How to value a daycare business.
Most valuation guides are written by generalists who swapped the word "daycare" into a template. This one is built from 592 sold childcare transactions and 70+ closings of our own — including the adjustment that most owners and most brokers get wrong.
The short answer
A daycare business is valued by multiplying its adjusted earnings (SDE) by a market multiple. A single-site childcare center typically sells for 2.5 to 4.5 times SDE — roughly 2 to 4 times EBITDA. Groups of two to four centers run about 3.0 to 5.0 times, and platforms of five or more 4.5 to 6.5 times, both on an EBITDA-equivalent basis.
If you also own the building, the real estate is valued separately: net operating income divided by a market cap rate. The median sold cap rate across childcare transactions that reported one is 7.11% — though that figure is weighted toward national-brand tenants; independent centers typically trade at 7.5% to 8%, and dense urban markets compress below both. Vacant buildings are valued on price per square foot instead, with a national median of $322.
The two are added — but only after deducting a market rent from SDE. Skip that step and you count the building's income twice.
Find your real earnings, not your tax return's earnings.
Your P&L is built to minimize taxes. A buyer needs to see what the business actually produces for an owner. That figure is seller's discretionary earnings — net profit with the owner-specific costs added back.
- Owner compensationYour salary, payroll taxes, and benefits. If you also work as director, only the portion above a market director's salary is a true add-back.
- Personal expensesVehicles, phones, travel, insurance, and family members on payroll who don't work in the business.
- One-time costsPlayground replacement, roof repair, a licensing consultant, legal fees from a settled dispute. Non-recurring by definition.
- Interest & depreciationFinancing and accounting decisions specific to you, not to the operation a buyer inherits.
The sanity check: in childcare, SDE typically runs between 12% and 22% of revenue. If your calculation lands well outside that band, something is wrong. Below it, you may be under-adding-back or genuinely under-earning. Above it — particularly above 25% — the usual cause is that you own your building and pay yourself no rent, which is covered further down and is the single most common reason a valuation comes out wrong.
The multiple is set by size, not by sentiment.
Buyers pay for transferable earnings. The smaller the center, the more its earnings depend on the owner personally — and the fewer buyers can finance it. That relationship is what the multiple actually measures.
| Center profile | Typical multiple | Basis |
|---|---|---|
| Micro programUnder ~25 licensed seats | 2.0 – 2.75× | SDE |
| Small single centerUnder ~$700K revenue | 2.25 – 3.1× | SDE |
| Single centerThe standard case | 2.5 – 4.5× | SDE |
| Small group2 – 4 centers | 3.0 – 5.0× | EBITDA-equivalent |
| Platform5+ centers | 4.5 – 6.5× | EBITDA-equivalent |
A single center at 2.5–4.5× SDE is roughly equivalent to 2 to 5 times EBITDA, since EBITDA excludes the owner's compensation that SDE adds back. Which figure a buyer quotes tells you something about the buyer: owner-operators think in SDE, private equity and regional platforms think in EBITDA.
One caution on multiples you'll find elsewhere. An SDE multiple must be applied to SDE. Some published guides instruct readers to apply an SDE multiple to annual revenue, which produces a number several times too high. If a valuation you've been given looks implausibly large, check what the multiple was applied to first.
If you own the building, it is a second asset with its own math.
Childcare real estate is not valued on a multiple of earnings. It is valued the way any net-leased commercial property is valued: annual net operating income divided by a cap rate.
| Benchmark | Value | Basis |
|---|---|---|
| Median sold cap rate | 7.11% | 370 sales reporting a cap rate |
| Current indexTrailing four quarters, 2026 Q2 | 7.28% | Childcare Cap Rate Index |
| Median price per SF | $322 | 592 sold transactions |
| Median asking rent | $25.77 / SF / yr | Asking rents — a different population from sold comps |
| KinderCare | 6.67% | 62 sales |
| The Learning Experience | 7.00% | 72 sales |
| Primrose Schools | 7.20% | 38 sales |
Lower cap rate means higher value — you are paying more for each dollar of rent. Two factors move yours away from the median more than any others: who signs the lease, and where the building sits.
Tenant credit. The 7.11% median is weighted heavily toward corporate-guaranteed national brands, because those are the deals that trade and report publicly. A well-run independent center typically trades wider — on the order of 7.5% to 8%, depending on the market — because the buyer is underwriting a single operator rather than a corporate balance sheet. If you are independent, treat the national median as a ceiling on value, not as your number.
Geography. Dense urban markets compress cap rates below the national median — more capital competing for fewer sites, scarcer land, and a higher barrier to entry for a competitor down the road. Secondary and rural markets widen for the opposite reasons. The same center, same tenant, same rent can be worth materially different amounts twenty-five miles apart.
