FRANCHISES: UNIQUE ENTERPRISES, UNIQUE VALUATION PROCEDURES

Appraisers operate on the presumption that, however different the individual business is from all others, businesses within a specific industry nonetheless share certain characteristics that make it possible to compare one to another and thus derive a value.

Franchise operations, however, are a breed unto themselves, and this makes the valuation of these enterprises a unique process.

The chief reason for this is the fact that the relationship between franchisors and franchisees is a unique business partnership in which each party owns and derives value from different forms of property. Typically the franchisor owns and manages only intellectual property including goodwill, logos, brands, trademarks, advertising slogans, and business systems and processes ā€“ for example, recipes in the case of the fast-food franchisor ā€“ and does not engage in the delivery of products or services to the consumer (unless, of course, it operates company-owned stores).

Through its relationship with the franchisor, the franchisee, on the other hand, possesses the right to use these assets in its business but usually owns only the tangible assets it needs to conduct business, including equipment, inventory and supplies. Sometimes the franchisor owns or leases real estate and equipment and leases or subleases these items to the franchisee, and sometimes the franchisee owns or leases these items directly.

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