How to Estimate a Franchise Asking Price

For those that would like to own their own business, buying a franchise of an existing organization is a great option. Those that own a franchise business will benefit a number of different ways and could greatly improve the value of their franchise overtime. At some point, it may even make sense to sell a franchise. When you are selling a franchise, determining the fair price can seem like a challenge. Fortunately, there are several tips that you can follow that can help you to better estimate a fair asking price.

 

Estimate Liquid Value

The first thing you should do when trying to come up with a fair price when selling a franchise is to determine the liquid value of your assets. Franchise business owners will likely own a variety of different types of equipment, real estate, have accounts receivable, and have other assets that can be liquidated. This is the value of your core assets and should be incorporated into your asking price.

 

Earnings Multiple

When you are trying to sell a franchise business or any other type of business, it is important that you actor in the earnings of your business. Ultimately, the value of a business comes from its underlying cash flow. If your business has been cash flow positive for a long time, the value of the business will be much higher than one that has yet to earn a profit. The actual multiple that you will use will vary based on your industry, what should be a multiple of the business’s EBITDA.

 

Future Profit Forecasts

If your business is in an industry that is poised for growth, you should also factor in the profit potential for the organization. While projected profits are not going to be as weighted as actual profits, those that are in an industry or on a business that has clear sight to earning more money could consider adding a multiple to this as well.

 

Consider Your Value

In many situations, a business owner will decide to continue to work for the business that they sell for at least a few months after the transaction is complete. This will help to ensure a smooth transition and will allow the buyer to learn from an experienced business owner. When you are going to provide your training and consulting services, you should consider this as an additional asset that is being sold to the buyer.

 

Third-Party Valuation

Finally, when you are looking to sell your business on the open market, it might make sense to have a third party conduct a fair value assessment of your business. A business appraiser will go through many of the same steps and processes that you would when having your business valued. Having your business appraised by a third-party will give potential buyers assurances that devalue that you are coming up with is also supported by market data and outside analysis. This can go a long way when you are trying to get the best price possible.