When it comes to selling a business, determining the true value of a company is no simple task.
This is especially true when it comes to valuing franchise businesses, as these operate within specific frameworks established by franchisors.
Historically there have been lots of different methods to come to an agreed figure, most of which are the result of a largely subjective, rather than objective, process. Sometimes it can even feel as if valuers are just sticking their finger in the air to see which direction the wind is blowing.
Given the sheer number of variables between these distinctly different ownership and operating models, establishing a fair and true value to a franchise business ahead of a potential sale requires a specialised approach.
We believe there is a better way to value a franchise. It’s why Franchise Business Brokers has developed a tried and tested process of valuing a franchise business.
But first, let’s deal with why getting a professional valuation is so critical.
Why is getting an independent franchise valuation so important?
- You, the franchisee, want the confidence that your business is being fairly valued and reflects your hard work and efforts over the years.
- The prospective buyer needs reassurance they are not overpaying significantly for the business, which could put them on the back foot and leave the future of the business in question.
- The franchisor has a duty of care and will want you to receive a fair fee for your business, while ensuring the incoming franchisee has a good chance of hitting the ground running and securing a good return on their investment.
- Lenders, who are often overlooked, go through a detailed underwriting process, and having an independent, expert valuation to review goes a long way to providing the necessary assurances that a business can meet the affordability demands when it comes to borrowing for a franchise resale purchase.
The bespoke Franchise Business Brokers valuation method
Created and carefully refined in-house by a team with decades of combined experience in franchising and finance, our unique approach aims to make the franchise valuation process as scientific as possible – while still accounting for the nuances and sector-specific requirements that the world of franchising entails.
Our bespoke methods empower franchise owners to gain a deeper understanding of their business’s true value, paving the way for genuinely informed decision-making and successful franchise resales.
For those contemplating selling or buying a franchise, our expertise and commitment to accuracy in valuations offer a solid and trustworthy foundation on which to base your negotiations.
However, as with all valuations both in and outside of franchising, it’s important to remember that any business is ultimately worth what someone is willing to pay for it. Sellers naturally aspire to receive the highest possible price for their business, whilst buyers will inherently aim to secure the most favourable deal for them. This interplay of interests often gives rise to a challenging negotiation process, which places even more emphasis on getting the valuation completely correct.
To give you a better insight into how we work, we’ve outlined the four key stages to generating the best and most accurate asking price for your franchise business.
Step 1: Reviewing financial accounts
We begin by undertaking a comprehensive review of the business’ financial accounts. Ideally we will be given access to at least the previous three years of accounts in order to gain a real overview of the business’s performance and trajectory.
Analysing sales revenue, profitability, and other key trends
Sales revenue and profitability are meticulously scrutinised to assess the franchise’s financial health. This will help the highly experienced Franchise Business Brokers team to determine what direction the business is heading.
Understanding these trends provides invaluable context for assessing the franchise’s value.
Asset and liability profile
In addition to cash flow and financial performance, we delve into the asset and liability profile of the business, as this can also have a major impact on the valuation.
For example, let’s imagine a large-scale gym franchise which has lots of fitness equipment. What’s it all worth? Are there finance deals covering the ownership or lease of this equipment? What are the outstanding amounts left to pay?
By assessing the complete asset and liability profile of the business, we gain a comprehensive understanding of the franchise’s financial obligations and commitments.
Creditors and debtors
Creditor and debtor reports also play a vital role in the financial evaluation process. In order to produce an accurate valuation, we need to clearly understand exactly how much money the business owes and is in line to receive. Furthermore, we also assess the presence and impact of any bad debt.
By conducting a meticulous analysis of these crucial financial aspects, the Franchise Business Brokers team will gain a complete understanding of the franchise’s financial standing. Together with the non-financial aspects of the business’ operations, this allows us to provide accurate and insightful valuations.
Step 2: Reviewing non-financial aspects
Once the fiscal health is established, the next step in our tailored franchise valuation process is to thoroughly review a range of non-financial aspects of the business.
