Why the LOI is the moment of truth
A Letter of Intent isn't the closing — but it's the moment you commit real money (usually a deposit), start paying professionals, and effectively take the business off the market for other buyers. Get the LOI wrong and you'll waste 30–60 days and $10,000+ discovering problems that would have killed the deal before you signed.
These are the 10 questions our associates walk every buyer through before signing an LOI on a childcare acquisition. Some of them the seller will answer freely. Some they won't volunteer. Ask all 10 anyway.
1. What is the enrollment trend, month by month, for the last 24 months?
Why it matters: A center at $1M in revenue growing 10% year-over-year is worth substantially more than a center at $1.2M in revenue declining 5%. The enrollment trend line tells you what you're actually buying — the direction the business is going, not just where it is today.
What sellers may not volunteer: Seasonality masks decline. A center that "always dips in summer" may actually be declining year-over-year if you compare same-month across years. Ask for month-by-month data for at least 24 months and plot it yourself.
What to accept: Detailed monthly enrollment data by classroom. Not "we've been full" or "enrollment is stable."
2. What is the status of the childcare license, and are there any open citations, corrective actions, or pending inspections?
Why it matters: Open licensing issues stop deals. In Florida especially, one open corrective action can add 60–90 days to closing or kill the deal entirely.
What sellers may not volunteer: Recently-resolved issues that had significant staff or family impact. A citation from last year that's technically closed but resulted in staff turnover or lost families is real information.
What to accept: Pull the licensing history directly from the state DCF or local county authority. Don't rely only on what the seller shares. Every state and every county publishes this data.
3. Who is the director, how long have they been in the role, and are they staying after closing?
Why it matters: In most centers, the director is the most important continuity factor. If the director is leaving with the seller (common in family-run centers), you have a real operational risk — director recruitment for a credentialed candidate takes 6–12 weeks minimum.
What sellers may not volunteer: Whether the director has already expressed intent to leave, is close to retirement, or is a family member of the seller who's leaving as part of the exit.
What to accept: Director's actual tenure, credential status (current and not expiring soon), and a direct answer on post-closing plans. Ideally, structure a director retention bonus into the deal.
4. What are the lease terms, and can the lease be assigned to me at closing?
Why it matters: Lease assignment issues kill more deals than financing does. If the lease can't be assigned, or the landlord demands a full rent reset at market, or the landlord requires personal guarantees you won't sign, the entire transaction changes.
What sellers may not volunteer: Verbal conversations with the landlord that suggest resistance to assignment. Whether the landlord has already indicated they want to reset rent.
What to accept: Written confirmation from the landlord that assignment will be permitted, on what terms, and with what conditions. Before signing the LOI.
5. Is the real estate included in the sale, and if so, what is the price allocation between business and real estate?
Why it matters: Allocation between business and real estate drives your tax treatment (goodwill vs depreciable real property), your financing structure (7(a) vs 504 vs both), and your title work. It also affects the seller's tax bill.
What sellers may not volunteer: Whether they'd separate the real estate from the business at all — some sellers prefer to keep the real estate and lease it to the buyer.
What to accept: Clear allocation numbers in the LOI. Don't defer this to the APA — it changes financing and diligence approach.
6. What is the staff-to-child ratio in each classroom, how does it compare to state minimums, and what is staff turnover over the last 24 months?
Why it matters: Staffing overhead is often the largest single expense in a childcare center. A center running tight ratios (at or near state minimums) will have thinner margins and less flexibility. High turnover signals culture, compensation, or management issues that may not survive ownership transition.
What sellers may not volunteer: Specific staff members who are frustrated with management and likely to leave when ownership changes. Whether recent turnover was voluntary or involuntary.
What to accept: Full staff roster with hire dates, roles, pay rates, and credential status. Under 25% annual turnover is normal. Above 40% requires an explanation.
7. What subsidy programs is the center enrolled in, and what percentage of revenue do they represent?
Why it matters: VPK, School Readiness, Head Start, and food program participation are real revenue sources — but they come with payment lags (30–60 days is normal), audit exposure, and program-specific compliance obligations. Concentration in one subsidy program is a risk factor.
What sellers may not volunteer: Recent changes to subsidy reimbursement rates in their county, or pending program audits.
What to accept: Detailed breakdown of subsidy revenue by program, aging of subsidy receivables, and copies of subsidy contracts and payment history.
8. What are the family contracts — are they month-to-month, annual, or something else — and do they transfer to the new owner?
Why it matters: Family contracts transfer to you at closing. If they're month-to-month, families can leave in 30 days when ownership changes — and some will. If they're annual with penalties, you have more retention protection but potentially harder relationships with families who feel locked in.
What sellers may not volunteer: Whether specific families have expressed intent to leave when the seller exits. Whether ownership-transfer clauses in the family contract allow families an early exit.
What to accept: A sample family contract, plus disclosure of any families who've indicated they may leave.
9. What one-time expenses, personal expenses, or non-recurring items are in the P&L, and are they documented?
Why it matters: These are the add-backs that adjust reported net income to SDE. Every add-back changes the valuation. Undocumented add-backs get challenged by lenders during underwriting and reduce your loan amount. "My CPA said" is not documentation.
What sellers may not volunteer: Add-backs that seem legitimate but are actually recurring costs disguised as one-time (annual playground repair called "one-time," family cell phone plans called "business").
What to accept: A schedule of add-backs with supporting documentation for each — receipts, invoices, board minutes, whatever supports the claim.
10. Why are you selling now, and what would you do differently if you were staying?
Why it matters: This question tells you more than any spreadsheet. Sellers who are retiring, moving out of state, or pursuing other opportunities are one story. Sellers who are "just ready to slow down" but actually have known problems approaching are a different story.
What sellers may not volunteer: Health issues, family issues, or business issues that are pushing the sale. Legal exposure they're aware of. Competitors opening nearby. Lease negotiations they've been avoiding.
What to accept: A candid conversation, not a scripted answer. If the seller can't or won't answer this question directly, that's information.
Bonus: what NOT to sign an LOI without
An LOI on a childcare business should always include:
- Exclusivity period (30–60 days typical) so no other buyers can be shown the deal while you're in diligence
- Purchase price and allocation between business and real estate
- Contingencies: financing, licensing transfer, satisfactory due diligence, lease assignment
- Working capital target at closing (how much cash and receivables stay in the business)
- Non-compete term for the seller (typically 3–5 years, geographic radius appropriate to the market)
- Transition consulting commitment from the seller (30–90 days typical)
- Deposit amount and refund conditions
- Target closing date
Never sign an LOI that lacks financing and licensing transfer contingencies. Both are non-negotiable protections for a childcare buyer.
Ready to move on a listing? Get pre-qualified with our buyer team — we'll walk you through LOI terms specific to the state and county you're buying in.