Franchise Value: Considering the Saleability of Your Franchise
Undoubtedly, prospective franchise buyers have significantly raised the bar in their inquiries, becoming highly selective when choosing a franchise group to enter. In today’s competitive market, buyers understand the importance of conducting extensive research, due diligence, and meticulous brand scrutiny to ensure a good fit before making the decision to purchase a franchise. In this blog post, we will discuss the importance of selecting a business broker who understands franchise value and can help increase the overall saleability of your franchise.
Experienced Business Brokers Understand Franchise Value
When the time comes to sell your franchise, it is crucial to engage the services of an industry expert—a professional business broker who not only comprehends the inner workings of franchising but also possesses a comprehensive understanding of your specific franchise system and industry. The ability to effectively communicate the benefits of joining a franchise group is also key.
In this context, appointing an inexperienced business broker lacking comprehension of the unique support systems and advantages of franchising would be unsuitable. An experienced business broker, on the other hand, can articulate the franchise model to potential buyers, emphasizing the numerous benefits such as established branding, comprehensive training programs, ongoing support, and lower business risks.
Moreover, your chosen broker should have a solid understanding of your franchisor’s selection criteria, banking procedures, and the ability to adeptly guide buyers through the often lengthy contract management process. A thorough grasp of the current market environment, prevailing market conditions, and buyer sentiment is crucial in accurately determining the correct pricing for your franchise. Therefore, relying on a knowledgeable broker who has access to up-to-date sales data and pricing activity is essential to make informed decisions.
Once your franchise is established, your ultimate goal is to build and position it for future profit. It is important to note that as long as a franchise agreement is in place, you possess the right to sell the business. It goes without saying that the more profitable and successful your franchise becomes, the higher the potential selling price. A business broker can help advise owners to grow their franchise value and better position their franchise business to sell for a higher asking price.
Key Considerations Prior to Selling a Franchise Business
Selling a franchise follows a distinct process that differs from selling an independent business. It’s crucial to carefully navigate this process to ensure a smooth transition. Here are some key considerations to address before entering the market:
- Review the franchise agreement: Take the time to thoroughly review the franchise agreement to understand the relevant transfer and assignment processes. Familiarize yourself with any specific requirements or limitations regarding the sale of the franchise.2
- Franchisor’s first right of refusal: Keep in mind that the franchisor may have the first right of refusal when it comes to selling the franchise. This means that they have the option to purchase the franchise before it is offered to any other potential buyers. Be prepared to discuss this possibility with the franchisor.
- Draft a comprehensive Purchase and Sale Agreement: It’s essential to work closely with your chosen broker to draft a Purchase and Sale Agreement that reflects the specific requirements outlined in your franchise agreement. This contract should include all relevant conditions and provisions to protect both the buyer and the seller throughout the sale process.
- Sign the necessary documents: Once consent is obtained, the new owner will need to sign the franchisor’s documents, acknowledging their responsibilities and obligations as the new franchisee. It’s important to be aware that there may be potential legal costs associated with the preparation of these documents; in most cases, the buyer is responsible for these costs.
- Transfer the lease or license: If the franchise operates from a leased facility, the lease or license to occupy will need to be assigned to the new owner. This process should be coordinated with the landlord or property management to ensure a smooth transfer.
- Settle any financed equipment: If any equipment used in the franchise is financed, it’s important to settle any outstanding payments or arrange for the transfer of ownership before the sale is finalized.
By thoroughly addressing these key considerations and working closely with an experienced business broker who understands franchise value, you can confidently navigate the intricate process of selling a franchise. This will not only ensure a successful transition for both the buyer and the seller but also maximize the potential for a profitable exit. It’s important to remain patient and unwaveringly focused on your ultimate goal, as selling a franchise typically involves a lengthier timeframe. This is due to the involvement of multiple parties with varying interests, including yourself, the prospective buyer, the franchisor, the landlord, and financial institutions. Each party plays a crucial role in the negotiation and completion of the sale, adding complexity to the overall process. However, with a comprehensive understanding and careful management of these intricacies, you can navigate through the obstacles and achieve a successful outcome.
