January 20, 2023 | Franchises
What’s My Franchise Worth?
Like an independent business, accurately determining a market value for franchises is relatively complex. As a unique model of ownership, franchises come with additional variables that directly impact and influence their market value.
If you’re looking to sell your franchise, having a baseline understanding of the detailed valuation process can help you be prepared for entering the market.
Selling your franchise? Northern Hospitality can help you acheive a smooth and successful sale. Click here to book a seller’s meeting.
Breaking Down Franchise Valuations
Rather than have a pre-set market worth, the value of a franchise is shaped by a range of factors. A commercial real estate agent will help you determine a market value for your franchise based on three main variables.
The first element that impacts the market value of your franchise is cash flow. Essentially, how much money does your franchise earn annually, and how much income could a buyer reasonably expect to earn as the new owner?
Determining your franchise’s net cash flow involves a handful of important calculations. During this step, you’ll need to factor in previous earnings, current cash flow, and the projected long-term growth of the business. Along with standard costs of business such as wages, rent, and utilities, your agent will also factor in broader economic trends that could impact cash flow such as inflation, increases to minimum wage, or changes to local demographics.
In addition to projected income, potential buyers will also place a lot of value on assets included in the business sale. These assets could be furniture, appliances and equipment, administrative resources, or other items. Depending on your franchisor and type of business, the assets that you pass on to the buyer could impact your valuation by a sizable margin, or not at all.
Market Position & Brand Awareness
Finally, arguably the most impactful factor in determining the worth of your franchise is the current market position and the overall power of the franchisor brand.
In most cases, the more widely recognized the brand, the greater value it adds to the sale of the franchise. Even if your franchisor provides a well-structured support network, great resources, and other perks, buyers will first consider its overall popularity and prominence.
In addition to the franchisor brand, the physical location of your franchise will also greatly influence its market value. Factoring in customer accessibility, local foot traffic, and competing businesses, your commercial real estate agent will leverage its market position to help you get the best return possible.
Along with the franchise’s existing market position, an experienced commercial real estate agent will also have key insights about future development in the area that may impact the market value of your business.
New to the world of commercial real estate? Explore these blog posts for a crash course on selling your business.
- How Selling a Business is Different From Selling a Home
- Selling Your Franchise? Here’s How to Make the Transition Easier on Your Staff
- How to Prepare Your Restaurant For Sale
If you’re thinking about selling your franchise, there are a few implications or restrictions you’ll want to consider in advance. Of course, these considerations will differ based on your specific franchisor, however, it helps to be aware of common costs or challenges that could arise in the sale of your franchise.
Transfer Fee: Some franchisors may charge you a transfer fee if you choose to sell. Always do your research to determine any franchisor-related fees that could impact your sale.
Non-Compete Agreement: If you choose to sell your franchise, the franchisor may ask you to sign a non-compete agreement. Depending on your plans and goals following the sale, this type of agreement could interfere with future business opportunities.
Selling With a Commercial Real Estate Agent
When it comes to commercial real estate, franchises are highly specialized. If you own a franchise that you’re looking to move on from, the most optimal place to start is with a commercial real estate agent. A commercial agent’s specialized expertise can help navigate the complex process of selling while ensuring you achieve an exceptional result.
Looking to sell your franchise in the Greater Toronto Area? As commercial real estate experts, Northern Hospitality can help you optimize your return. Send us an email or call 647-280-4404.