1851

Last year, the franchise industry witnessed several notable mergers and acquisitions.&nbsp;<a href="https://1851franchise.com/mainsqueezejuiceco/main-squeeze-juice-company-acquires-i-love-juice-bar-nearly-doubling-the-smoothie-and-cold-pressed-juice-brands-footprint-2722058">Main Squeeze Juice Co. bought I Love Juice Bar</a>,&nbsp;<a href="https://www.prnewswire.com/news-releases/darden-restaurants-completes-acquisition-of-ruths-hospitality-group-301850732.html?utm_source=1851franchise.com&utm_medium=article&utm_campaign=valuing-a-franchise-brand-what-you-need-to-know-2725745" target="_blank" rel="nofollow">Darden bought Ruth’s Hospitality Group</a> and, in the year’s biggest transaction by far,&nbsp;<a href="https://1851franchise.com/subway-sold-to-owner-of-dunkin-jimmy-johns-and-arbys-2723441">Roark Capital bought Subway</a>. So, when it comes to setting a price for these massive companies (Subway, for example, sold for nearly $10 billion), how can franchisors get the most bang for their buck? With over 821,000 franchised units operating across the United States for a total output of&nbsp;<a href="https://www.franchise.org/franchise-information/franchise-business-outlook/2024-franchising-economic-outlook?utm_source=1851franchise.com&utm_medium=article&utm_campaign=valuing-a-franchise-brand-what-you-need-to-know-2725745" target="_blank" rel="nofollow">$893 billion</a>, the valuation of these franchise brands is a complex, yet critical consideration for potential buyers and sellers.&nbsp; 1851 Franchise spoke with&nbsp;<a href="https://councils.forbes.com/profile/Alicia-Miller-Co-Founder-Managing-Director-Emergent-Growth-Advisors/9226b211-d93a-407e-b76d-6d5e0ec6d3fc?utm_source=1851franchise.com&utm_medium=article&utm_campaign=valuing-a-franchise-brand-what-you-need-to-know-2725745" target="_blank" rel="nofollow">Alicia Miller</a>, Managing Director at&nbsp;<a href="https://emergentgrowthadvisors.com/?utm_source=1851franchise.com&utm_medium=article&utm_campaign=valuing-a-franchise-brand-what-you-need-to-know-2725745" target="_blank" rel="nofollow">Emergent Growth Advisors</a> and author of “<a href="https://www.amazon.com/Big-Money-Franchising-Scaling-Enterprise/dp/1773272373?utm_source=1851franchise.com&utm_medium=article&utm_campaign=valuing-a-franchise-brand-what-you-need-to-know-2725745" target="_blank" rel="nofollow">Big Money in Franchising: Scaling Your Empire</a>,” to gather some insights and best practices.&nbsp;<h2>The Cornerstones of Franchise Valuation</h2>One of the pivotal elements in valuing a franchise is understanding unit level economics. "Are franchisees making enough money? If they aren’t, it doesn’t matter if the business is making enough in cash," said Miller. “Despite a franchise like Subway boasting significant EBITDA and cash flow, the weak economics at the unit level can lead to closures, affecting overall valuation.”Moreover, the composition of a franchise's revenue is scrutinized, with a preference for recurring streams such as&nbsp;<a href="https://1851franchise.com/what-is-a-franchise-royalty-fee-2718389">franchise royalties</a> over one-time fees. "Recurring revenue, franchise royalties, rebates are valued more highly," Miller said, pointing out the importance of a comprehensive quality and risk assessment of cash flows.Management teams also play a crucial role. Their decision to stay post-acquisition can significantly impact the franchise's valuation, especially if deemed strong and capable of driving future growth.