FAQs
Gateway School Sales can guide you to the schools that meet your search criteria. Because of our relationship with the sellers, we know what their needs are and can balance those needs with your requirements. Therefore, we can structure a transaction that benefits all parties involved.
Second, our brokers work professionally, confidentially, and have experience in overcoming every imaginable obstacle. We can teach you how to make an offer that protects you, coordinate the process, and handle negotiations at arms’ length to minimize misunderstandings or conflicts that may arise, so that you and the seller can work harmoniously together during the transition period.
Third, we know how to navigate through the licensing, application, inspections, and training, as well as the process of getting all the documents prepared for closing. We also have the expertise to assist you in getting organized to assume ownership after the successful transaction.
Second, our brokers work professionally, confidentially, and have experience in overcoming every imaginable obstacle. We can teach you how to make an offer that protects you, coordinate the process, and handle negotiations at arms’ length to minimize misunderstandings or conflicts that may arise, so that you and the seller can work harmoniously together during the transition period.
Third, we know how to navigate through the licensing, application, inspections, and training, as well as the process of getting all the documents prepared for closing. We also have the expertise to assist you in getting organized to assume ownership after the successful transaction.
The main thing to consider is whether or not you like the education or childcare business.
Additional considerations are:
Additional considerations are:
- Location
- Down Payment Requirements
- Business Profits
- What kind of training---if any---will the seller provide?
- What can be done that either the current owner is not doing or has ceased doing that could improve the business or school
As you go through the process of purchasing a childcare business, keep in mind that confidentiality is very important. As you have discussions with bankers, advisers, government employees and others that will be required to know about the transaction, that they understand that the transaction is being conducted confidentially.
Meet with Intermediary
Together we will discuss the process of purchasing a business, the importance of confidentiality to all parties, available funding sources, transaction types and answer any other questions you may have. You will also share your search criteria: minimum amount of desired cash flow, available down payment, location/area, size and with or without real estate.
Review Business Information
After executing the required buyer documents, you will receive the Confidential Business Review (CBR). This package will include seller’s motivation, business activities, staffing information, equipment list, financial information and photos. Naturally, you will have additional questions which will need to be answered in a meeting with the Seller. The CBR is not a prospectus. The CBR’s purpose is to provide information so you can ask informed questions at the Buyer/Seller meeting.
Buyer/Seller Meeting
The Intermediary will arrange the meeting between yourself and the business seller, generally outside of the operating hours of the business. Both buyer and seller will gain information about each other. You will gather more in-depth information about the operations from the seller. Be prepared with a list of questions for the most productive meeting. The objective is to be able to determine whether to make an offer on the business or to continue your search.
Make an Offer
There are two commonly used documents used to submit an offer on a business. One option is an “Offer to Purchase” with conditions and contingencies; the second is a non-binding “Letter of Intent” (LOI).
An Offer to Purchase is typically a standardized form which becomes a legally binding document after removing the conditions and contingencies through the due diligence process.
The Letter of Intent is a non-binding agreement; but may have some binding parts (such as confidentiality); typically, in letter format.
Both types of offers will be replaced with a Definitive Purchase Agreement when due diligence is completed. You will also need to decide how you would like to purchase the school. Two of the choices you have are an asset purchase or a stock purchase. This decision can make a big difference in the process and the next step to closing. If you would like more information on these two options, we can discuss, but we recommend you talk to your CPA and attorney. You can always change the way you are purchasing later in the process as long as both parties agree.
Negotiate Offer
Negotiation is a common part of any transaction. Remember the mutual objective is to transfer ownership of the school. Both parties will need to be flexible to achieve a mutually acceptable purchase agreement.
Due Diligence
Due Diligence is the investigation phase of a transaction. Your legal and financial advisers need to inspect the financials and business information to make sure the seller accurately represented the condition of the business. You will want to request items like the tax returns, bank statements, enrollment information and any other information you will need to get comfortable with the transaction. Your broker can provide you a sample due diligence for childcare businesses. We normally start Due Diligence with a meeting with the buyer, seller and intermediary to discuss the items provided for due diligence and the steps between due diligence and closing. We also recommend you make a to-do list of all of the items that you will need to complete between now and closing.
