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All It's Quacked Up to Be
All It's Quacked Up to Be
Legacy in Transition: How to Pass the Torch for Your Multi-Site Childcare Business
Transitioning ownership of your childcare business involves more than just handing over the keys to the building. Join Kathe Petchel, ECE Expert, Multi-Site Business Owner, and Business Development Specialist at Hinge Early Education Advisors as she shares her experience helping other multi-site owners develop an exit strategy for their business as they step out of the day-to-day operations and bring in new leadership.
Whether you plan to entrust your business to a family member, a team member, or a new business partner - it's important that you know how to successfully make that transition without sacrificing your personal relationships or program quality.
Full webinar recording: https://youtu.be/gdMAszi8zTs?si=x4B6uSVUf62seOZR
Thanks for tuning in to All. It's Quacked Up To Be a podcast by LineLeader for early childhood education owners, directors and executives, as well as out-of-school time and enrichment providers. I'm your host, sierra Rossing, the head of marketing at LineLeader by Child Care CRM. Today's episode is a recording from one of our most recent webinars and is available on our YouTube channel, conveniently called Line Leader, in a video format. Otherwise, if you'd prefer to remain in the audio only version, I hope you enjoy the key takeaways and industry insights from today's episode.
Speaker 2:Center is to figure out what your exit strategy is, and I totally believe that you should always have your options in mind. So first, just a little bit about about Hinge and about what we do. Ultimately, we sell schools. We sell schools that are successful and we sell schools Many times multi site, but not necessarily could be be one site. Also, we also help you if you're needing a little bit longer of a runway, helping you to plan that exit as well, as maybe you're having some little bumps and we're going to talk in a minute about the five pillars we have Things to have in place, no matter if you're exiting or not. Honestly, whether you're exiting or not, this content and conversation should help you shore up something in your business and hopefully you leave with one or two or more really good ideas that you can implement right away. So we one thing we do to get you ready is do business valuations, and it's something I recommend highly that you have. Obviously, I think Hinge do it because we're industry experts. You can go to a bank and I know SBA groups and whatnot do valuations, but they're not going to be necessarily specific to the childcare industry and then other business seller experts that aren't experts in childcare could do it as well. But I would always want you to have someone that's very savvy in early childhood and sort of our percentages and recommended best practices, do evaluation. It's a good time to do it now if you're exiting in a couple of years. Also, if you're trying to grow right now it's a good time to do evaluation so you kind of know where you are and what one or two recommendations we might have. We also have amazing buyers. We curate our buyers and I like to say we're matchmakers and it's really important because if you're a multi-site owner in Texas like Sierra, if you're a multi-site owner in Texas like Sierra, you might have a certain notion of the type of buyer you'd like. Where I'm in Virginia, I might have a different type. So we'll get into that in a bit and then you know we're obviously our ultimate goal is to help you have a successful transaction, no matter when it is, and we, you know, help you. Again, like I said, the runway going forward.
Speaker 2:As Sierra said, I do the business development specialist piece at Hinge along with one of my colleagues, chirag Patel, who's also I love him, he's amazing Also multi-site owner right now. So we bring sort of the day-to-day to you and I do tons of speaking. I know there's quite a few multi-sites here and some of the larger groups love to come and talk to your group about all different aspects of best practices, particularly working with the owner level or the exec director level. I am a multi-site owner and one thing I always talk about is being engaged with your association. I'm a board member on the Virginia Child Care Association and I try to attend as many ECEC meetings as possible. They're typically about once a month. They do an amazing job. But to just be engaged with our community and knowing what's happening from the regulatory stance the grants you know obviously running out or completely out or redone in different states Just really being in the know with people in your state that can give you access to information nationally as well. I do a lot of work with other associations, lots of speaking for them and then certainly happy to do consultations. In fact I think I have a slide at the end giving you my information and letting you know I'm happy to do a one-on-one, confidential, because obviously it's very confidential if you're considering selling. And I love outdoor classrooms, love, love, love. I'm actually certified in outdoor classrooms as well, so so fun.
Speaker 2:Just a little bit more about Hinge following us. At the end, I'll give you a slide about our shift event that is always highly anticipated. This year it's going to be in Santa Barbara, california, but I'll tell you more about that. And if you wanna scan these QR codes just to follow us and stay up to date with all things Hinge, that would be amazing. So today's agenda I'm going to talk briefly about the state of the industry.
Speaker 2:No matter what content I'm doing, I always talk about the state of the industry because it changes and because at Hinge, we talk all day, every day. There's about 21 of us now. When I joined Hinge in 2017, I think we had six, so we've, you know, tripled, and so we see and hear things all day, every day. That's all we do and that's all we talk about. I'm getting ready to go to Louisiana to speak at their conference this week. Can't wait to hear a little bit more about what they are doing. I'm speaking for to go to Louisiana to speak at their conference this week. Can't wait to hear a little bit more about what they are doing. I'm speaking for North Carolina tomorrow.
Speaker 2:Really, try to stay in the know with what's going on in the states and the state of the industry is really helpful for you all to have a little bit more information. Then we'll talk about hinges five pillars. Those have to do with no matter where you are in your business. Maybe you're growing, maybe you're growing, maybe you're thinking about selling. Maybe you're going to sell in 10 years. Maybe you think you're not selling at all and you're going to pass everything on to your second generation or third generation. You want to be ready for an exit if opportunity knocks. You want to be able to answer and have that option. So we'll talk considerations. You've got options buy, grow or sell.
