A waitlist that did not match the licence it was supposed to fill

The situation

The number on the spreadsheet said thirty-two children on a waitlist, and Cristina had already done the arithmetic on what that meant for revenue in the first year. It was only when she asked the seller's representative for the underlying enrolment file, rather than the summary, that the number started to look less solid than it had a week earlier.

Yohannes worked as a respiratory therapist and Cristina as an electrician, and neither had run a business before, but they had spent two years looking for the right one to buy into together, and a franchised daycare in St. Catharines seemed to fit what they wanted: steady, community-facing, with a system already in place and a franchisor who could offer some support while they learned to run it. The seller, Meron, had operated the location for six years and was retiring from the franchise to move closer to family. The asking price, in the upper range of what a business of this size typically sells for, was built on two things: the physical premises and equipment, and the waitlist Meron had built up, which Meron's numbers treated as roughly a third of the total value.

The daycare operated under a provincial licence tied to the physical location and to Meron as the licensed operator of record, a structure common to early learning businesses that most buyers never think about until they are the ones applying to be added to it. Because the licence belongs to the operator rather than the building, a change of ownership is not a formality the parties can simply note in a contract; the new operator has to be approved before they can lawfully care for a single child. The purchase agreement, as first drafted by the seller's side, listed 'goodwill and enrolment' as a single line item without separating what was actually transferring, the physical spot on a list, from what was not, any guarantee that a family on that list would still want a place once the licence itself changed hands.

Yohannes and Cristina brought us the draft agreement and the enrolment file together, worried less about the legal wording and more about a very specific, practical fear: that they would close on the business, take over the licence, and discover within weeks that the thirty-two families they had priced into the deal were free to walk to a different provider the moment the change of operator was posted, leaving them holding a loan sized for a waitlist that no longer existed.

The gap nobody had noticed

The turning point in reviewing the file came from something the seller's side did early and probably meant as routine. Wanting to move the sale along quickly, Meron's representative sent over a revised enrolment schedule ahead of schedule, listing not just the thirty-two waitlisted names but also a projected count of children expected to convert to full enrolment within the first quarter after the sale. It was meant to make the deal look stronger. Instead, comparing that projection against the daycare's actual licensed capacity showed the numbers did not fit. The location's licence set a maximum number of children it could care for, broken down by age group, and between existing enrolled children and the waitlist Meron was counting as an asset, the projected total exceeded what the licence permitted by a meaningful margin.

That discrepancy led us to a more basic question: what did a spot on Meron's waitlist actually promise a family, and did that promise survive a change in who held the operating licence. The answer was that it did not, at least not automatically. A spot on the waitlist was not a contract, and no family was obliged to accept a place once it was offered. But because Meron was a licensed child care operator, the list itself was never purely private housekeeping: provincial rules required a written waitlist policy, required Meron to tell a parent where their child stood on the list if asked, and barred charging any fee for a spot on it. More importantly, several of the families on the list had been offered spots contingent on capacity that would only exist once currently enrolled children aged out, and the licence's own capacity limits meant not everyone on that list could ever have been accommodated at once, regardless of who owned the business or how the sale was structured.

In short, Meron had been selling Cristina and Yohannes a number that was partly aspirational and partly impossible under the daycare's own licensed capacity, and nobody on either side had checked the waitlist against the licence limit before pricing the deal. It is a natural gap: a waitlist looks like inventory, a straightforward asset with a headcount attached, when in an early learning business it is really just a list of hopeful phone numbers with no legal weight of its own, no matter how carefully it has been kept.

Because the seller's own early document had surfaced the mismatch before the buyers signed anything binding, there was still room to fix the structure of the deal rather than fix a problem after the fact, which is a very different and much cheaper conversation to have.

What we did

1. Requested the licensing file directly rather than relying on summaries. We had Meron provide the actual licence and its stated capacity limits, which took the conversation out of the realm of the seller's spreadsheet and into a document with legal weight, giving the buyers a fixed number to check every other figure against instead of trusting a projection built on hope and a strong sales pitch.
2. Cross-checked enrolled children against licensed capacity. Before discussing the waitlist at all, we confirmed how many children were already enrolled and how much genuine remaining capacity existed under the current licence, which showed the real, sustainable ceiling on revenue rather than the inflated one in the seller's projection, and gave the buyers an honest baseline to negotiate from rather than a hopeful one.
3. Reclassified the waitlist as non-binding in the purchase agreement. We revised the schedule so the waitlist was disclosed honestly as a list of interested families with no transferable legal value, removing it as a priced asset rather than leaving a figure in the agreement that could not be defended if challenged later by a lender or a future buyer of Yohannes and Cristina's own.
4. Rebuilt the price around verifiable numbers. With the waitlist stripped out as an asset, we negotiated the purchase price down to reflect the premises, equipment, and the enrolled children with confirmed ongoing agreements, giving Yohannes and Cristina a figure tied to what the business could actually deliver rather than what it hoped to deliver in an optimistic first quarter of ownership.
5. Built a licence transfer condition into the agreement. Closing was made conditional on the licensing authority formally approving Yohannes and Cristina as the new operators, so the buyers were never on the hook for a business they were not legally permitted to run if that approval was delayed or refused, and so their deposit stayed protected in the meantime rather than at risk.
6. Required Meron to notify enrolled and waitlisted families of the ownership change in writing. Rather than leave families to hear about the change informally, or not at all, we set a standard letter every household would receive at the same time. This gave every family clear, accurate information about who would be operating the daycare going forward, reducing the risk of confusion or sudden withdrawals once the change became public, and gave the new owners a clean, documented starting point with every parent already on file.
7. Set out a staged plan for growing enrolment toward true capacity. Rather than promise a full daycare on day one, we helped the buyers build a realistic timeline for admitting waitlisted families as genuine capacity opened up, tied to actual age-outs rather than to the projection Meron had first offered. This kept growth in revenue matched to growth in licensed space instead of running ahead of it and risking the licence itself, and gave Yohannes and Cristina a plan their bank could actually rely on.

The outcome

The deal closed with the waitlist removed as a valued asset and the price adjusted down by roughly a tenth of the original figure to reflect that change, a concession Meron accepted once shown the licensing capacity math directly rather than argued into. The enrolled children with real, ongoing arrangements transferred cleanly once the licence transfer was approved, and Yohannes and Cristina began operating within the daycare's actual capacity rather than one inflated by an aspirational list they could never legally have filled.

Because the problem was caught and corrected before the purchase agreement was signed, it never became something the buyers had to manage after taking over. There was no post-closing dispute about missing revenue, no families arriving expecting a spot that legally could not exist, and no awkward conversation about a licence that could not support the business as advertised. The waitlist itself was handed over informally as a courtesy, useful as a starting point for future enrolment, but priced at nothing, which is what it had always actually been worth on its own.

Meron accepted a lower sale price than originally hoped for, but avoided the far worse outcome of a buyer discovering the capacity mismatch after closing and pursuing a claim over it, which would have cost far more than the price adjustment in the end. For Yohannes and Cristina, the daycare they took over was smaller in projected revenue than the one they had first agreed to buy, but it was one whose numbers they could actually stand behind when they applied for financing.

Within the first two seasons of ownership, several spaces did open up as older children moved on, and the couple worked through the waitlist methodically, offering spots in the order families had originally been promised them. Because that process was handled transparently and in writing from the start, no family felt misled the way they might have if the original inflated figure had been left standing, and the daycare's reputation in the community stayed intact through a change of ownership that could easily have gone the other way.

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