Moving house is regarded as one of life's most stressful experiences. So how much worse will it be if you're selling not just one building, but a whole business, complete with premises, staff, anxious parents and small children?
Experts agree that the process of selling your nursery can be painful, as the purchaser is likely to go through the business with a fine toothcomb - but careful planning can reduce stress to a minimum. It can also make a significant difference to the amount you make from the sale, paving the way for a sun-kissed retirement or a new direction in life.
Peers Carter, a director of STC, a broker for educational and nursery businesses, suggests that it may take as long as two years to make a nursery business really attractive to a buyer. He recommends giving some thought to the first impression created by the nursery, ensuring that it is bright, smart and welcoming. He also warns against skimping on expenditure on salaries, equipment and maintenance in order to bump up profits, although profitability is important in making a nursery attractive to a potential purchaser.
First steps
When the process begins in earnest, the first step is getting ready all the essential paperwork that a buyer will want to see. Mr Carter suggests that this should include:
* Audited accounts for the past three years
* Projections for the current and following years
* Registration documents
* Ofsted reports
* Details of staff qualifications, ages, experience, pay and benefits
* Property valuations
* Buyers may also be interested in floorplans, occupancy statistics and a breakdown of the fee structure.
David Beecham, a director of agents and valuers Christie & Co, says, 'You want to present the business in the best possible light. There's nothing worse than someone waiting for four months for some basic information.'
Peter Hemington, a partner of corporate finance services provider BDO Stoy Hayward, which advised nursery group Just Learning on its sale to venture capitalist Alchemy, agrees that it is vital to have paperwork at the ready.
'Anyone who's going to lay out a huge amount of cash to buy a business will want to be very clear that what they are buying is exactly what they think it is. They will do a lot of checking. Lawyers will go through the key legal documents, they'll check on the leases and the registrations, and that there's not been any negative press coverage. Accountants will go through your business and check the financial performance is what you have said it is. It makes sense to ensure you've got all your ducks in a row.'
Take expert advice
The next step is to seek out expert advice, both on handling the sale and on tax issues. Mr Hemington says, 'It makes sense to start with your tax advisor before you even think about a sale. You have to make sure you have got everything in place to enable you to pay the right amount of tax.
Capital gains tax isn't like PAYE, you can do a lot to mitigate it. You have to make sure you're eligible for taper relief, which means that you only pay 10 per cent of your gain on the sale of the business, rather than the 40 per cent headline rate. Nearly everyone nowadays pays 10 per cent.'
Mr Beecham suggests approaching your accountant and asking to speak to the partner in the firm who specialises in taxation. 'It is paramount for sellers to get that advice.' It is also advisable to appoint an agent or advisor to provide structured support with the sales process (see box above).
Michael Fallon, the co-founder and managing director of Just Learning, says he is approached at least five times a week by nurseries interested in selling out to Just Learning, and is looking at around 20 of these proposals. The approaches often come from nationwide agents and valuers Christie & Co or Dowling Kerr, both of whom have experience of the nursery sector, but may also come from local agents or directly from nursery owners. Mr Fallon says, 'It's useful to appoint a national agent - someone who has experience in handling the process and understands confidentiality.'
Mr Fallon says he looks for nurseries that are 'already successful': 'I'm not very interested in talking about potential for expansion - I'm interested in what's there.' Just Learning will look at both small and large nurseries and has a 'heavy bias' towards freehold, purpose-built properties.
However, other purchasers will be more interested in potential, and will consider leaseholds. Mr Beecham explains, 'The barriers to entry are far lower with leasehold properties, so a first-time buyer would probably be looking at a leasehold.'
Competitive edge
The great advantage of appointing an advisor, rather than just going with a keen purchaser who has contacted you directly, is that it gives you greater control over the process and introduces an element of competition. As Mr Carter observes, 'What sort of horse race has one horse? Competition always sharpens things up.' Mr Hemington adds, 'You can't do a proper competitive sales process without an advisor.'
Kate Dowling, managing director of business transfer agents Dowling Kerr, which has 100 day nurseries from across the UK on its books, points out that although confidentiality is crucial, a degree of openness can be very helpful in making sure that as many people as possible who might be interested in purchasing the nursery find out that it is up for sale. She explains, 'We will tailor a package to suit the market, which could involve posting basic details on our website. The agent handling the sale will then filter requests for further information.'
