What is Your Franchise Really Worth?

This is one of the most important and difficult questions for any business owner to answer. The value of a business is based on its future cash flow, which usually can be predicted from historical results of sales and profitability.

And, buyers don't care how much you spent yesterday, they care how much they can make tomorrow.

Ultimately your business is worth what someone will willingly pay.

A common mistake owners make is that they believe their business is worth what they have invested in it, that is rarely true.

If you are a franchisee, you are part of a system and usually are not so unique to lack comparable statistics. Talk to your franchisor to see if they have historical data on what other units have sold for. You also can see if other units in your system are listed for sale and what their asking price is relative to their revenue and profitability.

The next step is to talk to local business brokers and ask them what they believe the business is worth and what they could sell it for. In addition to referrals, the best way to find local brokers is to go to websites that list businesses for sale and see who the local brokers are with good listings. Remember that brokers primarily are compensated on a successful transaction. They won't want to list your business if you are asking an unrealistic price.

You might also want to consider a professional valuation. For businesses with revenues over $1 million this is money well spent. It will not only give you a realistic view of your value but it will help your buyer secure financing.

Always remember that your business is competing against all the other local businesses for sale. You need to take a realistic look at what others are asking and where your price should be relative to your revenue and profitability. If you can't live with the price you can get, then you need to wait to sell your business. If not, you will get frustrated and waste a lot of time, money and effort. If you can live with the price of what your business is worth to a buyer today, then you will be able to sell it.