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When it comes to franchise valuation, the list of things that need to be taken into consideration seems endless. There are multiple factors that play a role in determining how much an individual unit is worth&#8212; from revenue models and a company&#8217;s actual concept to intangible data like a brand&#8217;s ability to innovate, franchisees and franchisors are constantly considering new ways to determine the value of their different locations. However, valuing a restaurant franchise requires its own unique list of considerations. These are the three key factors restauranteurs need to consider to measure their store&#8217;s value: Profits &amp; Losses The most essential piece of information when valuing a restaurant franchise is its profit and loss statement. A restaurant&#8217;s track record of either bringing in consistent revenue or failing to break even determines how much its worth. Bill Wilfong, vice president of franchise growth for <a href="https://pitapitusa.com/franchise/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=three-keys-to-consider-when-it-comes-to-restaurant-franchise-valuation-4486" target="_blank" rel="nofollow" target="_blank">Pita Pit</a>, says a franchise&#8217;s profits and losses are the first place the health-conscious brand looks when valuing a location. &#8220;We keep it really simple,&#8221; said Wilfong. &#8220;The rule of thumb we use is that if a restaurant is making money and has a reasonable profit and loss statement, you can get as much as 50 cents for every dollar on sales. That number then starts to drop depending on how well a restaurant is performing.&#8221; It&#8217;s also crucial for franchisors to think long term when it comes to valuing a restaurant franchise. Restauranteurs should take the amount of time it will take for a new owner to generate economic benefits or see a return on their investment into consideration. Potential For Growth A restaurant franchise&#8217;s value also depends on whether or not it&#8217;s positioned for future expansion. That means looking at the unit&#8217;s physical location, demographics in the area and whether or not the community will provide enough customers to support a successful franchise. &#8220;We need to make sure that our franchisees will be able to make money,&#8221; said Michael Morales, chief financial officer for <a href="http://www.mooyahfranchise.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=three-keys-to-consider-when-it-comes-to-restaurant-franchise-valuation-4486" target="_blank" rel="nofollow" target="_blank">MOOYAH Burgers, Fries &amp; Shakes</a>. &#8220;That means looking at everything from competition in the area to average household size and income.&#8221; Things like a franchise&#8217;s visibility and how accessible it is for potential consumers also play a major role in a restaurant&#8217;s bottom line. Brands need to be aware of what its target audience is looking for, and value locations based on whether or not that criteria is met. &#8220;At its core, <a href="http://pitapitusa.1851franchise.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=three-keys-to-consider-when-it-comes-to-restaurant-franchise-valuation-4486" target="_blank" rel="nofollow" target="_blank">Pita Pit</a> is a lunch concept. That means we&#8217;re doing 60 or 70 percent of our business between 11am and 2pm,&#8221; said Wilfong. &#8220;Our restaurants that are in areas where plenty of people are working within a mile of their doors are going to be valued higher because of their strong potential for business.&#8221; Franchise Model It seems basic, but a brand&#8217;s franchise model determines its overall value. Franchising requirements that involve new imaging or even rebranding can sometimes cost more money than they&#8217;re worth, depending on the unit. Different models also perform better in certain markets or with a specific group of people than others, altering a franchise&#8217;s overall worth. It&#8217;s important for franchisors to keep these costs and preferences in mind when valuing a restaurant because ultimately, a franchisor is only as strong as its units. Brands aren&#8217;t able to expand their business if their individual franchises aren&#8217;t performing well. &#8220;If our franchisees aren&#8217;t successful, we aren&#8217;t either. At the end of the day our ability to grow as a brand comes down to how well our individual restaurants are doing,&#8221; said Morales. &#8220;Everything we do at <a href="http://mooyah.1851franchise.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=three-keys-to-consider-when-it-comes-to-restaurant-franchise-valuation-4486" target="_blank" rel="nofollow" target="_blank">MOOYAH Burgers, Fries &amp; Shakes</a> is to ensure that our franchisees are making money. That&#8217;s what helps us increase our value.&#8221;

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Profit and loss statements, growth potential and franchise models all play a role in determining a restaurant franchise’s value.

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