If you are a school owner thinking of selling your school, there are several factors that you will have to consider. Without a proper plan, it would take longer and the process might get needlessly complex. This is true whether it’s a childcare center, preschool, K-12, or any other kind of school, even those with a single location.
Selling a private school is like selling any other business asset although there are additional aspects that you will have to consider. At JAG Consulting Services, we often advise our clients who want to sell a school to think in terms of a series of questions. This brings greater clarity to the process and avoids confusion at later stages.
If you too are considering selling your private school, these questions will help you sell it quickly, successfully, and at the valuation that you would have in your mind.
10 questions to ask when you sell your private school
The first question is about the financial viability of the proposed sale. In other words, what are the earnings that the school will give you if it continues to operate as it does today? Would the income be on a higher trajectory or hit a plateau?
Is the present value of all future dividends or distributions net of taxes greater than the price you would get after paying taxes and advisors in the process? This would tell you whether the sale would make economic sense.
Do you have a plan to invest your money? Will it be an investment in a business or are you looking at a passive stream of income as the stock market, for example? What will be the rate of return of your sale proceeds?
If there are multiple owners, have you had a conversation with them? Are these individual investors or institutional investors? If it’s the latter, you would need to start those talks early.
The question of sale usually arises when school owners face any of these problems:
To sell or not to sell can become a real dilemma for some school owners. If your school faces any of the above problems, it could be time to sell your private school.
Timing is of exceptional importance if you decide to sell a school. It’s necessary to start the process at the appropriate moment, considering that the transaction will take some time.
The right time to sell a school could be influenced by internal factors (if you are getting close to retirement) and external factors (new competitors entering the market or appetite from potential buyers).
Does the school have all key documents about its operation readily accessible? Do you have a reliable data system in place to produce recent financial statements, payroll registers, enrollment information, billing information, student lists, etc.?
What are the key add-backs and adjustments to the income statement to calculate the adjusted EBITDA? What might be the tax consequences of the sale under different price scenarios? When you consider these, you will be better prepared for the sale process and increase the probability of a successful transaction.
Unless you have already closed several business sales by yourself (perhaps with your attorney and tax consultant), you should always hire an advisor. The value of working with JAG Consulting Services is that you can focus on running your business, save yourself the stress of the process, and bring onboard a team with domain expertise and significant experience in the process.
Even though most school sales take the form of asset sales, the sale of a school can take the form of a shares sale as well. If the sale takes the form of an asset sale, you will be selling all the tangible and intangible assets of your school.
When the transaction takes the form of an asset sale, then, after closing, you would keep your corporation or LLC, with the assets and liabilities not included in the deal. If the deal becomes a shares deal, then you would be selling the shares of your corporation or the membership interests in your LLC.
Asset and share deals have different tax implications. Once your advisor does a valuation of your school and an appraisal of the real estate, you must consult your tax advisor regarding the tax implications of selling your school under these different scenarios.
Most transactions in our marketplace involve selling 100% of the school. However, we also run into situations where the seller wants to bring in a minority or majority buyer. This usually happens if they are looking at capital infusion or proceeds to invest elsewhere.
If you bring a majority or a minority buyer to your school, most likely, your transaction will become a securities transaction subject to federal and state securities laws.
As you can see, whether it’s a preschool or K-12, selling a private school can be a challenging process. This is especially true if you have no prior experience in the sale of business assets. That’s why it helps to have the right advisor.
The professionals at JAG Consulting Services are here to guide you every step of the way. With practical experience and domain knowledge, we will ensure that the process is fast, seamless, and productive.