Discovery Point Blog
5 Tips for Evaluating a Resale Child Care Business for Purchase
Entrepreneurship offers many paths to success – from starting a new business to purchasing an existing company to joining a franchise group. Even after you’ve decided to go the route of purchasing a child care business from a franchise brand, you’ll still encounter a number of forks in the road.
One of the biggest decisions you’ll need to make is whether to buy an existing franchise location or open a new one.
There are multiple advantages that come with purchasing a resale child care business, but it’s important to do your research first to make sure you’re making a wise investment. Below, you can take a look at the various considerations and step-by-step procedures you should take when it comes to purchasing a resale child care business.
1. Closely review the FDD early on in the process.
This is a step you should take whether you are buying a resale franchise or choosing to open a brand new franchise location. Even if you’re still early on in the decision-making process, it’s a good time to begin reviewing the brand’s Franchise Disclosure Document (FDD).
This document represents the legal contract that will be implemented between you, as the franchisee, and the franchisor you’re choosing to purchase the business from. You’ll obviously want to pay close attention to the portions of the document that disclose fees and purchase requirements. It’s also advised to carefully read through the training and quality control information, so you know exactly what you will be responsible for and what you can expect from the franchisor.
2. Go over transfer documents with a fine-toothed comb.
After you’ve gone through the FDD, you can start to analyze the requirements for transferring ownership of the franchise location. What’s most important here is to make sure you won’t encounter any restrictions when the franchise is transferred to you.
You’ll also want to know whether the franchisor has any special rights in this regard. For example, most franchisor reserve the Right of First Refusal. This means the franchisor has the ability to buy back the business before outside buyers have the opportunity to make a bid.
You’ll also want to be aware of any grants or subsidies the current owner is utilizing. Some grant funding, such as stabilization grants due to COVID-19, can be utlized by new ownership. While others will cease at the time of sale.
3. Ask for outside support to accurately understand the value of the child care business.
In this day and age, it’s normal to check out the reviews of a product before making even a minor purchase, so why wouldn’t you do the same with a major investment? When it comes to buying a franchise resale, it’s always a good idea to get a business valuation that can help you understand the value of the franchise and determine whether it’s the right investment for you.
You will want to rely on an outside professional to conduct this process, as they can provide you with an objective appraisal of the business’s viability. Connecting with the American Society of Appraisers is a good starting point for this step.
4. Gather information about the franchisee’s decision to sell and review their financial records.
There are plenty of reasons why a franchisee might choose to sell their child care business, and understanding why the business owner is making this decision can help you with your own decision-making process. Whether the reason is personal, such as the desire to retire, or professional, such as changes in the market or friction with the franchisor, it’s important to gather as much information as you can about the franchisee’s decision.
To ensure you’ve done your due diligence, examine the financial records of the business to understand where it stands financially. As the IRS recommends business owners maintain financial records for seven years, you should have ample information at your fingertips to review.
5. Learn more about the reputation of the child care business.
In this step, you’ll want to do a deep dive on both the location’s reputation within the community and the reputation of the franchise brand as a whole. This research is crucial to preventing you from having to spend your first few months as a new business owner doing damage control and trying to revise the image of the business.
Online customer reviews are a great place to start to determine how customers feel about the franchise in other locations and the franchise location you’re looking to purchase. You can also speak with other franchise owners to gain insight into their relationship with the franchisor and their connection to the brand’s mission statement and ultimate vision for child care.
If you’re ready to get started on the above steps and put our tips into action, learn more about the resale child care businesses available from Discovery Point today! You can speak with our franchising team at 770-623-1140 for details about our various opportunities.