Franchise Your Business – How to Sell Your Company
Selling a business is a unique transaction. In many cases, emotions overcome one’s ability to look at facts and reason and come to a price that would make sense in order to complete a transaction. With this in mind, many businesses are not saleable at all, they simply lack the cash flow, documentation or structure to have any value to a buyer. The value of a business depends on many elements and typically the simplest, most straight forward way to determine what the price should be for a business transaction is to hire an independent appraiser to place a value on the company. Easy ways to ballpark the value of your business are 1.5 times net cash flow for a year plus the depreciated value of the assets if you are a fixed location business, or 1 year’s worth of revenue if you are a service business. In the current economic climate you should also expect to factor in at least a 20% discount to whatever pricing you end up with.
What kinds of things will help your business sell for more:
So how do you increase these numbers and get more for your business? Why do franchise systems and franchised businesses sell for more? A franchise system with good documentation and consistent royalty income can sell for as much as 12 times net cash flow if it has shown there is opportunity for growth and has market potential. Why do pharmaceutical and some tech companies sell for enormous valuations in many cases? It typically comes down to scalability. How well can the buyer scale the investment they have made in your business and turn their investment into something much larger. It is this reason why franchising has become the vehicle for growth in so many industries – it turns a traditionally non-scalable concept into a business that can be grown exponentially given the right systems and structure.