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If you are thinking about selling your franchise, you will want to conduct a franchise valuation to determine the value of your business. Ultimately, your franchise will be worth what someone else is willing to pay. However, making an informed decision before putting your franchise on the market will help you exit the franchise system well.
Factors for conducting a franchise valuation
Valuing a franchise involves considerations that are both similar to and unique from valuing a fully independent business. For example, while you need to determine the depreciated value of your company’s assets, in the context of a franchise, certain assets will be excluded from the business’s valuation. Most notably, a fully independent business will own trademarks and other intangible assets (such as copyrighted materials, customer lists, and other proprietary information) that can significantly increase its valuation. In the franchise relationship, these assets belong to the franchisor. On the other hand, in some circumstances, the franchise relationship can add value itself, and your franchise agreement could be an asset that adds to your overall valuation.
Some other factors involved in valuing a franchise for purposes of a potential transfer include:
1. Physical assets
Any physical assets your franchise owns will be relevant to determining its valuation. This includes everything from back-office computers and furniture to point-of-sale systems and inventory. These items must be depreciated to their present value in order to determine what someone would pay for them today.
2. EBIDTA
Earnings before interest, depreciation, taxes and amortization, or “EBIDTA”, is a rough calculation of a business’s available revenue. It is often used to determine a business’s value, but other calculations are used as well. Determining the appropriate calculation (and the appropriate multiplier) for your franchise will require a critical assessment of the pa… Read More
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