Buying a childcare / daycare business in New York

The 30-second version

Childcare businesses are typically priced on a multiple of SDE (smaller) or EBITDA (larger centers). The valuation premium comes from: (1) stable enrollment with a waitlist; (2) licensed capacity at or near the regulatory maximum; (3) qualified staff who stay post-close. The deal gate is the OCFS or NYC DOHMH licence transfer, and it is long enough to set the closing date. Confirm the current processing time with the issuing office before you agree a timetable. Run the license eligibility pre-qualification before signing an LOI.

How childcare businesses are valued

Smaller childcare operations (SDE below ~$300K) are typically priced on a multiple of SDE. Larger centers with a director in place (EBITDA above ~$300K) are typically priced on a multiple of EBITDA. See the SDE vs EBITDA guide for the formulae.

Common childcare add-backs:

• Owner salary and payroll taxes.
• Depreciation on facility and equipment (non-cash — but verify facility age).
• One-time regulatory or facility improvement fees.

Add-backs a SBA lender will challenge:

• Staff replacement — if a key teacher walks at close, the SDE is overstated by their replacement cost at market wages (compare to BLS OEWS for childcare workers ^[7] ).
• Family member payroll if the family member does real work.
• Facility repair and replacement — ongoing capex, not a discretionary add-back ^[3] .

The three real value drivers

1. Enrollment base + waitlist

The most important childcare valuation factor: stable, full enrollment with a waitlist. Predictable enrollment = predictable revenue = lender-friendly. Diligence:

• Trailing 12 months of enrollment by classroom/age group.
• Waitlist size and how long children have been waiting.
• Enrolment renewal rate, taken from the centre’s own records by age band — children age out on a schedule, so a stable headcount can conceal a re-enrolment problem.
• Customer concentration in any one family or employer contract.

2. Licensed capacity utilization

OCFS and NYC DOHMH both regulate childcare capacity — the maximum number of children per age group, per square footage, per staff member. A center operating at or near licensed capacity is more valuable than one under capacity, because enrollment growth is constrained by capacity, not demand. Verify:

• Licensed capacity per age group.
• Actual enrollment vs. licensed capacity (utilization rate).
• Whether the license is at risk (regulatory actions, capacity reductions).
• Physical space for capacity expansion (square footage, classroom count).

3. Qualified staff retention

State staff-to-child ratios are non-negotiable. A childcare business cannot legally operate without meeting ratios. If staff leave at close, the business may not be able to operate at full enrollment until replacements are hired and SCR-cleared. Diligence:

• Trailing 24 months of staff turnover. Turnover runs high across the sector and it is the main threat to the ratios the licence depends on — so what matters is this centre’s own figure and whether it is improving.
• Key staff retention plan (does the seller have staff committed to staying post-close?).
• SCR clearance status for all current staff.
• Compensation benchmarks vs. BLS OEWS for childcare workers ^[7] .

NYS OCFS licensing + NYC DOHMH overlay

NYS childcare licensing is bifurcated by location and program type:

• NYS OCFS regulates most daycare, school-age childcare, and family daycare programs statewide.
• NYC DOHMH regulates group childcare and school-age childcare in the five boroughs under the NYC Health Code. NYC programs typically have both NYC DOHMH permit and state-level registration.

The license attaches to the entity, the location, and (for family daycare) the provider. A change of ownership typically requires a new or amended license application. Build the license transfer timeline into your LOI — it can be 60–120+ days. Verify the current rules with OCFS or NYC DOHMH before relying on any specific item.

SCR clearance

SCR is the NYS Statewide Central Register of Child Abuse and Maltreatment. Every staff member, volunteer, and household member (for family daycare) must clear SCR. The clearance is individual and must be re-run on a set cadence. Diligence:

• Verify all current staff have current SCR clearances.
• Identify any staff whose clearance is expiring in the next 90 days — they'll need to be re-cleared.
• For family daycare, verify household member clearances.

Enrolment mix drives everything

Two centres at the same enrolment and revenue can have very different margins and very different risk, because each age band consumes staff differently and each funding source behaves differently.

Two numbers matter more than enrolment: staff cost per enrolled child by room, and the waitlist by age band. The first tells you whether the margin is real. The second tells you whether it survives normal turnover — in this business, children age out on a schedule and have to be replaced every year.

Childcare-specific diligence red flags

• Recent OCFS or DOHMH regulatory action. Public record; verify before LOI.
• Declining enrollment with stable revenue. Tuition rate increases can mask declining enrollment. Look at enrollment count, not just revenue.
• High staff turnover (above 50% annually). Structural problem; ratios are non-negotiable, and turnover breaks continuity for kids and parents.
• Family member payroll if the family member is the director. Reconstruct SDE with a replacement director at market wages.
• Capacity utilization below 70%. Either there's a demand problem or a capacity ceiling that's been hit. Verify which.
• Pending lease renewal with no renewal terms. Childcare centers are space-dependent; a short lease is a deal-killer.
• Outstanding facility repair orders from OCFS or DOHMH. Real capex liability.
• Seller pushing to skip license transfer diligence. Walk.

New York State-specific items

• OCFS or NYC DOHMH license transfer. Required on change of ownership.
• SCR clearance for all staff and household members.
• Workers' comp, statutory disability, and Paid Family Leave — mandatory for most NYS employers ^[5] . PFL is funded through employee payroll deductions; the employer remits but doesn't directly bear the cost. Verify the seller has been correctly deducting and remitting PFL.
• UI registration (NYS 100) via NYS DOL ^[6] .
• Sales tax — most childcare tuition is exempt in NY; ancillary services (after-school enrichment, summer programs) may be taxable. Verify with a CPA.

SBA 7(a) financing for childcare acquisitions

Childcare is a common SBA 7(a) use case. Real estate (if owned), facility improvements, and equipment can typically be financed as part of the loan. Key SBA items:

• Max 7(a) loan $5M; max 504 loan $5.5M for owned real estate ^{[2] [4]} .
• Debt service coverage of at least 1.25:1 on a first acquisition, the SOP 50 10 8.1 floor ^[1] ; lenders can ask for more as credit policy ^[3] .
• Buyer equity injection of 10% of total project cost, which SOP 50 10 8.1 states cannot be reduced or eliminated on a first acquisition; no more than half of it may come from a standby seller note. ^[1] See the equity injection guide.
• License transfer is a financing contingency. The lender will want to see OCFS or NYC DOHMH license in good standing or active transfer process before approving the loan.
• Buyer industry experience is heavily weighted. First-time childcare operators face more scrutiny than experienced directors.
• Facility improvements (often required post-close for compliance) can sometimes be financed into the loan.

See the affordability calculator for the full SBA 7(a) math.