When it comes time to price your preschool, you may hear a buyer’s advisor reference different valuation methods — and wonder which one actually determines what your school is worth. The answer is that different methods yield different numbers, and understanding each one helps you understand where your price comes from, why it is what it is, and how to advocate for maximum value in negotiations.

Method 1: The Earnings Multiple (Primary Method)

This is the most common method used in preschool business sales. It starts with your normalized SDE (Seller’s Discretionary Earnings) and applies a multiple based on market conditions, risk factors, and business quality.

Formula: Business Value = Normalized SDE × Multiple

For childcare businesses in Texas, multiples typically range from 2.5x to 3.5x SDE for well-run schools. Exceptional schools can command 3.5x–4x or occasionally higher. Weaker schools may sell at 2.0x–2.5x.

Example — a school with $200,000 normalized SDE:

• At 2.5x: $500,000
• At 3.0x: $600,000
• At 3.5x: $700,000
• At 4.0x: $800,000

Every 0.5x change in the multiple represents $100,000 in sale price for this school. Understanding what drives your multiple — and actively improving those factors — is where the real value is.

Method 2: Revenue Multiple (Secondary Check)

Some buyers, particularly multi-site operators or private equity groups, also reference a revenue multiple as a secondary check. Revenue multiples for childcare businesses typically range from 0.4x to 0.8x annual revenue, depending on profitability and growth trajectory.

Example — a school generating $1.2M in annual revenue:

• At 0.5x: $600,000
• At 0.7x: $840,000

Revenue multiples are useful as a sanity check and for conversations with strategic buyers, but SDE multiples almost always determine the final price in smaller childcare transactions.

Method 3: Asset-Based Valuation

Asset-based valuation calculates value based on the net value of tangible assets: furniture, equipment, and any real estate. This method is rarely appropriate for an operating childcare business — it significantly undervalues the goodwill, cash flow, and operational value of a going concern.

Asset-based valuation becomes relevant only when a school is distressed, has very low or negative earnings, or is closing. For a profitable, operating preschool, asset-based valuation would typically produce a price far below what the business could command based on its earnings.

However, understanding asset value is still useful — it helps inform APA allocation and gives buyers a floor-value reference. A school with $600,000 in SDE-based value and $60,000 in tangible assets has 90% of its value in goodwill.

What Determines Your Multiple?

Factors that increase your multiple:

• Director-led operations with low owner dependence
• Enrollment at 90%+ with a waitlist
• Three or more consecutive years of stable or growing SDE
• Long-term, assignable lease with favorable terms
• Clean, well-documented financials and add-backs
• Accreditation or special certifications (NAEYC, Texas Rising Star Level 3–4)
• Multiple qualified buyers competing for the school

Factors that reduce your multiple:

• Owner is the primary operator and the business depends on their presence
• Declining enrollment trends
• Short or non-assignable lease
• Commingled or inconsistent financials
• Unresolved licensing issues
• Single buyer, no competitive market for the listing

Getting a Real Valuation

The only way to get an accurate picture of your school’s market value is to work with someone who understands the childcare transaction market — current comparable sales, current buyer demand, and the specific factors that influence multiples in your area. A valuation based on something you read online or a single formula is not the same as a market assessment grounded in real transaction data.

What This Means for You

The valuation conversation is not just about what your school is worth today. It’s about understanding the levers that determine value — and using the time before your listing to pull them as far as you can. A school that moves from 2.75x to 3.25x SDE on a $200,000 earnings base earns $100,000 more at the closing table. That’s worth understanding — and worth working toward.