Speaker 2:We'll talk specifics about each of those categories. I think it's helpful for buyers to know what an owner might be thinking or what we're coaching owners on, because that's going to help them as they make assessments on their purchases. They're going to be very strategic and we want to set you up for the best success. A typical transaction process. I'll talk very briefly about that and then give you a few recommendations. So hopefully that sounds good and I see people are chatting away, so I love that. At the end, sierra will jump in and help me, pitching me some of the questions If we run out of time, I'm happy to answer them via email or pop on a phone call with you, so don't worry if your question does not get answered.
Speaker 2:Okay, so we'll start with the state of the industry. It's all very positive, mostly. Childcare opportunities abound, despite the challenges. So the demand from parents for childcare services is very high, partly because they say they about 20% of childcare slots were lost during and after COVID. That statistic does include family day, so it's a little skewed for our purposes, but regardless, I think most of you know there's been centers in your area that closed and never reopened, which is going to give you some really good opportunities that I'll talk about in a few minutes.
Speaker 2:Transactions are in big demand. That means that buyers are being aggressive. I love to say this we showed other industries the way. At the beginning of COVID and obviously throughout COVID, we were the ones that stayed open. We figured out about how to sanitize, how to navigate, especially in the early days of COVID, where the public schools just pretty much lickety-split, closed and stayed closed for quite a while, depending on what state you're in. You're still struggling with that a little bit. I'm looking at you, california. But the demand stayed high and even though some of the statistics I'm reading right now birth rates are declining, and that's something interesting I'd love to talk about at another point. So transactions are in big demand.
Speaker 2:Strategic decisions are necessary due to loss of funding. That's all about sort of the scary child care cliff. Is there a child care cliff? What are we doing about it? Did you shore up funds you got from grants and the PPP and so on, and were you strategic about the use of them? Or did you get backed into a corner with handling, you know, maybe staff raises or putting funds toward things you might regret now? So if you were very strategic when the grants ended and the government funding ended or is ending, you're in pretty good shape, especially if you're able to successfully hire and then take those enrollment kiddos that are available due to other centers closing. So it's really a big cycle.
Speaker 2:Labor challenges are getting all of us. I've never paid more and had to train more. It's crazy and it's very challenging, but if we can get through it, I think we'll be obviously way better If we can figure out how to work with Generation Z in particular, but also millennials and they and by 2025, gen Z should be about 30% of our workforce. Some statistics show it as more than that. So that's part of everyone's challenge is, if you're a baby boomer or an X generation, you're really struggling with labor right now. Possibly it's just different mindset, different point of view and challenging, so that's something we're seeing everywhere. Of course, the economic and political uncertainty. It's an election year, I'm certainly not going to get into that, but except to acknowledge things change. Interest rates usually change. There's economic changes that just naturally happen. Also, we know our economy, you know possibly due for some type of reset with, you know, with the economy. So those go in cycles. Again, this isn't an economic or political discussion, but it is a factor that could be challenging us.
Speaker 2:Operating models are experiencing profound shifts. I'm going to look back up at the labor costs, as you know. The first one is you know we're paying a lot more for staff and we're able to charge more with the parents, but we feel like that's reached a ceiling now that probably if you and I'll talk in a minute more about what you should be charging and how to do that and then the cost model is reinventing, so everything to do with how we're doing our budgeting is changing as well. Okay, so first things first. This is an overview of our five pillars. Our five pillars talk about if you get these five things right, you're 90% of the way there to a profitable center. Want to be profitable, so you have options. Maybe you're going to be profitable and grow your school. Maybe you'll be, you know, solid. You don't want to have a situation where you're backed into a corner, you're out of funds or you have not planned for the future. So these are the five areas we talk about and I'll give you exact percentages and recommendations.
Speaker 2:Again, so much of it depends on your demographics, the area of the country you're in, the profile of the families. Are you taking a lot of subsidy? Are you mostly private pay? Are you combining Some staff? Have some owners have staff that you know are have been with them 20 years or more, and so they're naturally being paid more. Maybe they need some extra training. So all of those things factor into how can you be the best center you can be to how can you be the best center you can be? I like to say no money, no mission, and that's because it's almost like every time you have 10 more kids enrolled in your school kind of solves everything. Initially, you can pay a little bit more, you can buy more things, you can shore yourself up to have time to grow your school, and so on.
Speaker 2:So the five things are occupancy, number one. If you don't have that right, everything else really doesn't matter because you don't have the children. Tuition rates we'll talk about Discounting or doing away with most discounts. I'll talk to you about that. Salary costs I've already alluded to several times, but I'll give you a little bit more specifics on that. And then facility costs. While they may seem stable and insurmountable to change, there are strategies there. Ok, so pillar one we talk occupancy. All the other pillars are dependent on a healthy occupancy. That means as many FTEs as you possibly can.
Speaker 2:One thing, too is well, let's talk first enrolling to capacity in every classroom. So if you're not a capacity in all, maybe 10 or 15 of your classrooms you really want to take one or two groups at a time by. You know, eat an elephant one bite at a time. So if capacity is your issue, if occupancy is your issue, go ahead and start that slowly. Many times people are telling me they've got infant wait lists and the only reason they're not full there is, or any age group, honestly, is because they need staff. So if all you do every day, all day, or have someone else on your team or a temp or a sub agency help you in the classrooms and with your quality, for the students you have and you focus, laser focus on hiring, that's the strategy to do first, because that will get you faster, further, faster to have capacity in your classrooms.
