Valuing Your School
How to Value Your Private School for a Sale
This is an essential question for any owner of a private school who is considering selling their institution
You will not find a simple calculator on the Internet to determine the value of your school. There is no simple formula that you can use to value your school. There are multiple factors that need to be considered when preparing the valuation of a school. Many of today's school buyers are international investors, equity firms, and/or school operators looking for safer areas to invest their money or expand their portfolio. They may in turn be strategic or financial buyers with different needs and drivers. Due to the reputation of the educational system, schools are considered safe investment tools 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. 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.
One the first elements is the "fixed assets", which can be attained from your recent set of full accounts. It comprises of all the physical items that your school business owns and includes freehold commercial value of any property that your school may own.
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 adjusted 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
- Recent regulatory reports
- Fluctuations in freehold/leasehold rent negotiations and break periods
- Supply and demand
- Fluctuations in enrollment
- Loyalty and motivation of the staff
- Difficulty on entry into the market due to prohibitive start-up costs
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