Financing
If your transaction has bank financing we recommend you work with the Intermediary to find 2 or 3 banks that like the transaction. Not every bank will fund every transaction. Some banks do not do business acquisition loans at all. Others banks may limit themselves to a specific geographic region or type of business. Banks change their lending parameters regularly. Another choice is to work with a loan brokerage firm that specializes in business acquisition loans. This normally minimizes the amount of paperwork you have to complete and they can simplify the process for you. Talk with your lending institution about information that you need to provide for the loan early in the process. The faster you can provide the required information the faster and smoother the process will go. The bank application and supporting documents will need to be completed a minimum of 60 days prior to closing. If you are getting owner financing, the seller may want to perform some due diligence on you also, to make sure you are not a credit risk. Expect the seller to request to see proof of funds for the down payment and your credit report/credit score if the seller is financing part of the transaction. Sellers don’t want to accept an offer from a buyer that is not financially capable of purchasing the business.
Setting up your Corporate Entity
Most buyers will want to purchase their business with the protection that a corporate entity can provide. Now would be a good time to do your research and talk to your CPA and attorney about the different types of structures you can use to own a company. Most buyers will setup a Limited Liability Company or a Sub Chapter S Corporation. You will need your entity in place to complete your Licensing Application.
Bank Account
You will need to open a business bank account. If you are getting bank financing, the bank may require that the account is setup at their institution. If you are not required to setup the account at a particular institution, it is wise to use a bank that makes business loans, because you may want to expand the school and purchase additional equipment. It would make it easier if you can use your bank for these loans. You would also like to use a bank that has a branch that is convenient to the school to make deposits easier.
Insurance
As part of your licensing application, you will need a copy of your insurance company’s Intent to Insure document. In most cases, it is easiest to use the same insurance agent that the seller is using or work with your broker for a list of insurance companies that specialize in insuring childcare centers. If you have relationships with other insurance agents, get a second quote from them. If you are getting bank financing, check with your bank about the coverage required and if you will need a life insurance policy for the loan.
Licensing
Once you have signed the Letter of Commitment and the Asset Purchase Agreement has been drafted, it is time to start working on licensing and permits. We normally have the seller and buyer work closely together with licensing. Each licensing representative and municipality will have a different process that you will need to follow. Some licensing representatives will require you to have licensing completed before the transaction is completed; others will want you to start the process, but will complete licensing after closing. If you are going to be the Director for the school you purchase, you will need to check into which classes based on your education and experience are required for you to qualify. When you talk to people, i.e. licensing representatives, insurance agents, etc., make sure they know the transaction is confidential. The application needs to be completed a minimum of 30 days prior to closing to give the Texas Department of Family and Protective Services time to complete the full process, if they require it. To start the process, go the Texas Department of Family and Protective Services website www.dfps.state.tx.us/Child_Care/Day_Care_Licensing. At the appropriate time, you will want the seller to contact their licensing representative first to give you a warm introduction.
Texas Workforce Commission Child Care Assistance Program (CCS/CCMS/CCA)
If the school you are purchasing accepts students enrolled in Texas Workforce Commission Child Care Assistance Program (CCS/CCMS/CCA) you will need to make application and complete the required forms to be able to continue these services. You are required to have your operations number from licensing in order to complete the application with the funding organization (CCS/CCMS/CCA). Your licensing representative and/or the seller can point you to the correct person to talk with.
Texas Department of Agriculture Child and Adult Care Food Program (CACFP)
This program is commonly referred to as “The Food Program”. Most schools use a sponsor to help handle the administrative paperwork and required training. If the school you are purchasing accepts Food Program funds, you will need to work with the seller to see how they are setup on the program. If they do not use a sponsor or if you decide to not use a sponsor, then visit the Texas Department of Agriculture Child and Adult Care Food Program website www.squaremeals.org/Programs/ChildandAdultCareFoodProgram. Again, whether working with Texas Workforce Commission or the Department of Agriculture Child/Adult Care Food Program, make sure they know the transaction is highly confidential.
