Are interested in evaluating a resale your franchise ?

Frequently Franchisors will ask us at The Great American Franchise Expos to find qualified candidates for their franchises that are going to be resold within a market. We meet many people who look for businesses with existing revenue, cash flow, customers, employees, infrastructure etc. It is just as important to understand why the business is being sold from the Franchisors perspective as it is from the Franchisees. In dealing with a resale, understand that most of your time could be spent dealing with the seller, the franchisee. Here are some tips to follow to get the best understanding of what you could be buying:

Tips for Resales:

The Offer Price:
Get an understanding of how the offer price was developed. Is it a multiple of EBITDA, is it a multiple of free cash flow (FCF) and the value of assets that can be collateralized, or is it based on emotion. Understanding how the sell price was developed will put you in a better position to make a counter offer.

Seller’s Discretionary Income:
In addition to Net Income or owner’s salary, ask the seller to share with you how much money they have gained from the business. Ask the seller to include anything the business may have paid on their behalf such as cell phone, healthcare, auto expenses etc. Unearth any one-time expenses that you as the new owner will not incur. Backing these out will give you a better picture of free cash flow.

Revenue Trends and Owner Involvement:
Ask questions on how the seller grew their revenue year after year as a percentage against the previous year? Did the actual results meet their expectation?

Ask how active they were in the business community when they started and today and what type marketing they did to help grow the business? Ask how their marketing efforts changed over time. How active are you in the business community today and what type marketing do you do to help grow the business?

The better Franchisors work with their franchisees to best value the business and develop the offer price. Ask the Franchisor if they have an Executive Summary on the business being sold.

If you have questions about resales, are interested in evaluating a resale, attend our expo and meet one of the many resale experts that exhibit at our shows.