Determining value is an art, not a science

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Valuations and Selling a Franchise

Remember to keep in mind when you are devising or reading your valuation that legitimate costs that need to be removed including interest, tax and so on and are added back to the net profit to show an adjusted ‘earnings before interest tax’.

Value

Selling a franchise is all based around value.  The word value in itself is subjective and cannot be replicated in a tangible fashion and therefore requires the diligence of a well established plan. This is where utilising a well evidenced and established group of advisers will assist you to come up with a

Selling a Franchise

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Things to consider when selling a franchise

When selling a franchise there are various things you must take into account.  This includes but is not limited to:

  • Change of plans
  • Family circumstances
  • New opportunities for further growth
  • Business worth

First and foremost take great care to have your business adequately assessed in terms of the value of its worth before listing it on the market.  Just as one can find out the estimated value of a house before putting it on the market, you too can find out the estimated value of your franchise business prior to making the final decision to list it.

Key specialist people can support and guide you to make the best decisions.  For instance a chartered accountant who specialises in franchise work can cater specifically to your needs, rather than just a normal accountant who may not possess the more detailed knowledge that is critical to your unique position and situation.  A known brand could add significantly to the value of your business, and in many cases the risk of failure is lessened, and therefore the sale price may reasonably be higher than a non-franchised business.

A business broker who specialises in selling franchises know how much franchises are selling for and may have sold the same kind of franchise business in the recent past and could potentially offer you a host of information on market place trends and practices in relation to your specific circumstances.

Your franchisor: You need to honor the binding relationship guidelines with your franchisor when considering selling.  This means being aware of any potential threats or clauses governing the sale of the franchise as signed in your initial agreement.  Keeping the integrity of your relationship and involving the franchisor early may provide you with further additional support in valuing the business through comparison with other pre-sales. Draft any written notices of your intent to sell as early as possible, this will allow you to include all parties in the Franchise Agreement, as well as, to supply them with copies at least 30 days prior to the intended sale date. This is a good date average to work by, unless stipulations in the agreement allow for a shorter notification period.

They may also have business networks they could tap in to, to spread the word of your intention to sell the franchise.  Thus this would reduce a large amount of the work in finding the appropriate new franchisee to step into your role and partnership model with the franchisor.

Vital paperwork

As with all relationships, and especially those with service providers the better you communicate and supply important information the more productive their role can be in assisting you to meet your highest ideals set within your current goals.  This information could include:

  • Financial statements prepared by your chartered accountant
  • Recent management reports prepared on your own accounting system
  • Copies of GST returns for the past 2 years
  • Franchise agreements
  • Lease agreements