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Buying and Selling a Childcare Centre

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Childcare-Centre-Article

Buying and Selling a Childcare Cenre


The Vendor

It is vital to prepare for sale of the business and get the ‘house’ in order before heading off to a broker or agent to ensure a smooth process and maximise the best return. By preparing your business for sale, you will more likely secure a buyer and achieve the best possible outcome.

The following issues need to be considered:

1. Tax Implications:

Understand your tax liability before you accept an offer, including access to any small business capital gains tax concessions (CGT)and rollover concessions. This may affect your decision to accept an offer and also ensure you know what the approximate “net” amount in your hands will be after tax!

2. Regulations:

Is your business compliant? Has there been a recent audit of the Business its financial records, systems and compliance.

Does the Centre meet the DEEWR’s National Quality Framework (NQF) and National Quality Standards (NQS)? In relation to Education/Child Ratios, meet the quality improvement plan. The assignment and rating of the Centre as against the NQS and National Regulation will add significant value to the business.

3. Employment issues:

Are your employment agreements with staff and management in place and do they comply with the relevant awards and Fair Work Act Requirements?

Have you taken into account any adjustments for long service leave and accrued annual leave that may need to be set off from the Purchase Price or a sale of the business transfer of employee obligations do need to be considered on a sale of the Business.

Substantial long service leave obligations will mean a substantial reduction from the net proceeds of the sale price.

4. Lease:

Is your lease current? Are your options exercised? Does the landlord hold a cash or bank guarantee as a security deposit, which needs to be released and/or adjusted at settlement?

5. Financials:

Are your financials up to date with supporting management accounts to enable the purchaser to undertake its financial due diligence efficiently?

6. Local Planning Regulation

  • Does the business comply with local health act, food and safety regulations, planning and other council requirements for operation of the business?
  • Are there any adjoining developments or road widening proposals or future freeway developments that may impact on the Business value to the future.
  • Are the business assets leased or financed? Are there any PPS security interests registered over the assets that need to be released to ensure the Buyer gets clear title.
  • What impact will non compete clauses have the Vendor or its Directors on the sale of the Business.

7. Changes in the Child Care Industry

  • The industry is changing with many overseas companies and larger well funded companies seeking to expand in the industry. Make your business an attractive target

Conditional Contracts

Avoid entering into contracts that are ‘subject to finance’ if at all possible. A contract will be subject to a due diligence period, transfer of the lease and DEEWR approval.

We often find that considerable time and cost is spent entering into and negotiating a contract ‘subject to finance’, and the buyer ultimately does not obtain finance and walks away leaving the Vendor disillusioned and carrying considerable accounting and legal costs.

Heads of Agreement

Marsh & Maher have the industry knowledge and expertise to assist vendors to ensure the smooth and efficient sale of their business.

Often agents will have parties enter into a Heads of Agreement or Memorandum of Understanding (MOU) or Terms sheet. These can be useful in larger transactions. However there are tricks and traps in relation to these agreements and you need to have your lawyer and accountant involved even at that early stage to review the document.

They can be intended to be legally binding or may be expressed to be not legally binding.

It can often be difficult to negotiate formal terms into the formal contracts if they are not in the initial MOU or Heads of Agreement.

Summary:

These are just a few of the issues to consider well before the business is placed on the market. There are a number of special Child Care Centre brokers and agents in the industry and it is recommended to use them. Work with your agent, accountant and lawyer well before you plan to sell to ensure you are well prepared for the sale process.

The Buyer

From the buyer’s perspective, this may be one of the largest acquisitions they will make. Here are some tips for buyers:

Finance

  • Ensure that your finance is in place and approved. This will put you in a better negotiating position.

Company Structure

  • Consider the best corporate structure to acquire the business, to distribute profit in a tax effective way and to access the small business (CGT) concessions on eventual sale and protect your personal assets.
  • Are you able to obtain a licence under the National Quality Framework Scheme.
  • Are you a fit and proper person to operate the centre?
  • The establishment of a new centre may involve far more time and compliance than purchasing an existing facility.

Preliminary Investigations

  • Conduct your legal and financial due diligence before committing to an unconditional contract. The issues discussed under vendor issues are the very matters that a buyer should focus on.
  • The vendor’s lawyer or business broker will often prepare the contract, which needs to be carefully reviewed before signing. The primary role of your lawyer and accountant is to identify tax and risk issues before you commit to the purchase.
  • At the same time, undertake financial due diligence in relation to the financial viability of the business, and have the financials independently reviewed by your accountant.

Size does matter

  • A key issue with child care centres is the size of the facility, which will determine the profit. Conduct cash flow projections to ensure that there is a return on your investment and the business will allow the owners to draw a reasonable salary for their time and effort. If the numbers don’t work, don’t buy it!
  • Get the right advice from experienced advisors to limit your risk.
  • Know your market, do research on your competition and existing child care centre. Is it in a urban growth corridor? Have you undertaken enough demographic research?

Marsh & Maher Lawyers have acted in the sale and purchase of child care centres and also have expertise in Pharmacies, Medical practices, Optical and Physiotherapy practices, and Allied Health Care profession for the past 30 years.

We have the knowledge and experience to assist you through the process.


Robert Toth
Partner Accredited Business Law Specialist
T: 03 9604 9400
F: 03 9600 3313
E: rxt@marshmaher.com.au

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