Alternatively, an agent may make contact with potential buyers on a 'no name' basis, inviting them to sign up to a confidentiality agreement before finding out exactly what the business is. Buyers are invited to submit bids on the basis of the information supplied and once they have entered into a confidentiality agreement, should be offered the opportunity to meet management if they wish. Potential purchasers can also be given a valuation paper to indicate what sort of offer is expected.
There may be room for further negotiation before selecting the preferred bidder. 'A very typical spread between the lowest initial offer and final price is 50 per cent,' says Mr Hemington. However, choosing the preferred bidder may not just be a question of selecting the highest offer; there may also be concerns about the culture of the purchaser, for a nursery owner is likely to want to pass on the business into safe hands.
Signing the deal
Once a preferred bidder has been selected, solicitors will be instructed and both parties will sign up to a binding exclusivity deal for a certain period of time to enable the purchaser to examine legal, financial and other relevant documentation. The new purchaser will also need to register with Ofsted before completion. The transaction is likely to take anything from two to six months.
The children's day nursery market, like the property market in general, is extremely buoyant at present, so vendors should anticipate a number of expressions of interest and, hopefully, a good price.
Ms Dowling comments, 'Interest rates are low and banks and providers of loans are bending over backwards to support owners of children's day nurseries, as it is seen as a very profitable sector.'
HOW TO SECURE A SMOOTH SALE
* First impressions count so make sure the nursery is welcoming - clean, bright and well decorated.
* Keep your staff happy because buyers will want the reassurance of a settled workforce. Low salaries will set off warning bells that staff will be hunting for higher paid jobs.
* Get a sound management team in place to reassure the buyer that the nursery will continue running smoothly.
* Continue to make plans, market and invest in the business to show you have faith in the nursery's future.
* Ensure paperwork is updated and in order so potential buyers can easily access all the information they need. Make sure all tax affairs are up to date.
* Employ a sales agent that has expertise in the nursery sector. Clarify confidentiality arrangements and check what fees will be charged and when - will there be any upfront costs? Fees are likely to be linked to the value of the nursery.
* Don't rush the sale because applying pressure can scare buyers off or reduce the sale price.
SOLD.
The Butterflies Day Nursery near Cheltenham, Gloucester has recently been bought by Mr and Mrs Bullough. Business agent Dowling Kerr acted on behalf of Mr and Mrs Otter who started the business eight years ago while bringing up their young family.
The 29-place nursery had an asking price of 295,000 and produces fee incomes in excess of 170,000. It is located in a pleasant detached property in the expanding village of Bishops Cleeve.
For further information contact Dowling Kerr valuations director Andrew Coulter, tel: 0870 750 5021.
SOLD.
Business agent Dowling Kerr has recently sold Providence Day Nursery in Halifax, West Yorkshire. The business was sold for an undisclosed figure close to the owners' asking price of 349,995.
The 34-place nursery generated a fee income of 174,609 in 2001. This was an increase on previous years and projections for 2002 were set at Pounds 190,000. The spacious property is set in landscaped gardens.
Dowling Kerr valuations director Mr Coulter said, 'It's a fantastic opportunity for anyone as the business is one of the leading nurseries in the area. We're sure that the new owners will capitalise on the reputation and further improve profitability.'
For further information contact Dowling Kerr valuations director Andrew Coulter, tel: 0870 750 5021.
SOLD.
South Wonston Nursery School in Hampshire has been sold through the Winchester office of specialist business agents, Christie & Co. First-time buyer Anita Francis bought the nursery from Barbara Forster who had operated the business for five years.
The village nursery was established in 1980 and occupies a purpose-built, single-storey property with enclosed outdoor play area. It currently has 48 children on its books.
Charles Phillips, who handled the sale, said, 'The level of interest shown in this business was tremendous and there is still a strong demand from applicants for nurseries of a similar size throughout Hampshire and southern England.'
For further information contact Charles Phillips at Christie & Co's Winchester Office, tel: 01962 844455.
SOLD.
Striking ABC Children's Day Nursery in Perth is based in part of a handsome A-listed Georgian terrace overlooking North Insch public park. The 38-place nursery, which is arranged over two floors and has a private rear garden, was recently sold to Arthur McLean.
Christie & Co care negotiator Alastair Strong acted on behalf of Agnes Crighton. He said, 'There has been an on-going demand for good quality nursery businesses this year and we had enquiries from as far away as the south coast of England as well as local interest.'
Contact Alastair Strong at Christie & Co's Edinburgh office, tel: 0131 557 6666.
