Determining a Selling Price for Your Private School
This is the essential question for any owner of a private school who is considering selling their school on the open market.
You will not find an easy calculator on the Internet to determine the value of your school. There is no simple formula that you can use to value your private school for sale. There are multiple factors that need to be considered when preparing the valuation of your school. Many of today's school buyers are international investors, private equity firms, and/or school operators looking for safer areas to invest their money or expand their portfolio. Due to the reputation of the educational system, schools are considered safe investment platforms for investors. The broad figures for goodwill calculations are somewhere between four to six times a multiple of the net profit plus the commercial value of the freehold property (but also depend on the school type and its assets). A market assessment is also important as this will assess your local competition, the reputation of the school, recent trends in numbers attending the school, regulatory reports, and supply and demand.
However, the basic answer to the question, "How do I value my school?", is based on a variety of elements, including the sum of fixed assets of the school's business plus a goodwill calculation.
On the first element of "fixed assets", this can be attained from your recent set of full accounts. It comprises all the physical items that your school business owns and includes freehold commercial value of any property that your school owns.
The second element is a goodwill school valuation component that is not as apparent or easy to determine as the fixed asset element to your overall school valuation.
There are three methods commonly used to value the goodwill of your school:
- Multiple of the net profit generated by the school;
- Multiple of the EBITDA (Earnings Before Interest, Tax, Depreciation, and Amortization), and;
- Multiple based on gross turnover of the school.
There are also a number of other factors to be considered when making a goodwill valuation, including:
- Local reputation;
- Outstanding legal claims against the school;
- Fluctuations in freehold/leasehold rent negotiations and break periods;
- Recent regulatory reports;
- Fluctuations in enrolment; and
- Loyalty and motivation of the staff.