When it comes to selling your preschool, few things scare away buyers faster than commingled finances. It’s more common than you think — and more damaging than most owners realize.
What Is Commingling?
Commingling funds means mixing personal and business money — either by using one account for both types of expenses or by failing to document transfers properly.
It can look like:
- Paying for your family’s phone plan with your preschool’s debit card
- Using your personal credit card to buy school supplies and never reimbursing yourself
- Depositing a tax refund or side income into your business account
- Running personal grocery trips through the business and calling it “staff snacks”
Even if your intentions are innocent, the financial confusion it causes is real — and risky.
Why Commingling Hurts Your Valuation — With Real Numbers
Preschool businesses typically sell at a multiple of SDE. For a childcare center in Texas, that multiple is usually between 2.5x and 3.5x. Every dollar of SDE you can clearly document translates directly into sale price.
Imagine a school with $150,000 in actual SDE, but $30,000 worth of personal expenses running through the business — undocumented and mixed in with legitimate expenses. During due diligence, the buyer’s accountant can only verify $120,000 in SDE. At a 3x multiple, that’s $360,000 instead of $450,000. You just left $90,000 on the table — because of commingled finances.
And that’s the optimistic scenario. In many cases, buyers walk away entirely when books are too messy to trust. No clear picture of earnings = no financing = no deal.
What Buyers and SBA Lenders Need to See
Most childcare acquisitions are financed through SBA loans. Those lenders require:
- Business bank statements that match P&L figures
- Clear separation of personal and business expenses
- Documented owner draws (not random transfers from business to personal accounts)
- Tax returns that align with your books
If your account shows $20,000 in unexplained transfers to personal accounts, underwriters flag it. The loan may be denied, leaving your deal without financing and your buyer without a path to close.
Common Misunderstandings That Get Sellers Into Trouble
“It’s my business — I can do what I want.” You can. But what works for running a lifestyle business doesn’t work when you’re trying to sell at top dollar. Buyers aren’t buying your lifestyle. They’re buying a documented, verifiable cash flow machine.
“I’ll explain it during due diligence.” Verbal explanations don’t close deals. If it’s not on paper, buyers and lenders assume the worst.
“My CPA said it was fine for taxes.” Tax deductibility and deal defensibility are entirely different things. A deduction that saves $5,000 in taxes this year can cost $50,000 in sale price next year if it makes your books unclear.
How to Fix It Before You List
- Open dedicated business accounts — a checking account and a credit card used exclusively for business expenses.
- Document every owner draw — if you take money out of the business, record it as an owner draw with a clear date and amount.
- Do a 24-month look-back — review two years of bank statements. Flag every personal expense that went through the business and work with your bookkeeper to categorize them properly.
- Align your books with your tax returns — the numbers in your P&L should match (or clearly reconcile to) your tax return. Unexplained differences are red flags.
- Work with a bookkeeper monthly — ongoing clean books are worth far more than a scramble to clean up three years of records before you list.
What This Means for You
The sellers who get the highest offers are the ones whose financials tell a clean, consistent story. Clean books don’t just increase your valuation — they reduce the time from listing to close, reduce buyer contingencies, and make lender approval faster. If you’re thinking about selling in the next one to three years, the best investment you can make right now is in your own financial records. Clean them up, and they’ll work for you when it counts most.
