Tuesday, March 8, 2016

How much is that franchise business worth?

Happy March! The warm weather is just around the corner ... spring and summer are times when homeowners think it may be a good time to list their homes for sale or to jump to that new home. (Is this a real estate blog? ...wait for it ... I'll make the connection to franchising in a minute)

Usually, home buyers and sellers have a good idea of the VALUE of what they are buying or selling due to the very active and public real estate market. But what is the VALUE of that franchise business I want to buy or sell?

Of course the answer depends on whether it is being sold by the franchisor as a new franchise or by a franchisee who is cashing out after establishing and operating the business over a period of years. Either way wouldn't it be helpful to know the "market value"?

Now this type of analysis is above my pay grade but here are a few suggestions (in no particular order):

  • Contact a Business Broker to see if they can help, especially for franchisees planning to list and sell. There are plenty of franchise brokers out there who are eager to give you a listing price;
  • Visit with your Certified Public Accountant, especially if they have been handling your business affairs;
  • Get a copy of the Business Reference Guide - a bit pricey at $155.00 but it has a wealth of information about business valuations, including popular franchises, and provides Rules of Thumb that will at least give you a starting point;
  • Hire an appraiser - check out the Institute of Business Appraisers and the American Society of Appraisers for more information and to find a qualified appraiser;
  • Ask franchisees who recently sold their business or ask a recent buyer from an established former franchisee - they may be listed in Item 20 of the Franchise Disclosure Document if the sale was within the last year before the date of the FDD;
  • Finally, although the franchisor may be reluctant to provide historical re-sale info (due to various franchise laws and regs), you may want to ask anyway and see what you get.
These are just a few ideas - the important point is to get some idea of VALUE before you leap!