Speaker 2:One thing I like to coach on and I just was talking to my directors about this yesterday actually is don't miss a tour and keep enrolling. I mean, hello, line leader. I've been a fan when it was Child Care CRM and Chuck was the original person that trained me, so I'm an OG for line leader. But really knowing that part is really important. You don't necessarily have to say that you've got the opening or the enrollment spot right now, but get them in, get them excited about what you're doing and get them on that list and then stay in touch with them so that you're ready to go when you've got those teachers in place and trained. So enroll to capacity in every classroom.
Speaker 2:Focus on classrooms with the greatest potential for profit. That's pretty easy because you may only need one or two children in a three or four-year-old room, pre-k room. Obviously those are more profitable than, say, an infant room. An infant room is what we would call a loss leader. It's great to have because typically maybe there's an older brother or sister or the family is just starting with you just moved to the area and just starting their family, so there'll be more little sweet peas coming along. So that would also be good potential. You maybe want to survey your families and even your area after tours to know what the demand is. You know that's another conversation for another day. But really having that data on what the demand is you know that's another conversation for another day. But really having that data on what the demand is.
Speaker 2:Focus on full-time enrollments. I don't love half day. I don't love drop-in. Some people love it and they fill in gaps. I know some schools I'm looking at my friends in Michigan, the Learning Tree they'll send out emails in the morning if they've got kiddos out and allow parents to drop in at a day. Great strategy, fantastic. If you've got the staff for that, wonderful. But in general I like to enroll five day full time. I'm in a somewhat higher market in Charlottesville Virginia market in Charlottesville Virginia.
Speaker 2:I say to my teachers and my parents. We want to get to know you and your child, we want you to be part of our school family, and so, five-day full-time I only allow five-day full-time infant through toddler and then allow three or five-day older kiddos and I build it out that it's the school community and we want to know your child. The other way you can do it from the financial end is and you guys, I know most of you know all this pairing part-time, three-day full-time and two-day full-time and make sure you're pricing both of those up a little so that that total five-day is more than a regular five-day full-time student. And that's because it's twice as much work. It's twice as much work for the teacher, it's twice as much paperwork, it's twice as many parent-teacher conferences, complaints, phone calls and so on. So that's why I would bump that up and that would be a very solid strategy.
Speaker 2:Pillar two this is about tuition. It's very important to set your tuition rates at what it costs to operate. And I say this too Please let your parents know that we will charge what it costs to operate a quality program. So if it costs a little bit more, that's why and then definitely shout from the rooftops I don't think we do a good job, as owners in general, of bragging about ourselves, bragging about the quality of our staff. Anytime you're doing a tuition increase, you always want to filter it back to what are you doing for the staff or what are the staff benefits, or why our staff are so amazing and they're paid at a higher rate at the market maybe than other local centers. Make sure that you're talking about why you're doing what you're doing. We like to see you at or near the top of your market in terms of tuition rates.
Speaker 2:And then the other piece I don't know why we don't say this enough, but I think we should is make sure you're collecting the tuition. So it's fine to do a tuition rate, but when those families are not paying, or you've got social services families or subsidy and so on and you're not staying up to date on, maybe, what the parent portion is, if you handle it that way, or your paperwork is not done exactly the way the agency wants, those are things that basically you're just giving away care, so we don't ever want to see you do that. So set tuition rates at the top or higher part of your market. Make sure you're collecting and those would just be reports you're going to run about who owes you what, and we highly recommend you don't allow children to stay after one to two weeks. And then grandfather strategies If you determine that you need to raise rates, you're going to maybe this is just a suggestion raise rates and maybe no one will complain. Or if you know your clients, maybe you're going to legacy in grandfather. In your legacy, families that have been with you two, three years maybe have two or three kiddos. Maybe you can let them keep their regular rate and what I say on this is as long as they're paying their tuition on time, because grandfathering in and giving someone a lot of grace should be a two way street. You know you're acknowledging how supportive they've been of you and your program, but they do need to pay, so don't forget that part. So pillar three, discounting.
Speaker 2:This is one of my favorite ones to talk about because so many people are doing this still and it can make such a difference. I did. I helped with evaluation on a center that had about 300 or so kiddos, very large center, multi -generation, so it's a mom that was started the company and the daughter that's now running it Mom's kind of old school. Oh, the families need two weeks vacation. You know, because that's how she's always done it. And I get that because my daughter and son-in-law are taking over my company and so sometimes we butt heads on. This is how we've always done it and it works, and why should we change? It's just one of those foreshadowing of one of the slides coming up about some of the second generation issues, anyway. So the mom is digging her heels in and I said to the daughter if you eliminate those vacation days, you would have about $300,000 more on your bottom line and her job, her job dropped, and so when we're doing evaluation and you're thinking the multiple on that, that is a lot of money she's leaving on the table. So you can legacy in the families that have been there a while, but at the very least for family vacation days you would going forward, not allow them.
Speaker 2:The staff discounts just to go to the top of the slide, the staff discounts we want you to keep or even increase. That's a really good strategy. We're the only business that can allow people to bring their child to work in a wonderful setting and, you know, be engaged with their child from a school community setting and also, you know, helping their pocketbook, helping their family budget. So if you've got staff that have kids, typically industry standard would be a director would get full-time free childcare and an assistant director maybe 75% off. Teachers, typically 50% off. Sometimes we see maybe if you're multi, multi-site and I know I've got a lot of multi-site friends on this call If you're multi-site you might limit three teachers per location or two teachers per location.
