When you're running a franchise, there are a number of differences compared to most other businesses. Marketing processes, business organization, equipment choices, communications and more are all different when your business is based on a franchise model. One area where there is a strong difference between franchises and other businesses is the process involved in valuing a franchise. Here's a quick overview of some of the differences when a business that is being appraised is a franchise.
How is valuing a franchise different than other business valuations?
One new and unique area where many franchises are seeing changes compared to in the past is that many companies are becoming more polarized with hot issues. Because a franchise's value is partially based on public goodwill and view of all franchises in that company's franchisor, a popular or unpopular issue stance can impact goodwill and intangible assets much more strongly than in the past. This can even impact your company's bottom line when another franchise owner takes a strong stance on an issue which then impacts your business, whether you share that stance or not.
Franchises also tend to have a more narrow approach to valuation. Why? Franchisors, or the umbrella company under which all the franchise owners are operating, have more rights in a franchise than you would see in other companies. A common reason for a business owner to get a business valuation is because they're getting ready to sell a business. In many franchises, the franchisor can bar the sale of the business to a third party or may require their approval of that third party before the sale can take place.
However, that still leaves a wide range of reasons why a franchise is valued, including divorce, estate planning, tax planning and similar concerns. The intangible assets of a business can be defined as the difference between what a business sells for and the actual dollar value of its balance sheet. But when you're dealing with a franchise, there's some give and take as to whether the difference between those values belongs to the franchise business owner and the franchisor, who often provides a wide range of services depending on the franchise agreement.
This means that the business appraiser who is appraising a franchise must start the process by carefully studying the franchise agreement. This provides valuable guidance to determine exactly how intangible assets should be distributed between the franchisee and the franchisor. Is the difference in value caused by the franchisee's hiring of superior employees, better customer service or similar benefits to his customers? Or is it caused because the franchisor has dedicated significant resources to help drive more customers to the franchisee's specific business through a range of marketing plans, referrals and branding through initiatives pushed at the franchise headquarters?
Franchises provide a number of unique opportunities, but they also have a wide range of differences when compared to other businesses, and the process of valuing a franchise is different from the processes used for other types of businesses for this reason. The most important step to take when having your franchised appraised is working with a certified business valuation specialist who has specific experience in working with determining the value of franchise businesses. The certification process ensures that the appraiser will know exactly which approach to take no matter what industry your franchise operates in.