Franchise Resales
Franchise Resales
When existing businesses sell, the price is typically based on a multiple of normalized annual earnings or cash flow. Another common term used in the financial industry is EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).
Typically, franchisees want to re-coup every dollar they put into the business and then some. Often this is possible assuming the business is profitable and has a track record. Two positives franchisees sometimes overlook:
1. Franchised businesses that are profitable will typically bring a higher multiple of cash
flow in the sales price
2. There is intangible value (because it’s a franchise) that can add to the sales price.
But on the flip side, an existing franchised business (in the eyes of the buyer who is looking to buy a stream of income) is an existing business that happens to be a franchise. Therefore, unless the business is profitable, this buyer will probably not wish to pursue it.
The franchise minded buyer (wants less risk and likes the franchise model) will like the fact that the current franchisee has done most of the hardest work in ramping up the business. The existing franchised business will be very appealing to this buyer assuming he/she has a personality that matches the business model.
So what happens if the business is not yet profitable or is just now at break-even? The franchisee will have to decide how motivated he/she is to sell those assets. Obviously, since there’s no stream of income, the price will need to attract the franchise minded buyer. Will this buyer pay you a price higher than what it would cost to put in a new franchise? Possibly, however several factors enter into the buyer’s decision:
1. Is this franchise territory more desirable than an available new territory?
2. How ramped up is this business? How large a database?
3. How much marketing has been done to create branding in the territory?
In the event the current franchisee has a “short fuse” on when they wish to sell – price may have to be lower than turnkey cost of a new franchise in that system.
The franchise industry is exploding with growth. Now is a great time to buy a new or existing franchise.
The next question is: Which one is right for you?
Franchise Resales - To learn more about this author, visit Anne Barr's Website.
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What happens when an existing franchisee decides to sell? Franchisees don’t actually “own” the franchised business. In fact, they own the “assets” of the business only. The Franchisor gave them the “rights” to use the name, marks, the operating manuals, the “system”, however the franchisee does not “own” these items. In effect, they rent them from the franchisor during the term of the franchise agreement.
When existing businesses sell, the price is typically based on a multiple of normalized annual earnings or cash flow. Another common term used in the financial industry is EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization).
Typically, franchisees want to re-coup every dollar they put into the business and then some. Often this is possible assuming the business is profitable and has a track record. Two positives franchisees sometimes overlook:
1. Franchised businesses that are profitable will typically bring a higher multiple of cash
flow in the sales price
2. There is intangible value (because it’s a franchise) that can add to the sales price.
But on the flip side, an existing franchised business (in the eyes of the buyer who is looking to buy a stream of income) is an existing business that happens to be a franchise. Therefore, unless the business is profitable, this buyer will probably not wish to pursue it.
The franchise minded buyer (wants less risk and likes the franchise model) will like the fact that the current franchisee has done most of the hardest work in ramping up the business. The existing franchised business will be very appealing to this buyer assuming he/she has a personality that matches the business model.
So what happens if the business is not yet profitable or is just now at break-even? The franchisee will have to decide how motivated he/she is to sell those assets. Obviously, since there’s no stream of income, the price will need to attract the franchise minded buyer. Will this buyer pay you a price higher than what it would cost to put in a new franchise? Possibly, however several factors enter into the buyer’s decision:
1. Is this franchise territory more desirable than an available new territory?
2. How ramped up is this business? How large a database?
3. How much marketing has been done to create branding in the territory?
In the event the current franchisee has a “short fuse” on when they wish to sell – price may have to be lower than turnkey cost of a new franchise in that system.
The franchise industry is exploding with growth. Now is a great time to buy a new or existing franchise.
The next question is: Which one is right for you?
Franchise Resales - To learn more about this author, visit Anne Barr's Website.
Like this article? Share it with your friends
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John PowerJohn Power, founder of Biltmore Franchise Consulting, has extensive experience developing and marketing franchises and business opportunities. He has been in and around franchising for over twenty years. From 1980 through 1990 he conceptualized, organized, and developed the American Video Association. He grew AVA to 2,000 national members, before selling the company it 1990. It was later merged into another home video marketing company. From 2000 to 2005 he worked as a contract marketing and human resources consultant to several local and national companies. In 2005 Mr. Power began working as a franchise development consultant on a full-time basis. Since that time he has helped more than three dozen companies initiate and develop their franchising program. He notes that there are many companies interested in developing a franchise program, and who need his specialized assistance. Mr. Power is a “hands-on” franchise consultant. He said, “I am the ‘nuts and bolts’ person who tends to the details for my clients.” Mr. Power holds a B.S. degree with a major in Marketing. See: www.biltmorefranchise.com You may contact Mr. Power at: jpower@biltmorefranchise.co - Visit John Power's Website |
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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John BrennanJohn Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website |
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Jay Kubassek(Jay's Full Bio: EvanCarmichael.com/jaykubassek) In five years, Canadian-born entrepreneur Jay Kubassek went from selling mufflers at a Midas franchise to revolutionizing Internet marketing with the 2004 launch of CarbonCopyPRO, a online marketing education company, now worth over $20 million with customers in over 160 countries.
As an independent film producer, his upstart film fund Aliquot Films is currently producing a films with Spike Lee and Abel Fererra (starring Ethan Hawke and Dennis Hopper.)
Jay's entrepreneurial spirit is irrepressible. He’s the owner of five companies, a professional speaker and trainer, international real estate developer/investor, extreme sport enthusiast and emerging philanthropist. Jay resides in NYC with his wife Jamie, son Milo and dog Cooper. Visit Jay's official website: www.JayKubassek.com - Visit Jay Kubassek's Website |
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