How to Maximize your Franchise Value
Whether you are ready to move on in less than a year or you are planning to transition out in the next few years, taking the right steps to maximize your franchise value is critical. From now until you get to the closing table, you have the opportunity to enhance the value of your franchise, and thus put yourself in a position to attract better buyer candidates, demand a more favorable sales price, and negotiate more desirable terms.
The effort to maximize the money you take to the bank on your franchise resale is like getting your sports car ready for an interested buyer to come look under the hood and take it for a test drive. It’s like detailing your car and getting the maintenance up to date so serious buyers, and their lenders or investors, like what they see. Here’s our franchise resales tips and advice:
Talk to your accountant and discuss the tax implications of selling your franchise.
It is important to understand and plan for the tax obligations you may have upon completing the sale. You are most concerned about how much money you get to take to the bank, not how much money the contract says. Additionally, there may be actions you can take now or ways to structure the deal that can reduce your tax liability when you sell. Our franchise resales proceeds advice and tips can help you learn these options before engaging with a serious buyer, it will be to your advantage.
Get your books in order and prepare financial reports.
Most buyers looking at existing franchises for sale will want to see at least 2 or 3 years of financials such as tax returns, P&L’s, and balance sheets. You may also want to prepare a list of inventory, equipment, furniture, and other assets that will transfer with the business. Having this information ready to share with potential buyers will help accelerate the due diligence process and show buyers your business is organized and well-operated.
Freshen up the physical location, equipment, and signage.
You may not be eager to invest significant time or money into refurbishing your entire business just before you sell it, and that is OK. Think of this as getting a haircut, taking a shower, and shaving before a date. It’s not a huge investment of time or money, but it does make a difference! Consider some small but impactful improvements you can make that will protect or increase the value of your franchise to a buyer. For starters, ask yourself the following:
- Is the signage and decor current and orderly (inside and outside)?
- Are uniforms and employee attire neat and new?
- Are company vehicles & other equipment clean and in good working order?
- Is there clutter (trinkets, files, posters, extension cords, etc.) that has accumulated over the years that needs to be cleaned up or removed? What would prospective buyers notice when they walk in?
Evaluate the discretionary expenses being run through your business.
A franchise resale buyer may be comfortable knowing that you run your family’s personal vehicles, auto insurance, cell phones, and other expenses through the business. However, a lender is more likely to stick to what your books and tax returns say. This may impair the amount that can be financed by a buyer. Since it will likely take at least 6 or more months before you close, you may be able to increase the value of your franchise and improve the transfer-ability of your business by cleaning up your “business expenses.” This is a good topic to discuss with your CPA first, as it can also have tax implications.
Review your lease (If applicable)
Be familiar with renewal dates and assignment requirements. A buyer will eventually ask about your lease and want to review it. If there are questions about assigning the lease, talk to the property manager or landlord in advance so you can ensure a smooth transition and avoid any snags.
Secret shop your franchise.
Visit, call, and/or use your own service as if you were a customer. If you are part of the daily operations, have a friend or family member do this, then ask for their candid feedback. Examine your franchise as if you were about to buy it. View it through the eyes of your future buyer and address anything that needs attention.
Continue to follow the franchise system carefully.
A franchise resale buyer observing that you don’t follow the franchisor’s system well may conclude you have cut corners in your business, or they may question the credibility of your franchisor and the business model.
Following these franchise value increasing tips and making these relatively small investments now will maximize the value of your business and can be the difference of tens of thousands of dollars, or even hundreds of thousands of dollars, when you are taking it to the bank.
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