Speaker 2:You want to really weigh what's more important. I think it's more important to have really good quality staff. So I would be more generous on that. But I'd let go of those freer vacation days. I would let go of multiple kiddos in the family. We're not doing 10% less care for the second child now, are we? Of course we're not, and that sounds a little sassy and you probably wouldn't say it quite like that to a parent. But we provide great quality care for all ages, all kids, provide great quality care for all ages, all kids.
Speaker 2:And then subsidy eliminating not necessarily eliminating subsidy, but families that are not doing their co-pay or if you're really having trouble with that paperwork. Those are the kind of and that's not really a discount actually, but just really looking at your subsidy and how you can navigate that and that might be outsourcing somebody to really keep up with that paperwork. And then industry discounting. Industry discount refers to maybe other companies that you might be wanting to have a relationship with. You want to make sure that it's a two-way street, that they're promoting you in order to get that discount. Another example might be military discounts. It's great if they're going to promote you and you're going to always have, you know, 20 or 30 kiddos from their industry, but otherwise you might want to look at that. So that's the discounting.
Speaker 2:What I said earlier is making sure that of these five pillars, pick the one that you think is the one that will get you the furthest, fastest and take that one and then go to the next one. Pillar four salary. If you're having trouble managing a healthy percentage for salaries, you want to make sure your tuition rates are in line so that you can afford the salaries. I'm going to talk in a minute a little bit more about percentages, but review making sure your tuition rates are straight. And then the healthy percentage on salaries. It used to be 48 to 52. We're now seeing more like 50 to 55% of income per month or revenue per month is allocated to salaries. And that's because of all the things I talked about earlier, the challenges we have with the labor force. Reducing turnover is another strategy relating to salaries.
Speaker 2:Invest in staff training and career paths and purpose and culture and, of course, the reason that's so important and there's different studies about this. And, of course, the reason that's so important and there's different studies about this, but the statistic I like is $8,000 in general, if you lose a staff member, you're putting yourself so far behind. We're quantifying it as maybe $8,000. Why? It's the amount of time it takes to find another teacher. It's the angst that it creates for your director, the co teacher, obviously the children and then the parents. So losing a staff member is something really serious and something we need to be really careful about. That said, don't get back to your corner about a staff member either and everything we know about, especially Gen Z. They have a lot of angst and issues coming out of COVID, so they're a whole different population and if you're working with a lot of Gen Z, it's just that the staff training and the career paths are going to be even more important. It's a conversation for another day, or feel free to email me.
Speaker 2:And then the last one is your facility costs and that's what I said earlier. I said you know you feel like sometimes you can't do anything about it. If you own a building and you've got a mortgage, you know you're kind of stuck with the interest rate. Hopefully you did it a while ago and you have one of those sweet interest rates. If you have one of those higher interest rates, watch for things to drop down again. Our economy goes in cycles and jump into maybe considering refinancing. The rent or mortgage cost is your number two expense. So number one is staffing labor costs, number two is mortgage or your rent. The other thing we like to say is consider renegotiating also your lease so you could go to your landlord and say I love it here, I'd love to stay. However, here's what I would need to keep this rent amount, and it might be paving the parking lot. It might be redoing your floors in your center. There could be any type of renovation. It would serve the landlord well to work with you because you're going to be a longtime stable client.
Speaker 2:Invest in branding. I should be on Better Beans branding payroll. Hopefully someone from there is watching. I talk about them almost every presentation I do. They do an amazing job on branding. They'll start with your logo and sort of your purpose and your goals for value and culture, and they will make your building. Your signs, your logo, all of your marketing materials reflect your goals and they're also beautiful. They've actually gotten into outdoor classrooms as well now. So, whether you use Better Beans or your local ad agency, there's plenty of great ones. Think about facility branding. Something else on facility branding would be having your tour stop signs in your halls or in appropriate places.
Speaker 2:Again back to, it's a different group of staff we're working on, and the training piece is even more important than before. Gone are the days where you got directors with you 10 or 15 or 20 years. A lot of them are aging out. So we've got to, you know. We got this whole new group that we're able to train. We want them to know and have touch points during a tour where they stop and talk about all the great qualities your program has and then invest in exterior appeal, in real estate. They call it curb appeal.
Speaker 2:You want to make sure the flowers in your pot aren't dead. You want to make sure your sign is beautiful and not missing. A letter or two and everything is, you know, pretty spiffy, pretty beautiful looking. You want parents to. You want to be a magnet to pull parents into your school Considerations. So this is the next part.
Speaker 2:So, as you're thinking about selling or thinking about an exit strategy, you know I would rather you plan a year or two out if possible. So that's where the future goals are. What matters the most. Sorry, before you pass the torch, thinking about what your goals are and that has everything to do with timing Is the timing right. We want you to sell high and buy low right. So if you're selling high, you want to make sure your school is as full as possible, you got all your paperwork in order and you know what you're going to do after you sell. The timing is everything. So proper planning prevents poor performance. It's an old-fashioned phrase, but I like it, and it has everything to do with, for instance, taxes Going to your CPA or tax planner now talking about your estate planning, your taxes and so on. So I love to talk about Rainmaker and Architect, and I do this, and you can do it as an activity as well with your directors.
