How much is my franchise worth?

For anyone considering exiting their franchise business, or planning for their future, one question will always inevitably come to mind: How much is my franchise actually worth?

Of course, this is a crucial consideration. But regardless of what stage you’re at in wanting to sell up and move on, the answer isn’t as straightforward as plugging numbers into a calculator.

There are many different ways to value a business, with some industry-specific general rules of thumb to follow.

Within franchising specifically, accurately valuing a franchise involves an important mix of financial analysis, sector insight, and practical judgement.

At Franchise Business Brokers, we’ve spent many years refining a robust, uniformed, and standardised approach to franchise valuation, which is consistent across most sectors.

To help you answer the question of how much your franchise is worth, this guide breaks down the most important factors that determine your business’ value, and how you can boost it ahead of a potential sale.

1. Industry trends and brand positioning

The industry you operate in has a significant impact on your franchise’s valuation.

Some of the key questions to consider are:

Is the industry you’re in growing?

Being in a growing sector is beneficial to your franchise’s value.

Examples of growth sectors vary over time, but typically include those aligned with long-term demographic or consumer trends.

While sectors such as health and private education have shown strong upward potential in recent years, it’s important to assess the specific segment within each.

Let’s look at home care as an example. Even within this established industry – which has historically seen huge demand and exponential growth – the picture is increasingly nuanced.

While privately funded care services can remain an attractive franchise opportunity, areas such as council-funded care are seeing tighter margins due to rising employment costs and funding pressures.

Ultimately, businesses in growing sectors tend to attract higher valuations due to long-term potential and the increasing need for services.

Is the industry you’re in saturated, shrinking, or highly competitive?

Businesses in challenging sectors and declining markets typically offer less potential for future growth – thereby making them a less attractive investment opportunity to a potential buyer.

As a result, this makes the franchise less valuable from a “worth” perspective when it comes to valuation.

However, it’s important to note that being able to demonstrate a strong potential for transformation in the industry in the near future could actually increase the business’ value.

What brand is your franchise?

Is your franchise part of a well-known, trusted, industry-leading brand? Are you a challenger brand? Or are you a new and upcoming brand in the space?

Buyers value the strength and reputation of the brand your franchise operates under, so knowing where you sit within your industry will impact on your valuation.

2. Financial performance over time

It may sound obvious, but analysing your franchise’s financials is critically important.

A prospective buyer will look at your business’ financial history to assess profitability and the long-term sustainability of the franchise.

More specifically, they will want to know the answer to these questions:

• Is the business growing in terms of sales revenue?
• Is the business growing in terms of profitability?
• Are the financials stagnating or fluctuating?
• Are the business’ financials declining?

In order to generate an accurate valuation, we typically review the last three years of financial accounts to give us an idea of the trend the business is on.

This includes looking at:

• Revenue growth or decline
• Profit margins and EBITDA
• Trends in costs or operational efficiency

Typically speaking, the most attractive – and therefore most valuable – prospect for a buyer is a growing business.

So to maximise your business’ value, ideally we’d expect to see a consistent upward trend in both sales revenue and profitability over that period.

3. Revenue composition, including contracts and recurring income

Buyers love predictability – which is why the make-up of your business’ sales revenue is a major valuation factor.

When we look at valuing a franchise, we pay close attention to:

• How much is from recurring revenue – such as contracts or subscription models?
• Where contracts are in place with customers/clients, how long are they locked in for?
• How much expected upcoming revenue is guaranteed?
• Is there a heavy reliance on one-off sales, or a small number of large clients?

Essentially, the more predictable and stable your revenue is, how diverse your income streams are, and the longer customers are committed to using you, the more favourably it is looked upon from a business valuation perspective.

4. Owner dependence vs team-led operations

How reliant the day-to-day running of your business is on you, and what associated support networks are in place, is another key consideration when working out how much your franchise is worth.

Owner dependence

If your franchise relies heavily on your personal involvement in daily operations, it can raise concerns for potential buyers. This is particularly the case in larger, team-led businesses where continuity without the current owner is expected.

In order for you to exit the business effectively, it must be able to run without you; if you’re central to every decision, this creates risk for a buyer, and subsequently could negatively impact the value of your business.

