One issue that often pops up—sometimes unexpectedly—when valuing a franchise is in the area of improvements or maintenance of the location, according to a recently released guide on valuing franchises. The timing of this issue may not always be a good thing. For example, a franchise restaurant could make significant improvements to its dining area—and then the franchisor mandates a makeover of the restaurant design and layout. The franchisee will likely be required to make those changes despite the fact that it has just sunk a significant capital expenditure into the business.
What to do: Ask the franchisee whether it is aware of any plan changes. If the franchisor has a tendency to make changes fairly often, or if it has not done so for a while, a change may be due.
With over 10% of all businesses in the U.S. being franchises (and more in some industries), the likelihood of running across a franchise valuation in your practice is substantial. A new special report, Franchise Value: Valuation Methods and Benchmarking Data,
explains the valuation challenges and presents a vast amount of franchise benchmarking data (from the Pratt's Stats
database), broken down by major industry.
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