Permits
The city may require a new Certificate of Occupancy or other permit or license with the purchase of a business. It is best to call the city and ask what you will need to do. Some of the common things could be fire inspection, building inspection and health inspection. These are normally not a large issue because the business goes through many of these inspections annually. Protecting the confidentiality is important. Be sure your contact with the city is aware of that.
Closing Documents
When you have approved the due diligence items and are comfortable with the transaction you will need to order the closing documents. It is most common to use a commercial closing company that specializes in business transaction closings. The reason for using a commercial closing company is the process is more efficient and much less expensive. With a commercial closing company, the cost is normally split between the buyer and seller. The cost is normally less than $2,000 for each party – not including Title Policy Insurance which is a responsibility of the seller. The Definitive Purchase Agreement (DPA), Bill of Sale, Corporate Resolutions to Buy or Sell, Promissory Notes, Abandonment of the Assumed Name, Assumed Name Certificates, UCC filings, Lease Assignment, Survey, Appraisal, Settlement Statements and others specific to your transaction will be drafted. The Definitive Purchase Agreement is the keystone of the documents executed at or prior to closing. The parties will negotiate the finer points of the deal including allocation of the purchase price, representations and warranties, and the non-compete agreement(s). The closing documents will need to be reviewed and approved by the lending institution, legal and financial advisers for both buyer and seller. Drafting the purchase agreement needs to be ordered a minimum 3 weeks prior to closing to give time for the closing attorney to perform the lien searches, title work, surveys and draft the closing documents. You do not want to wait until the last minute and rush you and your advisers in reviewing and negotiate any changes that are needed.
Transfers
There are many things you will need to transfer as part of purchasing a childcare center. Jointly the services needing transferred will be handled by the buyer and seller. Some of these include licensing, phone service, utilities, payroll services, merchant services account, food programs and many others. We recommend that you make a list and review the list with the seller and decide which items will need to be transferred prior to closing and which items need to be transferred after closing.
Closing
The closing should be a ceremony where you review and sign all necessary documents to transfer ownership. The accompanying documents include Bill of Sale, Corporate Resolutions to Buy or Sell, Promissory Notes, Abandonment of the Assumed Name, Assumed Name Certificates, UCC filings, Lease Assignment, Settlement Statements and others specific to your transaction. All prior steps culminate into the funding of the sale and transfer of ownership.
After Closing
After closing there are a number of things that need to be completed. These include filing the titles with the tax office, giving the “Doing Business As” (DBA) to the bank, and transferring the utilities over to your company name. One of the most important parts of the transaction is to tell the employees. This normally happens by the seller calling a meeting of the employees where they will tell them that they have decided to sell the school to some nice people that are planning on keeping them and not make any major changes to the school. This will take about 15 minutes then you will come in and they will introduce you to them and you will work alongside them during this transition. It is best not to tell the employees at end of the workweek on Friday afternoon. The buyer and seller will need to work together to make this transaction happen as smooth as possible.
Training & Transition
The last phase of a transaction is the training and transition. A phased seller-to-buyer transition is most successful. The parties work together to transfer operational knowledge, operations, staff and client relationships to the new management team.
Keep in mind every transaction is different. The steps and processes you go through may be different from the items listed above. The key is to be flexible with the people you are working with.
Meet with Intermediary
Together we will discuss the process of purchasing a business, the importance of confidentiality to all parties, available funding sources, transaction types and answer any other questions you may have. You will also share your search criteria: minimum amount of desired cash flow, available down payment, location/area, size and with or without real estate.
