Subshop Franchise Valuations

I have heard from many Subshop franchisees and Area Developer’s their pricing methodology and guidelines. There are multiples of weekly sales (30 to 45), percentages of gross sales (50-80), and earnings formulae (2-4 times). Bankers have their own formulae too (25-45 weeks)

 

While all these methods give a good starting point, every deal must be adjusted to take into account factors such as:

 

-cash flow generated

-rent, CAM charges

-length and terms of lease

-desirability of location (mall, rural, city, Walmart, seasonal)

-signage and visibility

-demographics

-remodel costs

-geographic location(flood area, hurricane prone, depressed area)

-age of equipment and store

-minimum wage

-special insurance requirements(worker’s compensation, flood insurance)

-Area Developer average store volumes and your comparison in the territory

-Additional Advertising contributions

 

And more..

 

This may be difficult to sort out in your mind while you are running your store(s). Your CPA gives you a value, the uncle you have not seen in 10 years has his opinion, your local Area Developer gives you a value, your banker has his magic number, and so the confusion sets in. One Area Developer also suggested the seller discount the increase in sales due to the recent nationally televised special. (Needless to say I was speechless. I could easily spend an hour talking about the valuation issue.)

 

What you need is an Independent Valuation Opinion and the Franchisor may require a Price Fairness Opinion(Accountant's letter) or a Break-Even analysis on all transfers. That is one of my specialties. I have seen Area Developer’s argue with franchisees over this issue and franchisees argue with each other.

I have seen franchisees leave money on the table and seen some Area Developers abuse their power, and I even rescued a franchisee from such a fate by getting another $50,000 in the sale price. Although most Area Developers and staff are very good about not getting involved at this level, don’t treat this subject lightly.

You have a 50% chance of being a victim of the system when you are doing it alone. I recently represented a seller with an amazing store in both Sales and Net Profit and the Franchise Area Developer put a value of the store $75,000 below what the offer was from a willing buyer. So much for the theory of market forces dictating the purchase price between a willing buyer and willing seller. We may have lost the deal it seems.

 

 

 

 

E mail me through the Contact us link or call 800-401-6424, 949-253-4610, fayaz@mrfranchiseman.com