MONEY IN THE BANK: HOW TO VALUE A LARGE FRANCHISEE BUSINESS – Chapter 2

In valuing the operations of a large franchisee, the game begins with a disciplined effort to understand who owns what in that web of assets and rights and to determine how much each factor contributes to the whole or detracts from it.

Of primary importance, of course, is the fact that the large franchisee holds the right to open up new outlets in specific areas. This is often the chief allure in the eyes of a buyer, but the analysis of value must take other factors into account as well, among them:

  • The profitability of the units the franchisee has up and running now;
  • The efficiencies of scale the franchisee enjoys;
  • The equipment held by the franchisee, whether owned or controlled through leases;
  • Real estate owned or leased by the franchisee, including any restaurant pads at large shopping malls, which often command a particular premium because of their location;
  • The franchisee’s management team;
  • The legal relationship between the franchisee and the franchisor;
  • The terms under which the franchisor offers marketing, training, financing, or other support to the franchisee;
  • The number of additional outlets the franchisee has committed to opening up in its exclusive territory in a given period of time;
  • The demographic and economic conditions in the franchisee’s exclusive territory, and
  • Last but not least, the franchisee’s access to financing and other resources necessary to taking advantage of expansion.
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