Speaker 2:But Rainmakers are the staff or usually typically the directors that can make the rain. They are the ones that are great salespeople. Typically, owners start out as Rainmakers and morph into architects. A Rainmaker is someone that everybody's going to enroll because they probably have WOO. The acronym W-O-O stands for winning others over. It's a charismatic personality. It's usually someone that understands their program well, their culture and their core values and can just sell. So they can sell to staff, they can sell to the local community and they can obviously sell to parents, so they're the ones that are really bringing in the income for you. You can stay in that stage as an owner forever. It's usually hard to do that stage.
Speaker 2:After you get to multi-site level and I know most of you or anyone that's multi-site, knows what I'm talking about You've probably transitioned into an architect. More big picture, more showing others what to do, training others to be the rainmaker. That brings me into traction. The book Traction, which is the EOS Entrepreneurial Operating System, by Gino Wickman is a good place to start. As you're doing considerations before you pass the torch Traction will help you set up what are my three year goals, what are my five year goals and then bring it down to more specific. What do we need to do this quarter? What big giant rocks do we have to move? What projects have to be done? Who's doing them and how are we scoring our KPIs, our key performance indicators? So traction would be something I would recommend doing sooner rather than later, or some version of establishing KPIs and getting you what's your roadmap. Where do you want to go? Certainly, considerations also would be your budget and working on debt and reducing debt. Your budget and working on debt and reducing debt, maybe paying down or off your building it depends on what your financial people advise you, of course and then really keeping an eye on interest rates.
Speaker 2:As I said, buying low, selling high we're going to talk about that in a minute, because these are some of our other strategies. You've got options Buy, grow or sell. You can buy. So this whole strategy for this session would be before you go, do you want to be multi-site? Do you want to be a smaller platform, or are you ready to just grow what you've got right now and shore it up for a successful exit, or are you ready to sell now? I could do this for eight hours on each one of these. So if you're sort of having a red flag right now like, oh, I need to know more about that, go ahead and give me a call after this webinar or whenever it suits you or email me for a one-on-one talk because I can help you sort of build that out. I love talking to other owners. Okay, so the buy. So maybe you're thinking I like what I'm doing, I've got it pretty settled. I may want to exit in two, three, four years. Maybe I want to exit longer. I want you to be as strong as you can, whether you exit now or later.
Speaker 2:Dark building that would be former childcare centers that maybe are in your area. I would recommend going to several local commercial real estate agents and ask them especially if they're, you know, the commercial end, not the home end and keeping an eye out for dark buildings that could be converted to childcare or former former child care centers. Different groups of the we call them strategic groups, the bigger you might call them chains they do this a lot. You can sometimes find a dark building that's very affordable to either rent or buy, depending on your strategy. An easy strategy that lots of the bigger groups are doing are acquiring existing schools. That would probably mean acquiring your competitors. The competitors would be maybe people you know, especially if you're in associations, the state associations you're going to maybe reach out.
Speaker 2:I have a friend that does this and they'll do handwritten letters to existing schools or they'll follow them on social media and say, hey, I follow you on social media. I love what you're doing. If you're ever thinking about leaving or exiting, please give me a call. Or you could say hey, do you have time for a coffee? I want to pick your brain about some ideas I have about local child care and then build the relationship. And if they're thinking about exiting out, you're first in line. Again, like I said, working with local realtors. They're a really good source of information. You have nothing to lose to work with them. Obviously, you're going to pay well, the seller would pay a commission, but great idea.
Speaker 2:And then the Facebook groups, especially the larger Facebook groups. Many times you'll hear people say they're thinking about selling and if they're in your area, that could also give you a clue. You could also post in those groups. I'm looking to grow in the Seattle area. By the way, seattle is one of the fast-growing areas, as is Raleigh, north Carolina. There's several. If you would like my list of fats growing for the zero to five group higher birth rates let me know. And if you're in a hot market it might be competitive to buy. So you just have to sit down and do the math and see if that works. Sometimes you think you're going to get shut out on a deal and you just have to be patient and come back around. Just keep that relationship going.
Speaker 2:It's all about relationships, isn't it? Grow, okay. So you want to grow. You could build a school. We already talked about buying another school, so that's a growth strategy. But other ways to grow you might not have thought about and I love this. Kathy Ligon talks about these a lot Collaborating with employers.
Speaker 2:So maybe there's an Amazon or Walmart big giant thing, warehouse thing, coming in your area. Or there's Texas in particular has tons of companies going there because of tax. A lot of California companies are leaving to go to Texas. Do some research on what your state's offering. Check with your local chamber of commerce. Hey, how are you attracting other businesses? I'm a childcare owner. I'd like to collaborate with other businesses coming to the area. I'll raise my hand to be first and help them.
Speaker 2:And then Head Start Some of the Head Starts. Actually in my area recently one of the Head Start type groups, one of the big subsidy groups, laid everyone off. Now I hear that in Head Start. Actually in my area. Recently one of the Head Start type groups, one of the big subsidy groups, laid everyone off. Now I hear that in Head Start for the summers but not in March. So we've reached out. First of all, we're trying to get some staff from there, but also, how can we help those kiddos?