Read MoreTop 5 Mistakes Owners Make When Selling A Business
Are you getting ready to sell your business? Selling a business can be an overwhelming and complex process, but with the right knowledge and guidance, it doesn’t have to be. Unfortunately, many owners make mistakes along the way that cost them money or a successful sale. In this blog post, we’ll discuss the top 5 most common mistakes so you can learn from others’ experiences and avoid making costly errors yourself. This is vital information for any business owner looking to clinch their dream deal.
1. Not Having Financial Records In Order
Keeping track of your books or financial records is crucial for any business, regardless of its size and industry. However, many business owners struggle with bookkeeping and just don’t have the time or expertise to keep their records up to date and neatly organized. This can be a costly mistake, particularly when it comes time to sell your business. Buyers, banks, third-party lenders, and business brokers will want to see a clear and accurate record of your financial transactions over the years, and if you don’t have that, it can make your business appear unattractive, not bankable, and ultimately less valuable. Therefore, it’s critical to carefully invest time in bookkeeping or hire a CPA or other accounting professional to ensure your record-keeping is impeccable. Doing so could ultimately make a significant difference in your business’s sale price and long-term success.
2. Not Preparing The Exit Early Enough
One of the biggest mistakes business owners make is not preparing their exit strategy early enough. Whether you’re planning to retire or move on to other ventures, it’s essential to start thinking about the future of your business well in advance. By doing so, you can take the necessary steps to make your company as attractive as possible to potential buyers and maximize its value. This can include everything from improving financial performance to streamlining operations and developing a strong management team. Ultimately, the key to a successful exit strategy is careful planning and execution, so be sure to take action sooner rather than later if you want to achieve the best possible business valuation when it’s time to sell.
3. Setting Unrealistic Price Expectations
Setting unrealistic price expectations can be a common mistake that many business owners make. It’s crucial to conduct thorough market research, have a solid business plan, and consult a professional experienced with business valuations for your industry. Otherwise, you could be setting yourself up for failure if your price point is significantly higher than what the market will bear. Additionally, it’s essential to stay up-to-date on industry trends, which can impact your pricing strategy. Setting an unrealistic price can also be a result of an unprofessional business valuation, which may overlook critical factors that could affect your pricing decisions. By taking the time to do your homework, you’ll be in a much better position to set a price that not only reflects the value of your product but also meets market expectations.
4. Allowing Emotions To Cloud Decision-Making During Negotiations
Selling a business is undoubtedly a significant and emotional decision, and for good reason. It can be challenging to not let any emotional attachment impact decisions during business negotiations. When business owner allows emotions to cloud their better judgment, it can lead them to make decisions they later regret, such as backing out of the deal at the last minute. Hiring professional business brokers or an experienced third party can help you navigate the sale process with an objective perspective. To ensure a successful transaction, it’s also essential to emotionally prepare to sell by focusing on the potential benefits of the sale in addition to having a plan for post-transaction. Whether that involves investing in a new business opportunity or enjoying retirement to the fullest, a solid plan can help soften the blow of passing off the company keys and approach negotiations with confidence.
5. Skimping on Professional Assistance
If you’re planning to sell your business, it’s tempting to cut corners and try to handle everything on your own. But here’s the truth: skimping on professional assistance from a business broker or M&A advisor will usually end up hurting you in the long run. These experts have years of experience in navigating the intricacies of buying and selling businesses, and they know exactly what buyers are looking for. They can help you identify potential buyers, negotiate deals, and make sure you’re getting the best possible price for your hard work. While a commission fee may sound costly at first glance, a closer look will reveal quite the opposite. Hiring a professional advisor can increase the sale price of a business by as much as 15-20%, which is more than enough to cover the 10% brokerage fee. Not only will business owners be able to maximize their returns when selling their business, but they will also benefit from the numerous resources and services provided to streamline the entire process, from start to finish. So don’t let a misplaced desire to save a few bucks prevent you from earning a higher return while saving valuable time and unneeded stress.
With these top 5 mistakes in mind, we believe it is absolutely essential to ensure that business owners are adequately prepared with all the necessary resources for a successful business exit. Not having up-to-date financial records, not preparing their exit early enough, setting unrealistic price expectations, allowing emotions to cloud decision-making during negotiations, and skimping on professional assistance may all contribute towards a lower return. Even if they have seemingly covered all the bases of an exit sale themselves, these mistakes could still be made and have a tremendous impact on the outcome. A professional team of experienced business brokers can support owners in avoiding these common pitfalls when looking to transition from one owner to the next. If you’re looking at selling your business or transitioning it onto another profitable platform, contact our experienced business brokers to learn how we can help.