Review Business Information
After executing the required buyer documents, you will receive the Confidential Business Review (CBR). This package will include seller’s motivation, business activities, staffing information, equipment list, financial information and photos. Naturally, you will have additional questions which will need to be answered in a meeting with the Seller. The CBR is not a prospectus. The CBR’s purpose is to provide information so you can ask informed questions at the Buyer/Seller meeting.
Buyer/Seller Meeting
The Intermediary will arrange the meeting between yourself and the business seller, generally outside of the operating hours of the business. Both buyer and seller will gain information about each other. You will gather more in-depth information about the operations from the seller. Be prepared with a list of questions for the most productive meeting. The objective is to be able to determine whether to make an offer on the business or to continue your search.
Make an Offer
There are two commonly used documents used to submit an offer on a business. One option is an “Offer to Purchase” with conditions and contingencies; the second is a non-binding “Letter of Intent” (LOI).
An Offer to Purchase is typically a standardized form which becomes a legally binding document after removing the conditions and contingencies through the due diligence process.
The Letter of Intent is a non-binding agreement; but may have some binding parts (such as confidentiality); typically, in letter format.
Both types of offers will be replaced with a Definitive Purchase Agreement when due diligence is completed. You will also need to decide how you would like to purchase the school. Two of the choices you have are an asset purchase or a stock purchase. This decision can make a big difference in the process and the next step to closing. If you would like more information on these two options, we can discuss, but we recommend you talk to your CPA and attorney. You can always change the way you are purchasing later in the process as long as both parties agree.
Negotiate Offer
Negotiation is a common part of any transaction. Remember the mutual objective is to transfer ownership of the school. Both parties will need to be flexible to achieve a mutually acceptable purchase agreement.
Due Diligence
Due Diligence is the investigation phase of a transaction. Your legal and financial advisers need to inspect the financials and business information to make sure the seller accurately represented the condition of the business. You will want to request items like the tax returns, bank statements, enrollment information and any other information you will need to get comfortable with the transaction. Your broker can provide you a sample due diligence for childcare businesses. We normally start Due Diligence with a meeting with the buyer, seller and intermediary to discuss the items provided for due diligence and the steps between due diligence and closing. We also recommend you make a to-do list of all of the items that you will need to complete between now and closing.
Financing
If your transaction has bank financing we recommend you work with the Intermediary to find 2 or 3 banks that like the transaction. Not every bank will fund every transaction. Some banks do not do business acquisition loans at all. Others banks may limit themselves to a specific geographic region or type of business. Banks change their lending parameters regularly. Another choice is to work with a loan brokerage firm that specializes in business acquisition loans. This normally minimizes the amount of paperwork you have to complete and they can simplify the process for you. Talk with your lending institution about information that you need to provide for the loan early in the process. The faster you can provide the required information the faster and smoother the process will go. The bank application and supporting documents will need to be completed a minimum of 60 days prior to closing. If you are getting owner financing, the seller may want to perform some due diligence on you also, to make sure you are not a credit risk. Expect the seller to request to see proof of funds for the down payment and your credit report/credit score if the seller is financing part of the transaction. Sellers don’t want to accept an offer from a buyer that is not financially capable of purchasing the business.
Setting up your Corporate Entity
Most buyers will want to purchase their business with the protection that a corporate entity can provide. Now would be a good time to do your research and talk to your CPA and attorney about the different types of structures you can use to own a company. Most buyers will setup a Limited Liability Company or a Sub Chapter S Corporation. You will need your entity in place to complete your Licensing Application.
Bank Account
You will need to open a business bank account. If you are getting bank financing, the bank may require that the account is setup at their institution. If you are not required to setup the account at a particular institution, it is wise to use a bank that makes business loans, because you may want to expand the school and purchase additional equipment. It would make it easier if you can use your bank for these loans. You would also like to use a bank that has a branch that is convenient to the school to make deposits easier.
