Day care for sale: how to check a daycare business before you buy
Short answer
When buying a daycare, compare licensed capacity with actual enrollment by age group, because ratios differ by age and infant rooms are labor-intensive. Verify tuition revenue from enrollment records, billing and deposits, including any state childcare subsidy payments. Then check staff qualifications, ratios and turnover, inspection history, how the childcare licence works on a change of ownership in your state (often a new licence is required), and the building and lease.
Childcare centers are heavily regulated, staff-intensive and personal. Families chose the center partly because of the director and teachers, so continuity matters as much as numbers.
Capacity, enrollment and ratios
Illustrative example, not a real center or real state ratios
A center is licensed for 90 children. Enrollment: infants 10 of 12 spots, toddlers 22 of 24, preschool 40 of 54. Preschool has the most empty spots but also the lightest staffing per child (ratios are set by each state). Filling 14 preschool spots may need little extra staff; adding infants would need more teachers per child.
How a daycare makes money, room by room
A childcare center is a set of rooms, each with a licensed capacity, an age group, a weekly tuition rate and a minimum number of teachers set by state ratios. Revenue is filled spots times tuition. Cost is mostly teachers, and teachers come in whole people: a room needs its ratio staff whether it holds the maximum number of children or one fewer. That's why the same center can swing from thin to healthy margins on a handful of enrollments, and why you should model it room by room, not as one line.
Illustrative example, not a real center, rate or state ratio
A toddler room is licensed for 12 children and (in this made-up state) needs one teacher per 6 toddlers. Tuition is $300 a week. At 12 children, weekly revenue is 12 × $300 = $3,600 and the room needs 2 teachers. At 7 children it still needs 2 teachers, because 7 is more than 6, but revenue drops to 7 × $300 = $2,100. If two teachers cost $1,800 a week including taxes, the room contributes $1,800 at full enrollment and $300 at seven. Same staff, very different result.
Ask for an enrollment roster by room with each child's schedule (full-time, part-time) and rate, a staffing schedule by room and hour, and the licence showing capacity by age. Your state licensing agency publishes the ratio and group-size rules that apply.
What to verify
- Enrollment records by child and room; tuition rates and billing; deposits.
- Subsidy program payments and share of revenue.
- Licence, inspection reports and any violations; change-of-ownership process in your state.
- Staff roster: qualifications, background checks, tenure, pay; director retention.
- Ratios compliance by room and time of day.
- Building: lease or ownership, playground, safety upgrades required.
- Insurance and incident history.
Add-back traps
- Owner acts as director: you'll pay a director if you don't do it.
- Family children enrolled free (lost tuition is real capacity).
- Below-market rent from an owner-held building. See related-party rent.
Subsidies and the food program
Many centers take children whose tuition is partly paid by a state subsidy program funded through the federal Child Care and Development Fund, which states administer under their own rules and rates. Centers may also receive meal reimbursements through the USDA's Child and Adult Care Food Program (CACFP). Both are legitimate revenue, and both come with paperwork, eligibility rules and audits. In diligence, separate private-pay tuition, subsidy payments and food program reimbursements, get the remittance statements for each, and ask how a change of owner affects the provider agreements. Some agreements are with the licensed entity and need to be redone after a sale.
The licence and the director
In most states a childcare licence is issued to a specific operator at a specific address, and a sale triggers a change-of-ownership process: a new application or approval, background checks on the new owners, and often an inspection. Ask the licensing agency, not the broker, what happens and how long it takes, and build the timeline into the closing. Read the last several years of inspection reports and any complaints or violations; they're often public.
The director matters as much as the licence. Parents trust the director, and in many states the center needs a director with specific qualifications. If the seller is the director, you either step in (and the "owner's salary" add-back becomes your wage) or hire one. Get the key teachers' and director's intentions before you sign, and plan how and when families will be told.
What an SBA lender will check
Lenders like the predictability of enrolled tuition but ask hard questions about licensing continuity, subsidy concentration and the building. If the center leases its space, the SBA's lease rule matters: the lease term, including renewal options only you control, should run at least as long as the loan. If the seller owns the building and leases it to the business, the rent needs to be at market (see related-party rent), and you may be looking at an SBA loan that includes real estate. The lender's valuation and site visit will both look at the physical condition: playgrounds, kitchens and safety items cost real money to fix.
