Episode#81

You can buy a franchise in two ways, a brand new ‘Greenfield’ location, or an existing business as a ‘re-sale’.

The way you value these for a purchase price is very different and must be understood as it is at the heart of risk v return.

In Episode#81 - Peter Knight is widely regarded as one of the top franchise accountants in the country, and one who plays a key role in understanding value for incoming buyers of franchises. In the ‘franchise pre-purchase review’ process offered to the market, Peter has assessed literally hundreds of franchises for sale for clients.

In this discussion we put together an explainer on how an exisiting operating franchise location valuation is undertaken. In a previous explainer in Episode#62, we looked at valuing a brand new franchise location.

The concept of ‘add-backs’ into the business to justify a sale price is broken down, and explains why they can be contentious. Profit multiples, franchise agreements, refurbishments, updating equipment and more is also a focus in the discussion.

0:00 Intro

0:53 Have the benefit of existing business figures - the financial statement

1:27 How they come up with a sales price for an existing business - the ‘multiple’

2:53 A calculation to figure out profit and the concept of add-backs 

6:05 How contentious the concept of ‘add-backs’ are 

7:11 The role of broker and accountant in the sale of the business

7:44 The add-back becomes the biggest point of contention in the sales of businesses 

8:15 Re-sale of an existing franchise and approaching refit, franchise agreement and lease terms 

9:50 The timing of a sale and look at expenses on the horizon 

10:20 The term of a franchise agreement on a re-sale

10:46 The role being played as an Accountant and emotion v real numbers 

11:57 Getting finance deals done and the advantage of an existing business with proven numbers 

12:29 Wrap up

Podcast Produced by: Franchise Business HUB

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