Insurance
As part of your licensing application, you will need a copy of your insurance company’s Intent to Insure document. In most cases, it is easiest to use the same insurance agent that the seller is using or work with your broker for a list of insurance companies that specialize in insuring childcare centers. If you have relationships with other insurance agents, get a second quote from them. If you are getting bank financing, check with your bank about the coverage required and if you will need a life insurance policy for the loan.
Licensing
Once you have signed the Letter of Commitment and the Asset Purchase Agreement has been drafted, it is time to start working on licensing and permits. We normally have the seller and buyer work closely together with licensing. Each licensing representative and municipality will have a different process that you will need to follow. Some licensing representatives will require you to have licensing completed before the transaction is completed; others will want you to start the process, but will complete licensing after closing. If you are going to be the Director for the school you purchase, you will need to check into which classes based on your education and experience are required for you to qualify. When you talk to people, i.e. licensing representatives, insurance agents, etc., make sure they know the transaction is confidential. The application needs to be completed a minimum of 30 days prior to closing to give the Texas Department of Family and Protective Services time to complete the full process, if they require it. To start the process, go the Texas Department of Family and Protective Services website www.dfps.state.tx.us/Child_Care/Day_Care_Licensing. At the appropriate time, you will want the seller to contact their licensing representative first to give you a warm introduction.
Texas Workforce Commission Child Care Assistance Program (CCS/CCMS/CCA)
If the school you are purchasing accepts students enrolled in Texas Workforce Commission Child Care Assistance Program (CCS/CCMS/CCA) you will need to make application and complete the required forms to be able to continue these services. You are required to have your operations number from licensing in order to complete the application with the funding organization (CCS/CCMS/CCA). Your licensing representative and/or the seller can point you to the correct person to talk with.
Texas Department of Agriculture Child and Adult Care Food Program (CACFP)
This program is commonly referred to as “The Food Program”. Most schools use a sponsor to help handle the administrative paperwork and required training. If the school you are purchasing accepts Food Program funds, you will need to work with the seller to see how they are setup on the program. If they do not use a sponsor or if you decide to not use a sponsor, then visit the Texas Department of Agriculture Child and Adult Care Food Program website www.squaremeals.org/Programs/ChildandAdultCareFoodProgram. Again, whether working with Texas Workforce Commission or the Department of Agriculture Child/Adult Care Food Program, make sure they know the transaction is highly confidential.
Permits
The city may require a new Certificate of Occupancy or other permit or license with the purchase of a business. It is best to call the city and ask what you will need to do. Some of the common things could be fire inspection, building inspection and health inspection. These are normally not a large issue because the business goes through many of these inspections annually. Protecting the confidentiality is important. Be sure your contact with the city is aware of that.
Closing Documents
When you have approved the due diligence items and are comfortable with the transaction you will need to order the closing documents. It is most common to use a commercial closing company that specializes in business transaction closings. The reason for using a commercial closing company is the process is more efficient and much less expensive. With a commercial closing company, the cost is normally split between the buyer and seller. The cost is normally less than $2,000 for each party – not including Title Policy Insurance which is a responsibility of the seller. The Definitive Purchase Agreement (DPA), Bill of Sale, Corporate Resolutions to Buy or Sell, Promissory Notes, Abandonment of the Assumed Name, Assumed Name Certificates, UCC filings, Lease Assignment, Survey, Appraisal, Settlement Statements and others specific to your transaction will be drafted. The Definitive Purchase Agreement is the keystone of the documents executed at or prior to closing. The parties will negotiate the finer points of the deal including allocation of the purchase price, representations and warranties, and the non-compete agreement(s). The closing documents will need to be reviewed and approved by the lending institution, legal and financial advisers for both buyer and seller. Drafting the purchase agreement needs to be ordered a minimum 3 weeks prior to closing to give time for the closing attorney to perform the lien searches, title work, surveys and draft the closing documents. You do not want to wait until the last minute and rush you and your advisers in reviewing and negotiate any changes that are needed.
