Key industry stats
Classified under SIC 8351, there are slightly under 149,000 day care centers operating in the US alone. The industry as a whole generates over $19.9B in annual revenues.
Despite the growing presence of large chains, the average day care center is small – producing some $100,000 in annual sales with about 7 employees. These businesses are labor intensive – to produce some $3,000,000 in annual revenues, a typical day care center employs 50 – 100 staffers.
Day care centers employing fewer than 25 staff are responsible for $9.7B in revenues – over 49% of the industry total. While the industry is quite fragmented, the entry costs tend to be high due to considerable investments in the facilities required.
Top 7 factors affecting the value of daycare businesses
Day care centers which command the highest valuations tend to exhibit the following traits:
- Size makes a difference. The most valuable day care centers have a licensed capacity of over 100.
- Attractive location – both the interior and grounds.
- Rent expense within 10% of business gross revenues.
- Long-term, skilled staff.
- High levels of historic and current enrollment.
- Percentage of business revenues covered by state subsidies.
- Relatively high proportion of educational programs offered.
Business valuation methods for day care centers
As with any small business, you can determine the value of a daycare center using a number of business valuation methods.
Valuation multiples
Day care centers are frequent business acquisition targets. You can use existing business sale comps to get a good idea of what a day care center is worth. The most commonly used valuation multiples, or ratios that relate the business’s value to its financial performance, are:
- Business sale price to gross revenues plus inventory.
- Business sale price to seller’s discretionary cash flow plus inventory.
- Business sale price to EBITDA. Inventory is added separately.
The valuation multiples based on the business gross revenues offer you the most accurate estimates of business value in this industry. We study the differences between the different multiples to determine the pricing trends for businesses over time.
What you can do with valuation multiples
You can use the valuation multiples derived from comparable day care business sales to value your own company. Apply valuation multiples to business financial performance factors for accurate, defensible business appraisal.
What our analysis shows is that for privately owned day care centers using the gross annual revenue as the basis, you get the business value estimates with the least spread between the low and high values. In contrast, the business value estimates based on the discretionary cash flow show spreads almost twice as large.
Since these valuation multiples are derived from actual business sales, this means that business buyers and sellers tend to rely on the business price to gross revenue valuation multiples when pricing day care center business sales.
Valuation multiples, business sale price and terms
As a rule, valuation multiples do not account for the way a business sale is financed. That is one reason there is a spread between the low and high values. Seller financed deals tend to price higher than all-cash business sales.
An average day center business purchase includes seller financing for about 30% of the contract purchase price. Typical seller notes have a term of 5 – 7 years with an average of 8% annual interest, fully amortized. You can expect a business sale price that is 20 – 25% higher with such financing compared to an all-cash transaction.
Valuing a day care center business based on its income
Small day care centers are typically owner-operator managed. A well-run business in this industry tends to have rather steady income levels. For such businesses, the Multiple of Discretionary Earnings business valuation method is a great choice.
You can calculate what your business is worth based on its earnings and a set of key financial and operational performance factors. In addition to calculating the current business value, you can use this well-known method to plan a number of changes that can increase your business worth.
Business goodwill valuation for established day care centers
Well-established day care centers develop considerable business goodwill. You can calculate the value of business goodwill using the Capitalized Excess Earnings method.
This is very useful if you plan to buy or sell a day care center and need to allocate the business purchase price among its assets in a tax-advantaged way.
For a mature industry, commercial printing shows surprisingly low consolidation. There are, for example, some 31,750 lithographic printing establishments in the US alone. This printing industry segment generates an impressive $45B in annual sales and employs nearly 345,000.
Yet an average commercial printer is a small business – making $1,500,000 in annual revenues and employing 11 staff. Commercial lithographic printers with fewer than 25 employees account for 92% of the total businesses in their segment and generate over $16B in sales. Small owner-operator managed printing shops thrive alongside the much larger competitors!
What makes a commercial printing business worth more
No two printing businesses are the same. For a small printing operator, finding a profitable, defensible niche is very important. A number of factors can make your business worth more:
- Business size. Larger commercial printers tend to be more valuable.
- Profitability. Valuable printing companies tend to have operating profits topping 10 – 15%.
- Industry segment. Lithographic printing businesses are the largest segment with good growth prospects. Another valuable industry segment is digital printing.
- Low customer concentration. To maximize your business value, your top 5 customers should not exceed 10% of total revenues.
What valuation multiples are used to value printing businesses
Established commercial printers are frequent business acquisition targets. You can use the selling prices of similar printing businesses to come up with a number of valuation multiples to estimate your business fair market value.
Our analysis of the private printing business sales shows that the following valuation multiples provide the most accurate business value estimates in this industry:
- Business selling price to gross sales plus inventory.
- Business selling price to seller’s discretionary cash flow plus inventory.
- Selling price to annual EBITDA. Again inventory is extra.
The EBITDA based valuation multiples tend to give you the business value estimate with a higher spread between the low and high values. One reason for this is that the available cash flow in a commercial printing company is affected by the capital expenditures, such as new equipment purchases. While EBITDA includes the depreciation charge, it does not account for the annual “capex” outlay directly.
Generally, the higher your business EBITDA and the lower the capital expenses, the higher the EBITDA based multiple. This is especially true for commercial printers grossing over $2M in revenues.
