Pricing & Selling Existing Franchises – Franchise Secrets

Pricing & Selling Existing Franchises

By October 11, 2018 Franchising, Revenue

I talk with people weekly who are thinking about selling their franchises.

When I am getting ready to sell one or a group of my franchises. I think about what price would be worth it for me to sell and that is my starting point. It sounds pretty simple and you can get very complex quickly.

I have been down that road of complexity as well. I have hired expensive business valuation consultants to “crunch the numbers”. My conclusion is pretty simple, there is a price I am willing to sell if for and there is a price the buyer is willing to buy it for.

Here is some information that I found interesting and hope you do as well.

I thought this was interesting information from FranData. This is not to be used for valuation purposes, it is just information that was complied. Valuations vary some people will argue these multiples are too high, too low or average. I am not here to argue one way or another, I just want to present data that was presented to me.

*Value includes only fixed assets and goodwill

**SDE = Seller’s Discretionary Earnings = Adjusted EBITDA + One Owner’s Compensation

The SDE multiples above may also be interpreted as the total number of years it will take a hypothetical buyer to pay off the business at a stated purchase price (assuming an all cash purchase). Furthermore, the reciprocal of the multiples indicate the annual return on investment (ROI) to the buyer. Using the first comp as an example, assuming a buyer purchases The Goddard School franchise location for $1,000,000 (all cash), it would take 3.8 years in order to fully recuperate the total purchase price based on SDE. The annual ROI to the buyer (calculated at 1 √∑ 3.8) is 26%, or approximately $263,000 of SDE per year; $263,000 (SDE) x 3.8 = $1,000,000.

Reliant Business Valuation compiles valuations for SBA lenders around the nation. In the table below, are sample franchise transactions and their respective sales and earnings multiples. Do not use this data for valuation purposes, but simply as franchise rules of thumb. Remember, you might see different multiples for the same business type, and this is normal. Valuation is more than just applying multiples, and each business is unique Рthe appraiser must take into account various factors, and must consider the financial strength of each individual business compared to the industry in order to attain an accurate value (read more on the FranData blog).