&nbsp; Furthermore, the brand’s expansion strategy will be under the microscope. “Rapid expansion through selling many units quickly can be viewed skeptically by buyers, potentially leading to a discounted valuation,” said Miller. “Waiting to open these units before selling can increase the franchise's value.”<h2>Restrictive Covenants and Adaptability</h2>Restrictive covenants in&nbsp;<a href="https://1851franchise.com/dissecting-key-points-in-a-franchise-agreement-2723823">franchise agreements</a>, including marketing limitations and transferability, are all part of the valuation mix. However, as Miller suggests, the primary focus is on whether the franchise operates as a "well lubricated, thoughtful process" for cycling operators in and out, rather than the specifics of the agreement itself.Adaptability to industry trends and regulatory challenges is another critical factor. The ability to navigate and adapt to&nbsp;<a href="https://1851franchise.com/10-franchise-brands-primed-for-growth-in-2024-2724614">changing market conditions</a> signifies a robust, future-proof business model, attractive to potential buyers. Scarcity can also play a role if an industry is particularly underserved.<h2>Due Diligence is Key</h2>For&nbsp;<a href="https://1851franchise.com/chapter-19-franchisee-exit-strategies-and-succession-planning-2722792">franchisors considering a sale</a>, Miller recommends a proactive approach. "Think holistically about the objectives and closing the gaps beforehand if you can,” she said. “It will make you more valuable in the long run.”This could involve&nbsp;<a href="https://1851franchise.com/15-tips-for-winning-at-franchise-sales-2713811">enhancing franchise sales</a>,&nbsp;<a href="https://1851franchise.com/10-ways-to-successfully-market-your-franchised-business-2723022">improving marketing to boost same-store sales</a> or&nbsp;<a href="https://1851franchise.com/the-most-common-franchise-legal-issues-and-how-to-avoid-them-2703036">resolving legal disputes</a> to present a more cohesive and attractive opportunity to buyers. “Buyers assess whether the brand meets or exceeds their expectations — how much of the future are we willing to underwrite given that it is unproven?” said Miller. “Franchisors often end up in a sale process before thinking it through. Are you personally ready for this? Younger brands with limited track records should focus on building their business to attract buyers.”Overall, valuing a franchise encompasses a broad spectrum of considerations. “My entire consulting practice is based around reverse engineering a business that will attract both buyers and potential franchisees — they are kind of the same,” said Miller. “If you build it, they will come.” As the market continues to evolve, understanding these key factors will remain essential for navigating the complexities of franchise ownership and valuation. Check out these related articles on 1851 Franchise:&nbsp;<ul><li><a href="https://1851franchise.com/subway-acquisition-reportedly-under-investigation-by-the-ftc-2724363">Subway Acquisition Reportedly Under Investigation by the FTC</a></li><li><a href="https://1851franchise.com/subway-sold-to-owner-of-dunkin-jimmy-johns-and-arbys-2723441">Subway Sold to Owner of Dunkin', Jimmy John's and Arby's</a></li><li><a href="https://1851franchise.com/what-happens-to-franchisees-if-subway-sells-for-10-billion-2721842">What Happens to Franchisees if Subway Sells for $10 Billion</a></li></ul>

