Why this checklist exists
Every failed childcare acquisition we've seen (and after 37 years and more than 1,000 closings, we've seen plenty) failed for one of two reasons: the buyer didn't ask, or the seller didn't disclose. This checklist is the exact list our associates walk buyers through. Print it, check every box, and you'll close with your eyes open.
We've grouped the 37 items into six categories: Financials, Licensing & Compliance, Enrollment, Staff, Lease & Real Estate, and Legal & Operational.
Financials (items 1–8)
1. Three years of business tax returns. Federal returns (1120, 1120-S, or 1065 depending on entity). Match them line-by-line to internal P&Ls. Any mismatch is a red flag.
2. Three years of P&Ls, current YTD financials (updated within 30 days), and monthly financials for the trailing 12 months. Watch for revenue seasonality — summer camp revenue vs school-year enrollment matters.
3. Documented add-backs schedule. Every add-back the seller claims (owner salary, personal expenses, one-time costs) must have supporting evidence. "My accountant said" is not evidence.
4. Bank statements for the trailing 12 months. Reconcile deposits to reported revenue. Any gap between what's in the P&L and what's in the bank is a serious red flag.
5. Accounts receivable aging. How much revenue is booked but uncollected? Over 30 days AR concentration signals subsidy delays or families in default.
6. Subsidy program participation (VPK, School Readiness, Head Start, food program). Verify contracts, reimbursement rates, and payment history. Subsidy revenue is real revenue but often lags 30–60 days.
7. Vendor and supplier list with pricing. Food supplier contracts, curriculum licensing (Creative Curriculum, HighScope), cleaning contracts, insurance carriers. Any long-term commitments transfer to you.
8. Depreciation schedule and FF&E list. What you're actually buying in equipment, furniture, playground equipment, and vehicles. Confirm it exists on the property.
Licensing & Compliance (items 9–15)
9. Current state childcare license. Verify with the licensing authority directly, not just via a photo of the certificate.
10. Local county or municipal license (if applicable). In Florida, Palm Beach, Broward, Hillsborough, Sarasota, and Pinellas counties require local licensing on top of state DCF. Missing a local license is a deal-killer that takes months to fix.
11. Last 3 years of licensing inspections and citations. Every state's licensing authority publishes inspection results — pull them yourself. Any open corrective action must be resolved before your license transfer.
12. Fire marshal inspection (current and prior 2 years).
13. Health department inspection (current and prior 2 years).
14. Building code compliance and any open code violations.
15. Zoning verification. Confirm the property is zoned for childcare use (some centers grandfathered into non-conforming zoning — check what happens on ownership transfer).
Enrollment (items 16–20)
16. Current enrollment roster with tuition rates by classroom. Blinded is fine for initial diligence; full names only under NDA later in the process.
17. Enrollment trend over 24 months. Month-by-month. Is it stable, growing, or declining? Seasonality is expected — a decline that's NOT seasonal is a warning sign.
18. Waitlist by classroom. A real waitlist with parent contact information is a serious asset. "We have a waitlist" without documentation isn't.
19. Enrollment as % of licensed capacity, by classroom. Infants under capacity is common (staffing ratios cap it). Toddler and preschool rooms under 70% is a red flag.
20. Family retention data. How long does the average child stay enrolled? Under 18 months average is worrisome. Over 3 years average is a real moat.
Staff (items 21–26)
21. Complete staff roster with role, hire date, pay rate, and credentials.
22. Director credentials. In most states the director must hold a specific credential (Florida Director Credential, GA CDC, etc.). Confirm current and not expired.
23. Lead teacher credentials. CDA, VPK certification (in Florida), state-specific credentials. Verify each one is current.
24. Background check compliance for every staff member. Not just current — verify records are on file for the required retention period.
25. Staff turnover over 24 months. Under 25% annual turnover is normal. Above 40% signals a culture problem, a director problem, or a compensation problem — investigate before signing.
26. Non-compete and non-solicit agreements with the director and key staff. Without these, key staff can walk to a competing center and take families with them the day after closing.
Lease & Real Estate (items 27–31)
27. Full lease agreement plus all amendments. Read every page. Note rent escalators, CAM charges, assignment provisions, and end-of-term options.
28. Lease assignment or landlord consent to transfer. Some leases require landlord approval for assignment. Get written confirmation the landlord will consent BEFORE you sign an LOI.
29. Remaining lease term. Under 3 years without renewal options is a serious problem for financing — lenders want lease term at least matching loan term.
30. If real estate is included: current appraisal, title report, environmental Phase I, property tax records, and any HOA / property management fees.
31. Playground equipment safety compliance (ASTM standards) and inspection records.
Legal & Operational (items 32–37)
32. Corporate structure and entity documents. Articles of incorporation, operating agreement, bylaws, any minutes required by state.
33. Any pending or threatened litigation. Employee claims, parent claims, contract disputes, tax liens.
34. Insurance policies. General liability, workers comp, professional liability, property. Confirm current, in force, and reasonably priced for the industry.
35. Contracts that survive closing. Curriculum licensing, food service, cleaning, transportation vans, payment processing.
36. IT and data. Enrollment management software (Brightwheel, Procare, KidReports), payment processing (Stripe, Square, tuition-specific platforms). Data ownership and export rights on closing.
37. Family contracts and tuition agreements. These transfer to you at closing. Read the actual contract language — some centers have month-to-month terms, others have annual commitments.
How to actually use this checklist
Do NOT try to verify all 37 items yourself. That's what your acquisition team is for:
- Business broker (us) — coordinates the entire diligence process, flags red flags early
- CPA — verifies items 1–8, reviews add-backs, structures the deal for tax
- Business attorney — reviews items 27–37, drafts APA
- Environmental consultant (if real estate) — item 30
- Licensing consultant (in complex multi-county Florida deals) — items 9–15
Expect diligence to take 30–60 days from LOI signing. Serious buyers should budget $8,000–$20,000 in professional fees for a solo center acquisition, more for multi-site.
The three items that kill more deals than everything else combined
After 37 years, three items kill more childcare deals than all the other 34 combined:
- Enrollment trend that's declining. No buyer wants to buy a shrinking business at a growing-business multiple. If enrollment is dropping, either the seller cuts price or the deal dies.
- Open licensing citations. Everything stops until they're closed. Buyers back out when they realize how long remediation takes.
- Lease assignment issues. The landlord refuses to consent, or requires personal guarantees the buyer won't sign, or wants to reset rent at market. Kills more deals than financing ever has.
Verify these three items in the first two weeks of diligence — before you spend $15,000 with lawyers on an APA that's going nowhere.
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