That said, not all franchise models are the same.

In many owner-operator businesses – such as those following a “man in a van” model – a significantly higher degree of owner involvement is both normal and expected.

In these cases, what matters most is the ability for you and/or the franchisor to provide robust training and support to ensure the incoming owner can step in and run the business confidently.

So while being central to every decision in a complex, multi-staff operation might negatively impact value, this is much less of a concern in simpler owner-led models where buyer expectations are different.

Ultimately, what buyers want to see is a business that can continue to operate effectively after a change in ownership – either because of a strong team structure, or because the franchisor offers the right support and systems for a new franchisee to hit the ground running.

This makes a franchise significantly more valuable, therefore it is what you need to be aiming towards.

Team-led

Should your franchise have a management or senior team in place who are responsible for running the business on a daily basis, then fantastic – that puts your business in a super valuable position.

However, we also need to consider several things about this, specifically:

• How long has the team been in place?
• Are they well trained?
• Are they engaged with and committed to the business?
• Are they likely to hang around after the business is sold?

The answers to these questions are really important considerations when it comes to establishing accurate valuations for these types of franchises.

5. Compliance and regulatory standing

For franchises in regulated sectors, your standing and compliance track record directly affects your business’ value.

Let’s go back to the home care sector example. Businesses in this space must be regulated by the Care Quality Commission (CQC), so a home care franchise’s current rating with them will be a factor in the valuation.

Naturally, a franchise that is rated as “Outstanding” by the CQC is likely to be far more desirable – and thus valuable – to a potential buyer, compared to one which is rated as “Requires Improvement”.

Different industries and sectors will have different regulatory bodies, so make sure your business is ready for an audit on this area.

At the end of the day, the better the business’ regulatory standing and reputation, the more value it will hold.

6. Local reputation and online presence

When it comes to valuing franchise businesses, it’s not solely about the numbers.

Indeed, it’s critical you do not underestimate the importance of your local-level reputation and customer feedback

What is your franchise’s rating on Google Business Profile? What are customers saying about the business on Trustpilot? Are you on any other public-facing platforms, where people can influence your business’ reputation?

If your business’ reputation is strong, that is really attractive to a potential buyer, and therefore beneficial to building a greater valuation for the business.

Conversely, a very poor reputation – either online or within the local area – will raise red flags and could negatively impact the business’ value.

7. Business forecasts and strategic planning

Although business forecasts are typically not a major influence on the valuation, they certainly help support a buyer’s confidence in future performance – so it’s definitely beneficial to have these in place if possible.

As the owner, are there any obvious places you would be investing your time, money, and energy into driving business performance over the next three, four, or five years? How clear are these goals? How easily achievable are they likely to be?

If such plans and/or financial forecasts are in place, that’s hugely helpful to driving a greater valuation.

When it comes to exiting, being able to articulate “what’s next” makes your business more appealing; clear plans for growth, investment opportunities, or operational improvements add credibility to your asking price.

8. Value is determined by what people think it’s worth

As with any business, your franchise is ultimately worth as much as someone is willing to pay for it.

While there are many factors to consider in attaining a fair and accurate valuation of your business, understanding the key elements that we have laid out above will give you the foundations from which to build on.

And by proactively addressing the factors outlined, you can significantly increase your chances of commanding a stronger offer – whether you’re preparing for sale soon, or looking to build value over the long term.

Maximise your franchise’s value through expert insights

As we said at the start, understanding what your franchise is worth is about far more than just numbers on a spreadsheet.

It’s about assessing every element of the business that contributes to stability, scalability, and appeal to a future owner – something Franchise Business Brokers excels in.

Our independent, objective franchise valuation method assesses both financial and non-financial variables, and benchmarks them against industry standards.

This provides you with an informed valuation “score” that guides your price positioning, enabling you to take your franchise to market with confidence.

Find out more about our franchise valuation services.

Ready to discover your franchise’s true value?

If you’re considering exiting your franchise, or simply want to understand how your business is performing from a buyer’s perspective, we’d love to help.

Get in touch for a friendly chat and find out how we can support you with accurate valuations and proven strategies for boosting your franchise resale prospects:

T: 020 8017 2115
E: info@chantry.email