How to Value a Franchise Brand

1851 Franchise

Valuing a franchise encompasses a broad spectrum of considerations, from economic performance at the unit level to the adaptability of the franchisor and the strategic foresight of the management team. 

Valuing a Franchise Brand: What You Need to Know

valuing-a-franchise-brand-what-you-need-to-know

TruBlue Home Service Ally

Why This Franchise Broker Became a TruBlue Home Service Ally Franchisee

why-this-franchise-broker-became-a-trublue-home-service-ally-franchisee

Caring Transitions

Exploring the Flexibility of Owning a Caring Transitions Franchise: How You Can Build a Business that Fits Your Lifestyle

exploring-the-flexibility-of-owning-a-caring-transitions-franchise-how-you-can-build-a-business-that-fits-your-lifestyle

Keke's Breakfast Cafe

Restaurant Business: Keke's Breakfast Cafe Expands Nationally With Denny's Backing

restaurant-business-kekes-breakfast-cafe-expands-nationally-with-dennys-backing

Biscuit Belly Franchising

Biscuit Belly Named to Nation’s Restaurant News’ “100 Under 100” After Seeing 40% Growth in 2024

biscuit-belly-named-to-nations-restaurant-news-100-under-100-after-seeing-40-growth-in-2024

Sola Salons

FourCornersSun: Sola Salons Opens in Lakeside Village

fourcornerssun-sola-salons-opens-in-lakeside-village

Buying a Franchise Masterclass

 Franchise Opportunities

Get Support Buying a Franchise

How to Buy a Franchise White Paper

How to Buy a Franchise

How to Sell Franchises

How to Grow a Franchise

Find a Franchise Supplier

1851 Franchise Opportunities

Franchisor News

Franchisor Power Rankings

FranCamp Mastermind Summit

Franchise Development Website Builder

Franchise Resources

What ALEC-Laffer's Report Means for Franchising

Website Awards

Power Rankings

About 1851

Advertise on 1851

Contact 1851 Editorial

Terms of Use

1851 Login

GROWTH CLUB LOGIN

facebook

instagram

twitter

linkedin

youtube

McDonald’s Is the Latest Franchise To Bet Big on Beverages with 500-Store Premium Drink Test

mcdonalds-is-the-latest-franchise-to-bet-big-on-beverages-with-500-store-premium-drink-test

Friendly’s Parent Company Acquired by Multi-Unit Franchisee as More Owners Take the Lead in Brand Acquisitions 

friendlys-parent-company-acquired-by-multi-unit-franchisee-as-more-owners-take-the-lead-in-brand-acquisitions

Subway - John Fitzpatrick Named CEO - Breaking News - 1851 Franchise

Subway Names Jonathan Fitzpatrick as New CEO, Effective July 28

jonathan-fitzpatrick-subway-ceo-leadership-change

AI Is Reshaping Franchising: $100 Billion Valuations and Hyper-Localized Advertising

ai-is-reshaping-franchising-100-billion-valuations-and-hyper-localized-advertising

Mega Franchisee Sizzling Platter Acquired by Bain Capital

mega-franchisee-sizzling-platter-acquired-by-bain-capital

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores - Agg - 1851 Franchise

Hooters Leans Into Franchising With Closure of 30 Company-Owned Stores

hooters-franchise-model-company-owned-closures

"Come in, We're OPEN" sign against abstract background

Small Business Optimism Dips, Raising Concerns for Franchise Owners

small-business-optimism-dips-raising-concerns-for-franchise-owners

Technomic Releases Annual Ranking of the Top 15 Fast-Food Chains in the U.S.

technomic-releases-annual-ranking-of-the-top-15-fast-food-chains-in-the-us

Hely and Hiral Patel Bring Their Longtime Dream to Life With The Brass Tap

brass-tap-franchise-pasadena-maryland-hely-hiral-patel

1851 Keyword - The Secret To Succeeding With a Part-Time Franchise Is Picking the Right Model

The Secret To Succeeding With a Part-Time Franchise Is Picking the Right Model

part-time-franchises-picking-the-right-model

Navy Veteran and Professional Artist Couple Open Caring Transitions in Texas

Navy Veteran and Professional Artist Couple Set Out to Build a Purpose-Driven Business With Caring Transitions in Texas

navy-veteran-and-professional-artist-couple-set-out-to-build-a-purpose-driven-business-with-caring-transitions-in-texas

Why This Real Estate Broker Decided To Bring Caring Transitions to Central Texas

caring-transitions-san-marcos-kyle-chad-hardin

Sola Salons Franchisee Grows Salon Freedom Into a Multi-State Powerhouse 

sola-salons-franchisee-grows-salon-freedom-into-a-multi-state-powerhouse

Valuing a Franchise Brand: What You Need to Know

MORE STORIES LIKE THIS