Cap rates expanded about 98 basis points from a 6.30% trough in 2023 Q1, and have since held within a 7-basis-point band for seven consecutive quarters. Expansion has stopped. For an owner weighing timing, that matters more than the level: values are no longer falling on rate movement alone.
A vacant building is different. With no tenant there is no net operating income, so there is no cap rate to apply. It is valued on price per square foot, adjusted for market, condition, and how readily it converts to another use.
Source: Little Scholars Real Estate sold-comps database — 592 childcare transactions across 41 states, sold 2022–2025, compiled from public records via Crexi, updated June 2026. Cap rate medians are calculated only from transactions that reported a closing cap rate, and are weighted toward national-brand tenants, which are the deals that trade publicly. The 7.5%–8% range for independent operators and the observation on urban compression reflect Little Scholars Real Estate transaction experience rather than a computed median. Brand names are used for identification only; Little Scholars Real Estate is not affiliated with, endorsed by, or sponsored by any brand listed.
If you occupy your own building rent-free, your earnings are borrowing from your real estate.
An owner who pays no rent shows higher profit than the same center would show under a market lease. That extra profit is not operating performance — it is the building's income, sitting in the wrong column.
Value the business on those inflated earnings and then value the building on top, and you have counted the same income twice. The fix is straightforward: deduct a fair market rent from SDE before applying the business multiple. That rent then becomes the net operating income you capitalize on the real estate side.
This is also why an SDE above roughly 22% of revenue is worth investigating. In most cases it isn't an exceptional operator — it's a missing rent line.
Worked example
What actually moves your multiple.
Within the band for your size, a handful of factors decide whether you land at the bottom or the top. Most of them are fixable in the 18 to 24 months before a sale.
Utilization against licensed capacity
Centers running above roughly 85% of licensed capacity command a meaningful premium — often half a turn of the multiple or more. Full enrollment is demand proof a buyer can underwrite.
Director independence
If you are the director, a buyer is purchasing your job. A tenured director who stays through transition is one of the largest single swings in the multiple.
Clean financial records
Add-backs you can document are add-backs a buyer will credit. Add-backs you assert are add-backs a buyer discounts, and a lender ignores entirely.
Lease terms and rent burden
If you lease, remaining term and renewal options are part of what transfers. Below-market rent looks profitable but reverses at renewal, and buyers price that risk.
Licensing and compliance history
Open citations, capacity reductions, or a licence that does not transfer cleanly can stall a sale entirely. State transfer rules vary widely.
Tuition position in your market
A center priced well below its local market has unrealized value a buyer can capture — which cuts both ways in negotiation. Knowing where you sit is leverage.
Run your own numbers in about a minute.
Our estimator applies these multiples and cap rates to your actual figures — business, real estate, or both together, with the market rent adjustment handled automatically. No sign-up required to see your range.
Frequently asked
How do you value a daycare business?
Multiply adjusted earnings (SDE) by a market multiple — 2.5 to 4.5 times for a single-site center. If you own the building, value it separately by dividing its net operating income by a market cap rate, with a national median of 7.11%, and deduct a market rent from SDE first so the same income isn't counted twice.
What is SDE, and how is it different from profit?
Seller's discretionary earnings is net profit plus the owner's salary and perks, plus one-time costs, plus interest and depreciation. It represents what the business produces for a single owner-operator. In childcare it typically runs 12% to 22% of revenue.
Should I sell the business and the real estate together?
Owners who hold both have the most options. You can sell them together to one buyer, sell the business and keep the building as an income-producing investment, or sell the building on a leaseback and retain the operation. Each produces a different total and a different tax outcome, which is worth modelling before you go to market.
How long does it take to sell a childcare center?
Identifying a qualified buyer can take a few weeks to a few months. From accepted offer to closing, licensing transfer is usually the long pole — it varies significantly by state and is the step most often underestimated.
Is this the same as a formal appraisal?
No. This is broker valuation methodology — an opinion of likely market value based on comparable transactions and current buyer demand, used to price a sale. A formal appraisal is a certified document prepared by a licensed appraiser for lending, tax, or litigation. Most owners preparing to sell need the former.
Why do childcare-specific comps matter?
General business valuation databases treat daycare as one line item among hundreds of industries. They miss what actually drives childcare value: licensed capacity versus enrollment, director dependency, subsidy mix, licence transferability, and the fact that most centers are two assets rather than one.
This is a general market benchmark for informational purposes, not an appraisal. Multiple ranges reflect Little Scholars Real Estate transaction experience across 70+ closings in 18+ states; cap rate and price-per-SF medians are from a database of 592 sold childcare transactions across 41 states, compiled from public records via Crexi and updated June 2026. Tuition and capacity figures referenced across this site were received directly from individual schools during our 2025 survey and are indicative of the market rather than audited operator data.