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Valuing Franchise Agreements

Franchisees can also save money by accessing the franchisor`s volume purchase agreements. And the franchisor`s well-established business systems can help franchisees improve quality and efficiency. For example, many franchisors offer access to integrated cloud-based sales and accounting systems that provide franchisees with powerful financial instruments and real-time business performance information. The fact that a franchisor`s profits are less fluctuating, due to small variations in turnover, is an advantage and reduces the risk-taking of an investment in a franchisor. On the other hand, there are also risk factors that are significantly higher for franchisors than for other companies. Many of them are legal. Franchisors may be vulnerable to collective action of various kinds, although the success rate in Canada has been poor to date. [4] Franchisors are also subject to a strict disclosure regime in many Canadian provinces; the failure to provide a proper duty-free disclosure document (“FDD”) can be serious, as franchisees are potentially entitled to terminate their contracts and recover all costs and losses within the first two years of signing the franchise agreement. In my experience in quantifying these claims, the average bill to a franchisor is somewhere between $300,000 and $500,000, plus legal fees. Cambridge Partners is considered a leading authority in the valuation and valuation of the assets of franchised operations. The company has conducted portfolio and individual asset valuations of fast restaurants (QSR), hotels, auto repair, fast throughput, fitness center and much more. Excluding goods and equipment, the typical franchise comes from most of its revenues from its intangible asset franchise agreement. These agreements add value to their owner (the franchisee) by supporting sales and profits as follows: the valuation of franchises includes an in-depth analysis of the other assets that make up the business, including: property real estate, basic rents, improved rents, leasing participation (for example.

B above or under market lease), equipment, location improvement, etc. Both the buyer and the seller must understand the value of these assets if they accept a transaction. Cambridge Partners is highly experienced in franchising valuation issues and can help assess the entity as well as the underlying assets and liabilities. The key to evaluating a franchised business is the analysis of the franchise agreement, which defines the parties` relative rights and obligations. It is also necessary to review the Disclosure Document (FDD) franchise of the franchise provider. The Federal Trade Commission requires franchisors to provide franchisees with an FDD at least two weeks prior to signing a franchise agreement. It contains detailed information about the franchisor`s activities, including the business experience of its executives, its agreements with franchisees, its financial performance, its litigation and bankruptcy history, and its intellectual property. Business combinations for franchised transactions require an assessment to determine the fair value of acquired assets, commitments made and non-dominant shares in the transaction. Assets often include capital assets, real estate, loca them improvements and franchise rights, as well as contractual agreements.

It is tempting to conclude that a franchise is more valuable than a similar independent business, with comparable revenues or cash flows.

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