This is extremely important, as it will paint a clear picture of the franchise’s market position, operational efficiency, and potential for future growth, amongst other things. All of these components significantly contribute to a franchise’s overall value, and ultimately its attractiveness on the resale market.
Sales and marketing activity
The sales activity of the business is closely examined and our team assesses the effectiveness of the franchise’s sales strategies and initiatives.
The franchise’s marketing activity is also of crucial consideration. We evaluate the holistic marketing efforts, assessing the strength of its brand presence, advertising campaigns, and customer acquisition strategies. A robust and effective marketing strategy can significantly enhance a franchise’s value.
Business plans
Another question to answer is whether the franchisee has and/or utilises any business plans with financial projections. These plans provide invaluable insight into the franchisee’s strategic vision for the business, alongside growth projections and financial goals.
Understanding what the roadmap for the business looks like will provide greater clarity as to its potential future success and challenges.
Systems and processes
Well-defined and documented processes are essential to contributing in the smooth running of any business, in turn reducing operational risks and enhancing value when it comes to being sold.
Regulatory requirements
Many franchises across a wide variety of sectors must operate under strict industry or governmental regulations. Common examples include compliance with health and safety regulations, data protection regulations such as GDPR, and industry bodies such as the Care Quality Commission (CQC) for healthcare providers.
Adhering to or exceeding these requirements demonstrates a commitment to excellence and adds value, so it’s imperative our team gets a firm understanding of what’s required of the business.
Staff
Who does the business currently employ? Are they integral to day-to-day operations? Are they likely to stay with the business following its sale?
Understanding the staffing situation is integral, as we must gauge whether a potential buyer can hit the ground running, or if they will need to undertake a potentially costly recruitment process upon completion. A thorough staff analysis is therefore critical for an accurate business valuation.
With all financial and non-financial aspects meticulously analysed, the Franchise Business Brokers team will have a solid base with which to work from to value your business.
Step 3: Assessing against industry standard measures
When valuing any franchise, we recognise the importance of taking any industry standard measures into consideration. This ensures that the valuation process is aligned with market norms and enables franchise owners to gauge the relative worth of their business. Ultimately, this helps us to establish a key benchmark for the valuation multiplier.
Our valuation experts take these into account and deploy them alongside the standard franchise valuation multipliers, which typically range between x1–x4 depending on the success of the business.
Step 4: Applying Franchise Business Brokers’ bespoke valuation matrix
Once we have conducted a thorough review of the financial accounts, non-financial aspects, substantial assets, and evaluated industry-standard measures, our valuation experts will assign your business a score out of 100.
This score is then applied to Franchise Business Brokers’ bespoke valuation matrix. The result is the best and most accurate value multiplier for your business.
Important things to note about our franchise business valuation model
To give you complete peace of mind when considering using Franchise Business Brokers to value your franchise business, it’s worth remembering these key points:
- Our methods are highly regarded: Our bespoke franchise resales valuation model is highly regarded across the industry. Established valuations are widely accepted by banks, lenders, and industry professionals.
- We have a strong reputation in the industry: Franchise Business Brokers is often enlisted to assist with or cross-check independent valuations.
- Our valuations are independently checked: To ensure accuracy and reliability, we go the extra mile by having our bespoke franchise valuations independently checked and challenged at our own expense. This additional step underscores our commitment to providing you with trustworthy and objective valuations.
What happens after a franchise business valuation?
Once a fair and true valuation is provided, it is up to the business owner to decide how to proceed. For those looking to proceed with the sale of their business, Franchise Business Brokers provides wraparound support with every step of selling your business.
This involves strategic guidance, attention-grabbing marketing collateral, expert advice, and support with negotiations and brokering the sale through to completion. In short, everything we do is engineered to support franchise owners in achieving the best possible outcomes during the often tricky sale process.
Interested in having your franchise valued?
Now you know how our tried and trusted process works, you may be curious to discover what your franchise is truly worth.
If so, don’t hesitate to reach out to the Franchise Business Brokers team today for a free no obligation and confidential chat about your situation. We’d love to help you gain the clarity you need to empower your next business move.
