How to value a pre-school nursery

How to value a pre-school nursery

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Can anyone advise me whether there are any querks in valuing a pre-school nursery?

The client intends to sell a pre-school nursery, including the freehold building.

Looking at a % return on total capital required of around 12%, the valuation effectively values goodwill at virtually nil (mainly because the property has a high market value).

Can anyone with experience in this particular area offer any advice?

I add that the nursery is profitable.

David Evans

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By roameri
08th Oct 2002 16:59

Interesting!!!
Ask PWC, now IBM Global Services.

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By gbms
04th Oct 2002 14:24

Value the business separately
David, in these situations I would value the business and the property separately.

You could take a weighted average of the last three year's profits to arrive at a figure for goodwill. The profit calculation would be:
Assuming latest accounts are year 3 and oldest accounts are year 1:

((1 x Yr 1 profits) + (2 x Yr 2 profits) + (3 x Yr 3 profits)) / 6 = Weighted Average Profit (WAP).

Take off this WAP figure a notional percentage (say 10% for normal return on capital) and multiply result by 3 (three year's worth of WAP) = 3WAP.

Then add the property value to this to give you your total sale price - rounded up or down as you see fit.

The above method is crude, but it is simple and most business owners would understand it. Valuations are subjective and any figure arrived at by any method will be used as a starting point for negotiation between vendor and purchaser.

Other factors to take into account will be any competition, staff, motor vehicles, any requirements for property improvements or health and safety work. A longer period of trading could be used for the goodwill calculation where this could provide a more acurate figure for net maintainable profits.

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