prospective buyers or getting your centre ready to list, take some time to reflect on what is motivating you to want to sell your centre in the first place. In my own experience working with Sellers, sometimes the reason they want to sell is obvious—the person isn’t well or they want to retire. In many cases, however, the key motivator is simply that the centre is not doing as well as the owner/operator would like it to and he or she doesn’t know or have the available funds to turn things around.

Not all owner/operators are confident as business people. A lot of times Educational Centres owner/operators are really devoted educators, who have just learned the business as they’ve gone along and what they really need is some business or marketing insight to help them overcome a specific challenge and get them back on track. If I get the sense that this is the case, I’ll usually suggest that the potential Seller try working with a business consultant, a management consultant or a marketing agency to resolve their issues rather than simply listing a centre for sale.

6)         Marketing to keep the Educational Centre in business

When I’m speaking to a child care owner/operator about potentially listing a centre for sale, I ask a lot of questions, including their overall marketing strategy. I also ask to see their current marketing materials. One of the things I’ve noticed is that a lot of centres simply aren’t actively marketing what they have to offer. In a lot of cases, if a struggling business invested as much in terms of time, effort and expertise on marketing its own services as we will to market the centre for sale, the owner probably wouldn’t need to sell it at all.

There tends to be an assumption that because a centre is full, there is no need to market and advertise. Then, something changes and suddenly, the centre is in trouble. If I could offer business owner/operators just one piece of advice, it would be to market your program all of the time, even when your spaces are full. Things are constantly changing in the Education industry and your marketing needs to keep evolving as well. No matter what you ultimately decide about selling your centre, having a waiting list is definitely better than having vacancies.

In today's world you need a website. A website is a tool to generate and attract people to your business. the website is not designed to make the sale for you, that will be your job to make that sale. More and more child care businesses use Social Media to help generate and attract people to their businesses. If you don't have Social Media skills then you have to hire it. It is suggested that as high as 80% of your clientele will find you through Social Media (Facebook, Instagram etc.). Out parents of today are Millennials and they operate from their cell phone for most everything they do 

7)          Prepare your documentation now for the closing date

This would be documentation required during the “Due Diligence” period after an Offer to Purchase is accepted. A Purchaser will make the sale of your centre conditional upon their accountant and lawyer reviewing a number of various documents including but not limited to the following

Latest of

• Health Dept Reports

• Fire Dept Reports

• Ministry Reports

• Municipality Reports Including Zoning, Building Permits Etc.

• Playground Inspection Reports

• Existing Lease (If Applicable)

• Financials Including Profit & Loss Statements for Last 3 Years

• Inventory List

• Minute Book of Corporation (Updated) if Share Sale

• Grants

• Wage Subsidy Contracts

• Child Subsidy Contracts

• Assessment and  Property Taxes (If Property is Also Being Sold)

• All Existing Equipment Contracts and Leasing Agreements including Security Alarm System

• Website & E-mail Addresses and other obligations

• Sales and Marketing Information

• Pricing, Tuitions/Fees and Cost Information

• Monthly Utilities Expenses (last 12 months)

• Insurance Information

• Supplier Lists

• Policy and Procedures Manual

• Articles of Incorporation

Some of these documents may not apply to the sale of your business/property therefore you may disregard those items. Generally you will have 3 -5 days to produce these documents so it would be wise to gather these together today so you can make them available when necessary. Please make copies of originals.

8)          Costs you will incur to sell your centre and may be Tax Deductable - check with your Accountant

1. Legal Fees ($3,000 – $6,000) depending on the amount of Legal work required
2. Real Estate Commission (10% of Sell Price)

               Asset Sale

It is really hard to say how long this could take below is the outline of the process.

1. When a Licensee proposes to sell a child care centre, the Ministry requires information about how the sale will be structured to determine whether a new licence is required. Specifically, the Licensee must advise the Ministry about whether this will be a sale of assets or a sale of shares. 

2. The present Licensee notifies the Ministry in writing of their intent to sell.  The notice must include a tentative closing date, the name of the prospective Purchaser and the plans to inform parents, staff and the municipality (where the Licensee has a service agreement for fee subsidies).

3. The Program Advisor contacts the prospective Purchaser to inform them of the process required to license the centre in the name of a new Licensee.  All requirements of the Child Care and Early Years Act must be met prior to the licence being issued to the prospective Purchaser.  Once a new application is submitted by the Purchaser and the applicable fee payment is received, documents which outline the licensing and municipal approvals process will be sent to the Purchaser to assist with the new licence application.

4. The Purchaser must complete the registration process and submit an application to operate a child care centre in CCLS.  In addition the Purchaser must provide the Ministry with the following:

• Application fee 

• Site plans showing the location of the proposed site

• Building, floor and playground plans, including square footage and clear window glass area measurements for each play activity space (include the proposed capacity, food preparation area, storage, and toilets and sinks).

• Written confirmation of compliance with zoning, fire, health and building required by the Ministry, including confirmation of compliance with zoning. Please note: These municipal approvals cannot be transferred from the previous Licensee.  Once floor/site/playground plans have been submitted to the Ministry through CCLS and have been approved in Principle, the Purchaser will be required to submit the approved plans to the three Municipal authorities for approval.

• Incorporation papers, including a list of the officers and the directors of the corporation.

• In Toronto - A Memorandum of Understanding with the police will be required in order to obtain criminal reference checks for employees. Please contact the Toronto Police Service at 416-808-7991 to discuss entering into a Memorandum of Understanding in order to obtain reference checks suitable for licensing purposes.  Information about the Police Reference Check Program is available at: http://www.torontopolice.on.ca/prcp/

• Other municipalities have other ways to obtain a vulnerable screening

• A Criminal Reference Check with vulnerable sector screening for each director must be submitted to the Ministry through CCLS prior to a licence being issued. 

• Written verification of current insurance must be submitted to the Ministry through CCLS prior to a licence being issued.

5. A licensing inspection is conducted with the Licensee and the Purchaser prior to the closing date of the sale to assess compliance with the requirements of the Child Care and Early Years Act and to ensure sufficient time to achieve compliance. The inspection is completed using the “Child Care Centre Licensing Checklist”.   A site report, Summary of Child Care Centre Licensing Requirements and Recommendations is provided to both parties identifying any outstanding requirements.  The Licensee and Purchaser decide who is responsible to comply.  Compliance with all outstanding requirements is required prior to a new licence being issued.

6. Confirmation letters from the legal representatives of both Purchaser and Vendor, verifying details including the closing date, are to be submitted to the Program Advisor assigned to the new application via e-mail.  The sale date must coincide with the date the new licence is issued.

7. Compliance with any outstanding licensing requirements is verified. A final site visit may take place just prior to the closing date to verify that equipment and furnishings are in place.

The licence is issued and the new Licensee is notified via e-mail that a copy of the licence,