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How is a franchise business valued when it’s put up for sale?
Brian Duckett writes:
One thing you can be sure of is that it will be valued differently by the seller and the potential buyer. It will then be differently valued again by a resale broker, an accountant, an independent valuer and even the franchisor.
Bear in mind that the franchisor will be able to veto any deal if it doesn’t believe the purchaser meets its normal franchisee profile, the purchaser doesn’t get through the standard recruitment and training process or the deal is being financed in such a way that the franchised outlet in question is likely to fail.
Depending on the type of business and the sector in which it operates, there may be rule-of-thumb criteria based on turnover, multiples of net profit or even the stability of the client base. In some networks there will be historic evidence of similar deals and it may be possible to use the valuation methods used for them.
The final complication is that sellers want to sell and buyers want to buy for any number of different reasons. Often the seller will sell for less than one might think reasonable if they’re desperate to get out, while the buyer will buy for more than reasonable, if it completes their set of outlets in a geographical region.
Brian Duckett is chairman of The Franchising Centre, part of the world’s largest network of specialist franchise consultants.
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Companies to Consider
Jackson Fire & Security
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Net profits rising from 7% to 40% on maturity
Yes via third parties, both bank finance and asset finance
Up to £230,000
£400,000 - £500,000 revenue with £40,000 - £65,000 profit
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