Selling Your Franchise – Getting the right valuation
Franchise owners looking to move on to other ventures will first need to obtain a valuation for their franchise resale. On the surface, this seems simple enough. You think you know how much the franchise is worth, and therefore you should have no issues in selling your franchise to an eager buyer.
However, many franchisees will soon discover that it is not as straightforward as this. Knowing where to get a realistic valuation can be tricky, and failing to find a valuation that truly reflects the franchise’s worth can cause unwelcome delays, especially if you already have plans for bigger and brighter things.
A realistic valuation is vital for attracting serious buyers. We have experienced situations where brokers have valued a business anywhere from £50,000 to £150,000 more than the franchise is worth. You do not need to be a broker or valuation expert to understand how damaging this can be to the individual selling a business.
So, how can you value your franchise resale properly?
What to do
Do not rush to find a franchise buyer immediately. Instead, get in contact with a qualified and experienced broker, such as Franchise Resales and ask them to provide you with a free, business valuation. This valuation is usually a multiple of your total business profits and can vary between industries. Therefore, running a fast-food franchise will have different multiples than a healthcare franchise.
For mature businesses, you can look at the business cash flow as this should give you a higher multiple than small businesses. It could also be beneficial to look at similar franchise resales in the area over the past five years to get a base cost and back up your belief that your franchise is worth x-amount. Once you have a valuation that seems fair, you can continue with the sale.
Things to consider
Many factors go into valuing your franchise resale. These factors include:
– How old the franchise or business is (its maturity)
– Dependence on customers and staff
– Employed assets
These factors will determine how a broker will value your franchise.
As a result of the pandemic and the drastic change in the economy, some franchisees are concerned about their potential return on investment. Whilst there are some businesses that have been severely impacted by the pandemic, there are franchises that have been successful and as such will still achieve a good price. Although there has been a change in finance options for potential buyers, with many banks restricting lending, including the EFG (Enterprise Finance Guarantee) funding. Despite this, we are still receiving serious enquiries and with help from our finance partners are able to access funding.
HSBC recently launched a £5 million funding pot to assist British SMEs, which opens up more options for buyers and helps make the future look a little brighter for business as a whole.
If you are putting off selling your franchise as a result of the pandemic, get in touch with us today. We are happy to perform a free valuation for your businesses. We focus on profitability and take the current market conditions into account to ensure we price to sell rather than merely advertise. This gives you a realistic price for the business to prevent any disappointment.