Valuing a Business: Market Comps
Other business valuation methods for commercial printing businesses
As with other small businesses, commercial printers can be valued using a number of income and asset based business valuation methods. For owner-operator managed printers, the Multiple of Discretionary Earnings method is a frequent choice. This well-known method lets you determine the value of your business based on its earnings and a set of financial and operational performance factors.
For a well-established commercial printing business, the Capitalized Excess Earnings method is a good choice. You can calculate the value of your business and its goodwill – an important part of what makes a successful business worth more.
If you are looking to sell to a larger competitor, a group of investors, or need a very accurate, defensible business appraisal, consider using the Discounted Cash Flow method. You can determine what your business is worth directly from its earnings forecast and risk assessment.
Retail bakery industry – top statistics
The bakery industry has deep roots in the economy with a number of established players. In the US alone, there are some 9,600 bakeries classified under SIC 5149 and NAICS code 311811 that generate just under $28B in annual revenues.
While the market is dominated by a few big competitors with the top 5 responsible for almost 50% of the total sales volume; some 7,000 small, privately owned bakeries compete successfully.
Large bakeries may employ over 100 employees and do some $50M in business each year. Yet a typical retail baker is a small business with just one location, an average staff of 11, and $5,500,000 in annual revenues.
Business value drivers for a retail bakery
To be successful and increase their business value, bakery owners pay special attention to a number of key factors:
- Equipment. Good automation helps reduce direct costs including labor. However, new equipment can be very expensive, which deters new competitors.
- Labor costs. Bakers often work during early hours. This tends to increase labor costs due to small available labor pool and higher health insurance costs.
- Product differentiation. A growing trend is toward production of specialty baked goods such as artisan breads, and products for the health conscious consumer. Small bakers can excel in this market place which tends to be less price sensitive.
- Cost-effective materials procurement. Successful bakers manage their material costs to within 20% of gross sales.
- Effective distribution. Making your products available on time through the right outlets to the target market is essential for success.
Valuation multiples that work best for valuing a bakery business
Many small bakeries are family owned with business ownership passing from one generation to the next. Nevertheless, bakeries do sell so there are business sale comparables you can use to estimate the market value of these businesses.
Typical valuation multiples used to assess the value of a small bakery are these:
- Business selling price to gross revenues plus inventory.
- Business selling price to seller’s discretionary cash flow. Again, the inventory is extra.
To come up with the most accurate estimate of business value possible, you may consider using a number of valuation multiples based on business revenues, gross and net profits, EBITDA, cash flow and assets values.
Business Market Values across 420 Industries
Valuation multiples with the smallest spread offer reliable business value estimates
While you can use any number of valuation multiples to estimate the potential business selling price or market value, the best estimates come from the valuation multiples that tend to “cluster” around the average value.
What this means is that business owners and buyers in your industry rely on these valuation multiples more often when pricing a deal. Since the market is seen by many as the ultimate arbiter of business value, you should pay attention to these valuation multiples when calculating your business worth.
Other business valuation methods for bakery appraisal
For family owned and run bakery businesses, the Multiple of Discretionary Cash Flow method is the most common way to assess business value. The power of this income-based business valuation method is in its ability to account for a number of key financial and operational business performance factors that affect directly what the business is worth.
Business Valuation: Multiple of Earnings
For larger, multi-site bakeries, the Discounted Cash Flow business valuation method is the preferred choice. This well known method lets you treat bakery valuation as an investment project, factoring in the business earnings and risk in your calculations.
Valuing a Business: Cash Flow and Risk
To get an accurate, defensible bakery appraisal, your business valuation model should include a number of different methods.
Whether you are valuing a business by yourself or engage a professional business appraiser, a business appraisal report is a typical work product you get.
Such a report does more than summarize the business valuation results – it clearly defines what business ownership interests are being valued. Importantly, it also shows the key assumptions and judgement calls made by the business appraiser.
Now, as a busy business person you may be tempted just to glance at the business valuation result, decide if it is reasonable, then file the report.
Nothing wrong with that, but there is more to be gained from a well-prepared business appraisal report. If you plan to share your business appraisal with others, it is likely they will have questions about your conclusions. On occasion, they may even challenge your business valuation results.
The reasons any business appraisal can be questioned
Business appraisal deals with the business’s future economic prospects. This necessarily requires that you make a number of assumptions. And these assumptions mean that you, or the business valuation expert you hire, make educated judgement calls in order to reach the business value conclusion.
Needless to say, the reader of your business appraisal report may disagree with some of the assumptions contained in the report.
- Are the business sale comparables really comparative to your business?
- How realistic is your projection of the future business income?
- Have all the elements been considered when assessing the company risk?
- Why were these business valuation methods, and not others, chosen to calculate business value?
Typical business appraisal accuracy
Even the most thorough business appraisal will depend for its accuracy on some “leaps of faith” that will affect the final business valuation outcome. So two equally skilled business appraisers will likely come up with different valuation results.
How different? It is not unusual to see a difference of around 20% – 25% between professionally done business appraisals of the same company. In fact, an increasingly common practice in business appraisals is to report the result as a range of business values.
Business appraisal results are useful – if you can defend your assumptions
So if you meet with a healthy dose of skepticism when sharing your business appraisal results with others, you will appreciate why your business appraisal report contains more than just a number.
To use your business appraisal results effectively, spend a bit of time to understand and be prepared to defend the assumptions that drive your business value conclusions.
What’s in a Business Appraisal Report?
