Finding the value of your franchise is not too different from a normal small business valuation. The first step is to begin with the assets, move into the revenue model, and then evaluate the cash flow. At the end of the day, in order to sell any business, including franchises, you must determine it’s worth before putting it on the market.
The first step is always going to be to organize your financials. The balance sheet, for instance, is crucial because it lists the assets, liabilities, and equity. Since assets have a definitive value, they are an excellent starting point for a business valuation. Assets can be anything owned such as office equipment, land, buildings, furniture, fixtures, etc. Determining their cost, in addition to their depreciation or increased value is important. For instance, equipment depreciates (decreases in value) with every passing month. Meanwhile, land typically increases in value. These factors matter when determining the worth of your franchise.
Next, the revenue model comes into question. Essentially, this means sales. Although sales are not easily transferable to net income, it is still a great indicator of performance. This is important because a buyer will find it valuable that your business is growing –– and this model can show the trend of growth.
Finally, the cash flow will come into question. This is important because sales do not translate to cash, and a potential buyer will want to know your cash flow. For example, a business that has little cash flow can be in debt – unable to pay employees or vendors. Strong cash flow makes the business much more valuable to a potential buyer.
These factors, together, will help you determine what your franchise business is worth. Thankfully, you do not need to be an expert. A business broker can help you organize your financials and put the puzzle pieces together to find that number. From there, they can help you find the right buyer for your franchise business.