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Forum Newbie
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Last Login: 5/9/2007 2:31:00 PM
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| I'm considering buying a franchise business and as part of the evaluation process, I want to understand how the business will be valued if/when I choose to sell it. I worked for a small services business that was sold by the owners after about 15 successful years of operation. Their one regret from that business was that they didn't have an exit strategy as part of their business plan, and didn't know the typical valuation of companies in their industry. Said another way, they wished they what prospective purchasers would look for earlier in their ownership (e.g. purchasers valued longer term contracts over shorter even if the shorter were higher margin, more prime contract work instead of work as a subcontractor, etc.) and how businesses in that industry were valued (x times revenue, x times EBITDA, etc). Are there resources I can turn to who can help me understand the key metrics used in evaluating the industry I'm considering and can tell me what the value of businesses in this industry - are they selling for 50% of revenue or 3 times ebidtda or ??? Thanks Charlie
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Forum Newbie
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Last Login: 5/19/2009 8:33:10 AM
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| Charlie: The best information about resale prices in a franchise system is the scuttlebut among existing franchisees. There is often a rule of thumb that everyone in the system knows about. In the Carvel ice cream shop franchise chain which I ran for years, the rule of thumb was 2/3 of annual sales. Over the years I actually saw many deals with purchase prices that matched the rule of thumb to the penny. It was just considered to be a fair price, so buyers and sellers sometimes used the rule of thumb to set the price. Comparable sales (and what's more comparable than a sister franchise) are a very good source of what the market will bear. Be very careful, though, to make sure that the comps you look at are really comparable. The resale price of the highest grossing unit in a chain might not be a good data point. If you read books about business valuation you will learn that the various methods the economists have developed will often result in wildly different numbers. The investment banker's approach is to employ several different valuation methods and then choose the one that yields the number they like the most. We are franchise lawyers and franchise business people. If there is anything that we can do to assist in your investigation of franchises or in reviewing documents and closing the deal, please give us a call. You can read about what we do for prospective franchisees at our website franchiselawsource.com. Scott C. Kern, Attorney at Law, LLC 205 Church Street, Suite 321 New Haven, CT 06510 203-782-9076 scott@scottkernlaw.com franchiselawsource.com
Scott C. Kern, Attorney at Law, LLC
205 Church Street, Suite 321
New Haven, Connecticut 06510
203-782-9076
Facsimile 203-782-9081
scott@scottkernlaw.com
franchiselawsource.com
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Forum Newbie
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Last Login: 6/3/2009 4:48:44 PM
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| Market values can be skewed and tainted as some of these comps are the lower end stores or distressed properties. And if they are sold on the basis of an accepted "multiple" or standard, then that can become the norm if more and more people use the multiple. What you need is an independent valuation that addresses all these issues: Franchise restrictions, terms of lease, cash flows, remodel issues, renewal terms, Franchise financial parameters(Royalty rate, advertising fees transfer fees etc) and an industry outlook as well as multiples as a background. Let us look at this example Business brokers say that Restaurants/Franchises are worth about 40-50% of sales Quizno's sell for 10-20% of sales today. Subway sells for 60-80% of sales. Both could be $500,000 sales stores Nobody asked about the lease, franchise fees, the franchise agreement, remodels, etc, etc Get the picture on how far you can be led astray? mrfranchiseman.com 949-253-4610
mrfranchiseman, for Valuations, Cash flows, Business Plans and second opinions
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Junior Member
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Last Login: 2/11/2011 1:41:42 PM
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| Charlie, As a small business owner and franchisor the best thing you can do to get information that is accurate and reliable is to contact an attorney who specializes in franchise law... I'm from MI and i found my attorney at http://www.myfranchiselaw.com/... they have a directory where you can search by state for one close to you  Good luck
*Lindsay*
My Franchise Law
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Forum Newbie
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Last Login: 12/30/2010 9:48:09 PM
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Forum Member
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Last Login: 6/15/2011 3:16:07 AM
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We work for franchisors, franchisees and regulators. Some of our recent engagements have included:
* Pre-litigation damages assessments for Plaintiffs and Defendants (how much are you really fighting over)
* Valuation of a franchise system for tax purposes (for the IRS)
* Intangible Property Valuations for inter-company pricing or contribution to Intangible Property Holding companies (IPHCs)
* Determining Fair Value (or Appraisal Rights) in an oppressed shareholder situation
* Determining whether alleged behavior constitutes tax fraud in violation of "obey all laws" clauses in franchise agreements
* Valuations and discount computations of franchises for gift and estate tax purposes
* Nexus audits of potential income and sales tax liability for multi-state franchisors
Franchise Consultancy
education and training franchise
Education and training franchise businesses in india
education & training franchise in india
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Forum Newbie
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Last Login: 11/15/2011 1:26:18 PM
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Business Valuations for franchises are just as important as business valuations for businesses under other structures.
This blog post might also help: http://www.ebusinessappraisals.com/blog/funding-business-retirement/
Know Your Worth. Know Your Way.
www.ebusinessappraisals.com
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Junior Member
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Last Login: 1/16/2012 2:53:48 AM
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You can consult with the Franchise Lawyer in regard to this here I am giving you a link where you can ask your query.
http://www.dbigmore.co.uk/
Franchise Lawyer
Franchise Lawyer
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