Franchise Valuation basics

Many people write to me asking for the "basics of valuation" so I have made a concise list of items to consider for the average franchise buyer. Here we go...

1.The main thing you are buying is CASH FLOW, so recast the numbers to get the owner benefit numbers. You want 3 years cash flow, then you need to use a discounted cash flow model for future earnings

2. You must know and evaluate the length of the lease term with options, as well as the franchise term.

3. Get the basic lease details about rent, CAM charges, escalations, % rent triggers, merchants association fees, etc

4. Study the protection offered for that location by the lease and by the franchise agreement

5. Ascertain the competition in the area for that product or service

6. Evaluate the industry and its direction and health

7. Determine any remodel requirements and when they are due and at what cost

8. Evaluate the length of time that franchise has been in operation, (or is it a new start up)

9.Are there any special costs for that location-workers comp, flood insurance, availability of workers, advertising, etc

10.Is there adequate financing offered for the franchise? is there seller financing on a resale?

11.What rates of return can you get (for a safe investment) on your money elsewhere?

12. Does the brand have a perception of Value in the market, or is everything rather negative?

That is my dozen or so important factors to consider in a Valuation 

I use many more factors when I perform my Valuation service and plug in details into my model to arrive at a magic number.

Need a Valuation ? divorce? partnership split? estate transfer? curious? selling? buying?

E mail me, fayaz@mrfranchiseman.com, Chartered Accountant and member of NACVA(National Association of Certified Valuation Analysts), a prestigious designation. I specialise in Subway Valuations and have a database of over 1000 Subway transactions to refer to