Speaker 2:And then the public school relationships that would be if you're wanting to offer before or after school care in their spaces. Quite a few people I know have 10, 15, 20 public school before and after school programs in addition to their brick and mortar child care center. Great idea fact. If you want me to connect you with them, I'd be happy to. And then consider temporary mobile classrooms. Drive by any elementary school, at least in Virginia, and you will see mobile classrooms. They're made to look pretty cute, with little pots of flowers outside and steps leading up, and they're very attractive inside, with bathrooms and plenty of beautiful space. You really don't know you're in a mobile classroom. Those are great, either temporary or you can make them permanent. It's a lot faster than starting with a builder. We tried to do a builder to add on to one of our schools a couple of years ago and he said I am way too busy. Wait till the recession, which hasn't happened yet, but wait till the recession and call me. So the builders are strategizing as well. Hey, I'll take on the one-off jobs when the building you know the building houses slows down.
Speaker 2:Add programs for additional income streams. So that would be like a stretch and grow Shout out to Beth Cannon, my friend, who's stretch and grow guru, stretch and grow. Or a soccer shots type program. You could bring someone in for drama. There's all kinds of music groups, but that could be additional income streams. Either you pay them and charge the parents, or it's an income. It's rather than an income stream. It's an added value for the parents. You pay for the music group to come in, or the drama people to come in stretch and grow and so on.
Speaker 2:And then intentional sizzle what could you do different? This is that zigzag that I love to talk about. What could you do different? That would be different from all of your competitors and very attractive to your millennial and Gen Z families and I'm looking at the time and I need to move along so I can have time for questions Selling Key things, I think for selling, you want to have the valuation by an industry expert. I talked about that on one of the earlier slides. So I think you kind of got that idea. The market is hot for profitable schools idea. The market is hot for profitable schools.
Speaker 2:Multi-site will be more desirable than a single site. That said, there are single sites with 300, 350 kiddos that are very, very well run that will do very well in the market. So multi-site quality matters most. Enrollment would be next thing you want to work on, and then all the pillars. I told you Platforms. A platform is when you get your school, your multi-site, to more like nine or 10 schools. That's like a small platform. After 10, you get to like 15 or 20. That's a larger platform. Obviously those are going to bring a much higher multiple. I don't do the valuations for our company but I can connect you with if maybe you're in that category maybe a 10 site. That would be something you might want to get a valuation on now so you can determine your growth plan.
Speaker 2:The types of buyers they're all kinds of buyers. One would be your local competitor. Maybe you're wanting to sell and you just want to keep it just within your community. Sometimes people sell to their director or their executive director. That's a really nice situation if you can get it, if they can afford to buy you. That's usually what happens, is that's usually the sticking point. To buy you? That's usually what happens, is that's usually the sticking point. And most people that are exiting want to be paid for their exit, and paid well, which is what I want for you. So I don't usually recommend owner financing necessarily. So you want, if you want out, you want out, you're going to stay. You might as well just stay Kind of a little personal opinion there.
Speaker 2:Other types of buyers would be a regional buyer, so that's a group. That's just. I'm in the mid-Atlantic region. So there's certain groups that have maybe 30 to 50 schools that are regional and they're specifically looking in my area. And then there'll be Northwest or Midwest and so on. So that would be a regional. And then you've got the strategics. Those are what we consider like a childcare chain. Those are the big ones. They're pretty much all pretty aggressively looking right now. And then you've got two other groups International groups are coming here to the States and buying, and also private equity is very interested in our industry. And then certainly, buyer beware, seller beware always have legal advice, really good legal advice. If you're selling your real estate. You want to make sure that you're getting the great real estate advice as well. Other things on selling family business considerations as you're growing.
Speaker 2:Um, we at hinge sold a third generation school. It was a platform, um, a medium-sized platform, actually several years ago and that was just so interesting. Grandpa started the schools, um, and then parents, um, the sellers came in. They were second gen but the third generation was working for them. So, pros and cons, I'm doing it right now with my family and, like I said, the older generation and especially the people that start the school, have very specific ways that they've been successful.
Speaker 2:The new generation comes in and wants to change things up. That requires a ton of communication. Comes in and wants to change things up. That requires a ton of communication. I say proper planning on this. Proper planning prevents poor performance and really planning that transition. One suggestion I would have on a transition if you're thinking, I'm ready to sell or pass the torch to my family, they're going to scale it to 10 schools, to a small platform, and then we'll all sell together. Maybe that's an option.
Speaker 2:Do a strengths-based transition. I love StrengthsFinder 2.0. It's $19 or $20. Have everybody take it and figure out what your strengths are who is really good at executing things, who's great at relationship building. They should be going to the banks. They should be doing you know the hiring and so on, and you know who's really strategic, who can think their way out of a problem without being stressed about it. So strengths-based transition.
Speaker 2:And then also just the good old drawing the cross in the middle of the page and at the upper left quadrant. Here's the things I love to do. I love, love, love strategizing. I love thinking about problems. I love writing. I love you know, whatever you love. Then the second quadrant, upper right corner, you're going to put I like it, I'm pretty good at it. So anything above the line, you should keep other family members. And then the third quadrant is I don't love it, I'm not that good at it. And fourth quadrant is I'm awful at it, I'm actually not good and I hate it. So maybe that's payroll, for instance. It's fun to do that and have every family member, second generation, see who's best at what and then start passing the torch that way.
Speaker 2:First, with a strengths-based transition, typical transaction process You're going to get the valuation done first. We're going to look at your school. We're going to give you some advice before buyers come in. We're going to get a lot of paperwork done. Everything is confidential. We'll pull together what we call an offering memorandum, which is a beautiful glossy packet brochure almost like a book sometimes with your financial data, the history of the school, all the key players, beautiful pictures, and do a teaser, sending it out, asking any interested buyers to sign a n-disclosure, an NDA, and then it goes from there where we will hold your hand the entire way.
