Most owners stall on a valuation not because the math is hard, but because the inputs aren't at hand. Here are the five figures that determine what a childcare center is worth — and exactly where to find each one.
Why owners get stuck
We watch it happen on our own valuation estimator: owners pick "value my business," reach the earnings field, and stop. Not because the answer doesn't exist — because it lives scattered across a tax return, a payroll report, and a lease nobody has opened in years.
Buyers, lenders, and appraisers all price a childcare center from the same handful of figures. Gather these five and any valuation — instant or formal — takes minutes instead of weeks.
1. Your SDE — the number everything is multiplied by
Seller's Discretionary Earnings is your bottom-line profit plus everything the business pays that a new owner wouldn't have to: your salary and payroll taxes, personal auto, phone and travel run through the business, one-time costs, and interest, depreciation and amortization. Industry transaction data consistently puts single-center sales at roughly 2.5–3.5× SDE — so every clean, documented dollar of SDE is worth two-and-a-half to three-and-a-half dollars at closing.
Where to find it: start with the net income on your most recent tax return or year-end P&L, then add back each owner expense line by line. Keep the documentation — buyers only pay for add-backs they can verify. As a gut check, childcare SDE typically runs 12–22% of revenue; if you're far outside that band, dig into why before a buyer does.
2. A fair-market rent for your building
If you rent, this is easy — it's on your lease. If you own your building and charge yourself nothing (or a token amount), your P&L is overstating what a business buyer would actually earn, because they'll pay you market rent after closing. Every serious valuation charges the business a fair-market rent first.
Where to find it: your square footage times a market rate. Across our tracked comps, childcare rent runs a median of about $26 per square foot, and healthy centers keep total rent around 10–18% of gross revenue. That same rent figure also values the real estate itself if you own it — divided by a market cap rate.
3. Licensed capacity and current enrollment
Two numbers, one ratio — and one of the strongest pricing levers in the industry. Centers running above roughly 85% of licensed capacity command a premium, often half a turn of the multiple or more, because full rooms and a waitlist prove durable demand. Utilization under 75% reads as a value-add story a buyer will discount. Larger licenses (100+) also attract a deeper, better-capitalized buyer pool.
Where to find it: your license certificate and your current enrollment roster. If you keep a waitlist, document it — waitlist depth is real money at sale.
4. Annual revenue
Buyers don't pay for revenue — they pay for earnings — but revenue is the cross-check that makes your earnings believable. Childcare businesses transact around 0.5–0.8× annual revenue, and an earnings figure that implies a margin far outside the normal band will trigger a harder look at your books.
Where to find it: the top line of your P&L, or enrollment × average annual tuition per child. If those two calculations don't roughly agree, reconcile them before showing anyone your numbers.
5. Your lease or ownership terms
For the real estate side, three details move the price more than owners expect: remaining term (10+ years prices tightest; under 5 years erodes value fast), escalations (scheduled annual bumps beat flat rent), and structure (absolute NNN prices best; gross leases trade wider). If you own the building free of a lease, know the year built and square footage — vacant and owner-occupied childcare buildings are priced per square foot against sold comps.
Where to find it: the lease itself — the term, options, and escalation clauses. Ten minutes with the document beats a guess.
Put them together — with intention
One more thing the numbers can't do for you: timing. The best sales are planned, not reacted to. If selling is even on your horizon, start working on these five figures about 18 months ahead — clean up the add-backs, push enrollment toward capacity, fix or extend a weak lease. Buyers price your trailing financials, so a strong number achieved this year is worth its full multiple next year. Owners who prepare on that timeline consistently net materially more than those forced to sell by burnout, a health event, or a lease deadline.
With these five figures in hand, you can run a directional valuation in under two minutes — business only, real estate only, or both together — against our database of 600+ tracked childcare sales. And when you're ready for a real number, the same five figures are exactly what Alan reviews first in a formal, confidential valuation.
Run your estimate — it takes two minutes.
A directional value range for your business, your real estate, or both — built on 600+ tracked childcare sales and the same methodology we use for real clients.
