Selling a daycare or child care centre in Canada

Families choose a daycare because they trust the people who care for their children. A buyer is paying for that trust, a full roster, a waitlist and a team of educators who know the children. Selling a child care centre also has steps most businesses do not, because the licence and the funding usually stay with you and the buyer applies for their own. Here is what to expect and how to prepare.

What buyers look at first

Most buyers of a daycare, preschool or out of school care program ask the same questions early. Have clear answers ready before you list:

• Spaces and enrolment. Licensed spaces by program, how full each one is and the waitlist.
• Sales and profit. Two or three years of numbers, split into parent fees and government funding.
• Educators. Who they are, their certificates, pay and whether they will stay.
• Licence. The current licence, recent inspection reports and how any findings were fixed.
• Premises. The lease or building, the outdoor play space and the state of the equipment.
• You. Whether you are the manager, an educator on the floor or both.

Buyers will check these during due diligence, so it helps to gather them now. Our list of documents needed to sell a business is a good start.

Enrolment, fees and funding numbers

Make a simple table for each program: licensed spaces, enrolled children, full time and part time, the monthly parent fee and the funding the centre receives for those spaces. Show how enrolment has moved month by month over the last two years, and how long the waitlist is. Make sure fee and funding totals match your bank deposits and your tax returns.

If you pay yourself a wage, work on the floor or run personal costs through the business, list them clearly as add-backs with proof. If you work as an educator and the buyer will need to hire someone to replace you, say so, because that cost comes out of the profit they are buying. If enrolment has dipped, explain why; see selling when sales are down.

The licence usually does not transfer

In British Columbia, child care facilities are licensed under the Community Care and Assisted Living Act and the Child Care Licensing Regulation, and licensing officers from the local health authority inspect them. Health authority licensing offices explain that a community care facility licence is issued for a specific building and licensee, and that a change of licensee needs a new application. Island Health says plainly that when a facility is sold, a new application for a licence is required.

That shapes the whole timeline. Fraser Health says the process can take several weeks to months and needs municipal approvals such as fire, zoning and a business licence, along with licensing review and inspections. Fraser Health also says that until a licence is issued, an applicant may only care for two children, or one sibling group, who are not related to them. So the buyer should meet the local licensing officer early, and the purchase agreement should make the new licence a condition of closing. Fraser Health also treats a change in business structure as a new application, so ask the licensing officer how your plan affects the licence before you sign anything. See transferring contracts and licences.

Government operating funding

Many BC centres receive Child Care Operating Funding, which also supports the fee reduction and the educator wage enhancement programs. The funding agreement requires providers to tell the program within two business days of changes to their facility licence or child care services, and ownership changes are reported with a change notification form through My ChildCareBC Services. Applying for funding needs a business BCeID and a copy of the facility licence for each centre, so a buyer with a new licence should expect to apply in their own name.

Funding affects how much parents pay and how much the centre earns, so a gap would matter to families and to the buyer. Call the Child Care Service Centre together, early, to understand the steps and timing for your centre, and plan the closing date around them. Other provinces have their own licensing and funding programs, so check the rules where your centre is.

Educators, certificates and criminal record checks

Make a list of each staff member with their role, start date, pay, hours and certificate. BC sets staff ratios and qualifications by program. For example, the Province says a group of 9 to 25 children aged 30 months to school age needs an Early Childhood Educator and one or two Early Childhood Educator Assistants, and groups under 36 months need an Infant Toddler Educator. Under the Child Care Licensing Regulation, educators and assistants must hold a certificate that the licensee verifies through the ECE Registry.

The regulation also says a licensee must not employ a person without first getting a criminal record check, character references, work history, proof of training and evidence of immunization and tuberculosis program compliance. The Province says people who work with children need a criminal record check every 5 years. A new licensee will need these records in place for every staff member, so keep your files tidy and up to date.

In BC, section 97 of the Employment Standards Act says that when a business is sold, the employment of an employee is considered continuous and uninterrupted, so a buyer who keeps your team takes on their years of service. Plan when and how to tell your educators; see what to tell employees.

The premises and outdoor play space

Read your lease for assignment terms, how long is left and any options to renew, and check that it allows a child care facility. A buyer applying for a new licence will need the right to use the premises for child care, so the landlord's consent is often one of the first things to settle. See your commercial lease when selling. If you own the building, see selling a business and the building.

List the furniture, cots, toys, kitchen equipment, outdoor play equipment and any vehicles, with age and condition, and note anything leased or financed. If your centre runs from your home, the buyer usually cannot take over the same setup, because home based programs in BC are licensed to a person who provides the care in their own residence. That kind of sale is often more about the families and the goodwill than the place.

Families, deposits and prepaid fees

Agree how parent fees for the month of closing, registration deposits, prepaid fees and money owed by families are handled. These are usually split on closing day so each side keeps what belongs to their time; see closing day adjustments. Plan, with the buyer, how and when families hear about the change. A calm, early letter from you and the new owner together helps families stay. See telling customers and suppliers.

Family records and privacy

Parent contact details, child records, care plans and medical notes are personal information, and some of it is sensitive. In British Columbia, section 20 of the Personal Information Protection Act lets a business share personal information with a prospective buyer without consent, but only if it is needed to decide whether to go ahead and the buyer agrees to use it only for the deal. Share enrolment totals and fee tables first, under a confidentiality agreement, and hand over records at closing. The regulation also sets how long some records must be kept, so agree who keeps which files after the sale.

Tax on the sale

How the sale is taxed depends on whether you sell assets or shares and how the price is split between goodwill, furniture and equipment. See asset sale vs share sale, goodwill when selling and taxes when selling a business. If you run the centre on your own without a company, see selling a sole proprietorship.

The CRA says child care services whose main purpose is care and supervision of children 14 or under, for periods normally less than 24 hours a day, are generally exempt from GST/HST. That is why many centres do not charge GST on fees, and some are not registered at all. How GST/HST applies to the sale of the business, and whether the section 167 election on Form GST44 is relevant, depends on your registration and what is sold, so ask your accountant. In British Columbia, PST generally applies to taxable goods sold with a business, such as furniture and equipment, but not to goodwill, and the Province says a buyer should get a PST clearance certificate before buying a business. Alberta has no PST. See GST and PST when selling.

A simple worked example

These numbers are made up and rounded for illustration only. Your own deal, timing and tax will differ.

Questions to take to your lawyer and accountant

• Should this be an asset sale or a share sale, and how does that change the licence and the funding?
• When should the buyer apply for the facility licence and operating funding, and what if approval is late?
• What does my lease say about assignment and child care use?
• How should parent fees, deposits and funding for the closing month be split?
• Which records go to the buyer, and which must I keep?
• What do I owe my team, and what carries over to the buyer?
• How does GST/HST apply to the sale, and how is PST handled?

For more, read what your lawyer and accountant do. Running a gym or fitness studio instead? See selling a gym or fitness studio in Canada. This guide is general information, not legal or tax advice for your situation. Questions about listing with us go to hello@sellmybusinessdirect.com.