Speaker 2:Everything what I love about Hinge and it's different than anything I've ever heard of is the seller is always in control. You want us to bring in certain buyers. That's what we will do. You don't want us to bring in others. You want to be on site for the tours. You don't. You want tours after hours. You want to stay on for a couple months to help with the transition. You don't want to stay on. All of it is in your hands and we really hold your hand throughout.
Speaker 2:So our transaction process I could do a whole webinar on it and actually we have many times it's very seller oriented and it's very open and honest. We're very transparent with you and that's what I love and that's why I'm at Hinge Recommendation. Here is my email to either call me or email or email me to set up a call, and I can help you with kind of processing through where you are and giving you ideas. If you're considering evaluation or considering growing either way, please give me, send me an email, that would be awesome. I'll also give you my phone number, which is 434-962-2541. And again, I'm Kathy and I'm so excited to work with you guys. This is a resource I highly recommend.
Speaker 2:If you want to grab this QR code and hopefully let me move this, and what we give you is it's initially the. This is the free version, and then, if you like it, you can buy the paid version, and I'm not positive how much it is, maybe like a hundred a month, but don't quote me. It's not a lot, though. You plug in your numbers with your license capacity, your average tuition rate, which typically we say three-year-olds and your square footage of your building and a few other numbers and, lickety-split, we're going to tell you you're doing great at this area, great occupancy, way to go. Woo-hoo, your tuition is higher than we want to see. I'm making an example. Of course, that's an opportunity. Your facility cost is within the percentage we want to see 14 ish all in and you know, here's your opportunity for that and then you can.
Speaker 2:It's got this really cool, like a little slider and you can slide. What if I had more kids? What do my percentages look like now? What if I paid staff 10% more? What does it it look like now? It's really a fun little gadget. Well, platform that you'll love. So I would highly recommend looking at that. Call me if you have any trouble with it. I use it myself at my schools and oh well, cannot forget this and seriously, guys, pay attention to this. Oh well, cannot forget this and seriously, guys, pay attention to this.
Speaker 2:If you want to join us in Santa Barbara, california, which is kind of my second hometown, it's gorgeous. Mark the date Thursday, august 1st Our registration opens. The dates are November 4th through 7th. It sold out in eight hours last year. We did add some more seats this year, so you should be fine if you reach out and register by August 1st. Santa Barbara is a little tricky to get to, so you want to go to either LA or book your flight sooner rather than later because it's a smaller market airport. But I promise you you will love it. The networking is amazing, but I promise you you will love it. The networking is amazing. Our hospitality is second to none, mostly because our team is from Greenville, south Carolina, so you've got that Southern charm kind of aspect, and the content is, I think, the best in the industry, honestly. So don't miss it if you want to grow and make more connections, and I think we are ready for questions, and I've left six minutes.
Speaker 3:Awesome, oh my gosh. That was so much good information and I know we're getting a lot of questions like please, will there be a recording? Yes, there will definitely be a recording. I'm also going to send out like snippets and you know just little, like you know fun, fun things that you shared, Kathy, with everyone in the weeks following. So you'll get all this in your inbox. But as far as questions, we do have a few. So first we've got one from Ashley and she asked who does the valuations at hinge? Are they CPAs?
Speaker 2:Ooh, great question, let's see. Okay, so we have three people. We just added two more financial analysts at Hinge and that's because what's happening with transactions. Remember, I talked about a little bit about the process. I didn't go into the due diligence part of the process. So that's a really good question. In due diligence there's called a Q of A, a quality of earning, and that's where the analysts really dig into your numbers and they help you prove certain things, especially if you're bigger and you're like a multi-site. But we've got three analysts. Rusty's our head analyst. He's been with Hinge for many years, and then we just hired two other analysts that are very experienced in the industry. I don't think any of them are actually CPAs, but they're in the accountant level. But I'm not positive.
Speaker 2:Kathy Ligon, however, started the company. She started out in financial analyzing and accounting and took a thought. She was taking a short break to go work with a child care company and ended up doing learning about acquisitions and also she's also highly, highly trained as a financial analyst. So technically we have four, also our advisors, and for instance, one of our advisors, henry, was a CPA or is a CPA. So you know that's what we call a broker Old days broker, we call them advisors now. Several of the advisors are very well suited on the financial, their financial acumen. Mike Peppers, stanford grad. We got some heavy hitters on our team. I would trust all of them with your numbers.
Speaker 3:We got some heavy hitters on our team. I would trust all of them with your numbers. Amazing, and actually we got a question. Could you repeat your phone number for everyone?
Speaker 2:Of course, and you can text me. I'm actually Sarah can tell you I'm really good at texting. I'm a, I'm a boomer, but I act like a millennial sometimes 434-962-2541.
Speaker 3:Sorry about that. I usually have it on my slides and this slide we just did my email, no worry, and I dropped that in the chat for everyone. And then we've got a question from Charlene here. She said do you all prep entities to become sellable and is there a length of time to become sellable?
Speaker 2:That's a good question. So I would really be able to help you if I knew more about your company. So there's that. So reach out to me please. That's exactly what we do the runway, you know.
