What is different when valuating a franchise business compared to a regular business? What is to be considered?
- Brand value and franchise system: A key difference is that the franchisor looks at the value of its entire franchise system, not just the value of a single operation. The brand value, reputation and effectiveness of the franchise system as a whole are of great importance. This value can be increased by the number of franchise units, market share, brand awareness and franchise fees.
- Franchise agreements and franchise fees: The franchisor usually owns the intellectual property and rights to the franchise system. Therefore, income from franchise fees is a crucial factor in the valuation. The design of the contracts with the franchisees that regulate these fees are also of great importance.
- Growth Potential: For the franchisor, the growth potential of their system is of utmost importance. This includes the ability to attract new franchise units and expand existing units.
- Market Trends and Competition: The franchisor must closely monitor the current market trends and competition in the industry. An assessment from this perspective takes into account how well the franchise system can respond to changes in the market and how it stands up to competition.
- Training and support: The quality of training and support the franchisor provides to its franchisees influences the rating. A well-functioning support system can improve franchisee performance and increase the attractiveness of the franchise system.
- Legal and regulatory aspects: Franchisors must ensure that they meet all legal and regulatory requirements for franchise systems. An assessment from this perspective involves reviewing all relevant legal documents and contracts.
- Franchise management: The qualifications and experience of the franchisor’s management are important. A competent management team can promote the efficiency and growth of the franchise system.
- Loyalty of the franchisees: The satisfaction and loyalty of the franchisees towards the franchisor are crucial factors. A good relationship between the franchisor and the franchisees can have a positive impact on the value of the entire system.