Transfers
There are many things you will need to transfer as part of purchasing a childcare center. Jointly the services needing transferred will be handled by the buyer and seller. Some of these include licensing, phone service, utilities, payroll services, merchant services account, food programs and many others. We recommend that you make a list and review the list with the seller and decide which items will need to be transferred prior to closing and which items need to be transferred after closing.
Closing
The closing should be a ceremony where you review and sign all necessary documents to transfer ownership. The accompanying documents include Bill of Sale, Corporate Resolutions to Buy or Sell, Promissory Notes, Abandonment of the Assumed Name, Assumed Name Certificates, UCC filings, Lease Assignment, Settlement Statements and others specific to your transaction. All prior steps culminate into the funding of the sale and transfer of ownership.
After Closing
After closing there are a number of things that need to be completed. These include filing the titles with the tax office, giving the “Doing Business As” (DBA) to the bank, and transferring the utilities over to your company name. One of the most important parts of the transaction is to tell the employees. This normally happens by the seller calling a meeting of the employees where they will tell them that they have decided to sell the school to some nice people that are planning on keeping them and not make any major changes to the school. This will take about 15 minutes then you will come in and they will introduce you to them and you will work alongside them during this transition. It is best not to tell the employees at end of the workweek on Friday afternoon. The buyer and seller will need to work together to make this transaction happen as smooth as possible.
Training & Transition
The last phase of a transaction is the training and transition. A phased seller-to-buyer transition is most successful. The parties work together to transfer operational knowledge, operations, staff and client relationships to the new management team.
Keep in mind every transaction is different. The steps and processes you go through may be different from the items listed above. The key is to be flexible with the people you are working with.
The down payment amount varies depending on many factors: whether or not the transaction includes the real estate or just the school, the seller’s situation, and your available cash and assets. School sales is a down payment industry, which means that typically, the higher down payment you can offer a seller the lower the total sales price will be. A Gateway School Sales broker will help you figure out a comfortable level of cash investment you can commit to the purchase of the right school. We are also experienced enough to know that you cannot commit all of your available cash. You will need some for operating capital, deposits, and other requirements. We like to make sure you have extra money set aside for emergencies and unforeseen situations. If you are getting outside financing, you can expect a 10-30% cash down payment. If the school is being owner financed, a good rule of thumb is to expect to pay 1-1.5 times the annual owner’s discretionary earnings as a down payment. Your comfort level of cash investment is one of the most important pieces of information that a Gateway School Sales broker needs to know to match you with the right school.
Unlike the sale of a real estate or franchises, the sale of an ongoing business---childcare or otherwise---is strictly confidential for you, the buyer, as well as the seller. From the moment you meet with a Gateway School Sales broker through the closing of your transaction, all details relating to the price and terms of the purchase are protected. Gateway School Sales does not share your information with any party outside of the transaction.
All negotiations are handled at arm’s length through Gateway School Sales. The primary reasons for this are to ensure all agreements on deal points are properly documented, keeping the negotiations moving forward without any back tracking, to facilitate a smooth transition of the school to new ownership. Negotiations can be stressful; let Gateway School Sales buffer this possible stress so that you have a good working relationship with the seller as you begin the training and transition period.
The closing process can be tedious and time consuming, which is why Gateway School Sales recommends using a professional commercial escrow company to prepare necessary documents and facilitate the process. The advantages of using a commercial escrow company stem from the fact that they represent the transaction and documents they prepare. While you are focused on purchasing the right school, the commercial escrow company can coordinate the process of facilitating:
Initial draft of the Asset Purchase Agreement and/or Contract of Sale
Lien searches
Property tax settlements
Bill of sale
Escrow and closing instructions
Non-compete agreements
Security agreements
Abandonment of assumed names
Assumption of assumed names
Documentation of incorporation
Settlement statements
And the wide variety of documents specific to each different transaction
We would strongly recommend taking all these documents to a transaction attorney for review, edit, and approval. It is best that personal attorneys—both the buyer’s and seller’s—sit out on the transaction and let the commercial escrow company and transaction attorney’s representing each party handle the closing process.