How do you Value a School business?

A School is a collection of two stand-alone assets, the School Business and Real Estate.

How to Value the School Business

Valuing the business component rests on determining the “normalized” operating cash flow of the business, also known as EBITDA, and then multiplying by a market-based multiple (x). Normalizing is the process of removing non-recurring expenses, such as owner’s salary, from net income. Once earnings have been normalized, the resulting number represents the future earnings capacity that a buyer would expect from the business.

How to Value the Real Estate

The standalone value of commercial real estate in private early education is based on the income approach which takes the income the property generates to estimate a fair market rent and dividing by the capitalization rate.

The key to apportioning value between both the is an imputation of a fair market rent associated with the property. This imputed rent serves as a reduction of cash flows for purposes of generating a business value, and as a basis for the real estate value.