Speaker 2:Like I said, you should start thinking about selling the day you open your doors. Who actually does that? I don't know, because I didn't. I just thought this is going to be so fun being a business owner. Little did I know. I wish I had a crystal ball, because it's very challenging.
Speaker 2:So the first thing I would do would be look at your P&Ls, your profit and loss statements, and see where your opportunities are, and I plug things into a framework and then I would see where you compare to our best practices. On percentages, remember, I said labor is now best practice, 50 to 55%. So I would look at that. I'd look at your facility, I would look at your area and give you like a whole big picture view of you. Know, I think you should grow. I think here's your opportunity. Sometimes growing does not make any sense. Maybe you've got 40 openings and you're leaving $60,000-ish a month on the table. Why would you want to do anything else if you're wanting to keep? You know, keep small. Now, if you're wanting to grow and you have 60 kids opening and you're leaving $60,000 on the table and you're already paying the rent and you're already paying the labor and so on, do that, then grow. So it's very nuanced and really fun to figure out. I love strategy. Yes, I love that.
Speaker 3:I love that and we actually have. I love that you sent that framework, that link, to frameworkbyhingecom for everyone to go in there. And we've also at Line Leader developed what we call, kind of like a revenue diagnosis calculator, which is, I'm sure, a much more shortened version of what you all have. It looks like you have something extremely robust. I think everyone should go check out. But for those of you who are interested, I'll drop the link here on the line leader website. And it's just a quick thing. There's four questions and it gives you kind of a a high level view of you know how much money you might be leaving on the table, either due to, you know, not having all your seats filled, or maybe because of the number of staff compared to students at your center, things like that. So, or maybe because of the number of staff compared to students at your center, things like that. Or maybe because of tuition maybe your tuition isn't quite high enough to cover costs, so feel free to fill that out as well.
Speaker 2:But we got a lot of questions about.
Speaker 2:I was just going to say on that Line Leader taught me the old CRM, taught me how to manage that. And when you're running reports and you've got remember we talked about you know those one or two openings in every classroom and you're leaving two $3,000 on the table. Can you fill one or two? Don't look at that 60,. Look at one room at a time the most profitable room so really looking at the data. Look at one room at a time the most profitable room, so really looking at the data. It's very geeky and really fun and you guys make it pretty and kind of gamified.
Speaker 3:So I like that. Yeah, and we find on app, we released our benchmark report this year. Feel free to go download that as well, and Kathy was a guest panelist on our benchmark webinar in January, in January but we find that, you know, you're not really breaking even until you hit 70% capacity utilization at your center. So until 70% of your seats are filled with students, that's when you start breaking even. You're not even being profitable at that point. So you know, having full enrollment is really important. I know you all know that and I know a lot of the pain point for many of you is staff. So we did get a lot of questions about staff. I know we're kind of at time here, but just quickly one question I thought was interesting for you, Kathy it's hard for them to justify raising tuition or higher tuition prices in their area because they can't say well, it's because we provide such great care, because we have such amazing and experienced staff. So are there any other ways that?
Speaker 2:you would recommend justifying a tuition increase or charging premiums for tuition aside from the staff component? That is a great question. That's kind of one of our $64,000 questions, if you want to be honest. First of all, I would. Staffing is the most important element of quality care. It's those interactions, it's that you know the liability risk you have if you don't have your staff up to speed. So I would intentionally let parents know the world is different today. We are working with millennials and Gen Z and there's so much research about how many generations the boomers have retired or they're getting back into the workforce because they've lost money in the stock market. So they're really, really good for you to come in part time.
Speaker 2:I would start with trying to get some former teachers that got disillusioned in the public schools and getting them to come in maybe help you with developing and training your staff, curriculum development and so on. I would put a concerted effort on this. Is what we're charging, because we are hiring people to help us grow and develop our staff. We, like everyone else, are struggling with hiring and keeping staff in the world, or at least in America right now. So give a good short paragraph, because people don't want to read a dissertation, a short paragraph, about the challenges in your area, maybe your labor, we pay above market, we do X Y Z on initial training and still we want to develop our staff. We want to grow a long-term staff and talk about your goals.
Speaker 2:Otherwise, what are your? What are your wows in your building? Remember I talked about intentional sizzle. If you want to do some intentional sizzle, adding, adding to your outdoor classroom, adding water elements outside, adding a whole art atelier, like Reggio Emilia philosophy, adding, you know, bringing a chef in once a week to do cooking projects. We do a local restaurant that had all their kids at our school. One of my schools delivers.
Speaker 2:The parents pay for it, full meals, I think it's every Thursday, and so in the lobby you come in and there's all these like you know tinfoil, you know food, it's like the whole dinner, like the main, the you know dessert and side, and so you know, promoting that, promoting like we you know we're building community, we're building families and also maybe a family event where you're really building those relationships a little bit more. Relationships matter, I think, more than anything with staffing and with keeping parents happy. That's a great question. It's a hard one, yeah.
Speaker 3:Well, great answer, Great answer. I love that. Well, thank you so much, Kathy. This was extremely informative. I think we got some really, really great feedback in the chat already and again, if anyone has questions wants to talk to Kathy one-on-one, I really encourage you to. This is just scratching the surface of her immense knowledge about the industry, so please check her out.
Speaker 2:Thank you, line Leader and Sierra, thanks for welcoming me again. I love it. Love working with you guys.
Speaker 3:Of course yes, I'll share the recording with everyone today, as well as certificate of attendance and otherwise. Thank you all and have a great rest of your day. Bye, everybody.