What moves the value of a childcare center
We don't value deals or publish multiples we can't verify. These are the features an appraiser and lender will weigh, and the ones you should price your risk around:
| Factor | Supports a higher value | Pulls it lower |
|---|---|---|
| Enrollment | High, steady, with a current waitlist | Falling, or full only in some rooms |
| Revenue mix | Balanced private pay and subsidy | Heavy dependence on one subsidy program |
| Staff | Qualified director and long-tenured teachers staying | Seller is director; high turnover |
| Licensing record | Clean inspections | Repeat violations or open complaints |
| Facility | Owned or long lease; playground and kitchen in good shape | Short lease; safety upgrades needed |
| Tuition levels | In line with the area, raised regularly | Well below market, never raised |
Red flags specific to childcare
- Ratios that only work on paper. Ask for the staff schedule by room and hour, and compare it with sign-in sheets for a few days. If rooms are out of ratio at opening or closing, the payroll is understated.
- A director who's leaving with the seller. Ask directly. If yes, recruiting a qualified director becomes a closing condition.
- Subsidy payments that are behind or under review. Ask for any audit, overpayment notice or attendance-record request from the subsidy agency.
- Tuition discounts nobody wrote down. Staff children, siblings and friends at reduced rates reduce revenue per spot.
- Deferred building work. Roofs, HVAC, fencing and playground surfaces are expensive, and licensing inspectors notice them.
Documents to request
- Licence, capacity by age group, and three years of inspection reports and complaints.
- Enrollment roster by room with schedule and rate; waitlist with dates.
- Billing reports, bank statements and subsidy and food program remittances for 24 months.
- Staff roster with qualifications, hire dates, pay and background check status.
- Staff schedules by room and hour; sample sign-in sheets.
- Lease or deed, building inspection reports, insurance policies and incident logs.
- Parent handbook and enrollment agreement (they set tuition, notice and refund terms).
Questions to ask the seller
- What is enrollment by room today, and what was it on the same date last year?
- How many children are on the waitlist, by age, and when was the list last contacted?
- What share of revenue comes from subsidy, and has any payment been delayed or clawed back?
- Which staff are certified for which roles, and what is annual teacher turnover?
- Any licensing violations, complaints or incidents in the last three years?
- Are any children enrolled free or at a discount, and will those arrangements continue?
For how staff transfer in a sale, see employees when buying a business and telling employees the business is sold.
Frequently asked questions
Does a daycare licence transfer to a new owner?
Often not automatically; many states require a new licence or approval for a change of ownership, with inspections and background checks. Contact your state's childcare licensing agency early.
What's the key metric for a daycare?
Enrollment against licensed capacity by age group, combined with staffing required by state ratios for those ages. Profit depends on filling rooms efficiently.
Are subsidy payments a risk?
They can be a large share of revenue. Program rules, rates and payment timing can change, so check the share and history.
Why does the waitlist matter?
A real waitlist suggests demand exceeds capacity, supporting enrollment through the ownership change. Verify it's current.
How do I verify daycare tuition revenue?
Rebuild it from the enrollment roster: each child's room, schedule and weekly rate, times the weeks billed, less discounts. Compare the result with the billing system, then with bank deposits and any subsidy remittance statements. Gaps usually come from free family spots, sibling discounts or uncollected tuition.
What happens to enrollment when a daycare changes owners?
It depends heavily on how the change is handled. Families mostly care about the director, the teachers and the routine. If those stay and the change is explained clearly, many centers keep most families; if the director leaves at the same time, withdrawals are more likely. Ask the seller how and when families will be told, and plan it with them.
Sources
- SBA SOP 50 10 8.1 (lease term vs loan term; licences)
- Childcare.gov: Regulated child care (state licensing overview)
- HHS Administration for Children and Families: Office of Child Care
- USDA: Child and Adult Care Food Program (CACFP)
Related guides
General information, not legal, tax, financial or investment advice. Rules and lender practices change; check the linked sources and talk to your attorney, CPA and lender about your deal. Examples with named numbers are illustrations, not real businesses. OKtoBuy's Deal Check does not value businesses or give price opinions.