Read MoreBusiness Market Data: 6 Key Takeaways from Q2 2023
Whether you’re a business owner looking to grow your portfolio or exit your business, the Q3 BizBuySell Insight Report offers both promising and informative news. Despite rate hikes and a fluctuating economy, small business acquisitions are continuing to rise at a steady pace. So, what does this mean for you? Let’s dive into the data and explore 6 key takeaways from the Q2 business market data.
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Increased Business Transactions
According to the latest BizBuySell Insight Report, business transactions increased by 8% compared to the first quarter of 2023. This means that there are more opportunities to acquire small businesses and expand your reach as an entrepreneur. It’s important to keep an eye on market trends and stay informed about the state of the economy; however, don’t let fear hold you back. With the right strategy and support, you can navigate potential challenges and capitalize on opportunities.
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Business Market Data Reveals Drop in Sale Prices
One trend to keep in mind is the drop in top sale prices, which have decreased by 14% in recent months. While this may spell bad news for sellers at first glance, a closer look reveals more creativity and negotiation in deal-making. There is a growing trend of prospective buyers entering the marketplace with less access to capital due to rising costs, in such cases, seller financing has become increasingly critical for businesses to close a deal. While it’s not without risks that need to be properly mitigated, seller financing is allowing business owners to earn more in the long run than they would if they accepted cash up front while also allowing entrepreneurs more flexibility in their acquisition process.
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The Return of Restaurants
Another trend to watch is the resurgence of the restaurant industry. After facing a difficult season during the pandemic for both service and hospitality businesses, these businesses are bouncing back and regaining popularity. According to business market data gathered from Q3 BizBuySell Insight report, restaurant transactions are up by 10.3% in Q2 of 2023 compared to the previous year. Entrepreneurs who specialize in food and beverage may find great opportunities to invest in this industry while owners are in a better position to negotiate a solid deal for their business exit.
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The Downslide of Brick-and-Mortar Retail
On the other hand, retail businesses are still stumbling and facing challenges in the current market as retail businesses continue to shift online and economic conditions have driven consumers towards cheaper alternatives and less non-essential purchases. Retail business owners need to remain agile and come up with ways to stay competitive in the marketplace. This means that retail businesses often need to look for alternative options such as acquisition, expansion, and diversification of product lines.
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Baby Boomers Pass the Keys
Baby boomers are continuing to pass the keys to so called “corporate refugees”. This means that there are more small businesses on the market than ever before, and there is a growing population of entrepreneurs looking to acquire them. Many are looking for established companies that have a proven track record, as well as sound business fundamentals. This is often found in an acquisition of a restaurant or other service business which provides a great opportunity for those who want to start a business but don’t have the resources to do so from scratch. Giving a growing number of entrepreneurs a great opportunity to become their own boss and leave behind the corporate lifestyle they desire to exit.
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Higher Interest Rates Are Here to Stay
Lastly, with every new statistic, the market outlook is becoming more certain—higher interest rates are here to stay, small businesses are in a state of recovery and the food & beverage sector is more than likely leading the way. With this knowledge in hand, it’s important to remember a previously discussed topic concerning flexible alternatives in today’s business market. Business owners seeking to exit their businesses will need to adapt by finding creative solutions to reach a successful business transaction.
About V-AID
With over 611 successful business transactions completed totaling more than $136 million in enterprise value, our team at V-AID has acquired tremendous experience driven by our passion to serve business owners and entrepreneurs seeking the perfect opportunity- giving each transaction the time and attention it deserves. We have expertise in a broad range of industries, from manufacturing to retail, technology to hospitality. Our approach is highly personalized and tailored to the current market conditions – ensuring that their clients get the best deal possible when selling. Listing with us is more than a simple business transaction; it’s a relationship that helps you achieve your goals.
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Company Valuation: It’s Important to Consider Now
Business owners considering selling their business or merging it with another must understand the value of their company. Before approaching the dealmaking table, they need to assess their company’s worth objectively and not be influenced by unrealistic expectations. Knowing the true value of a business can help sellers avoid common transaction pitfalls and regrets. Understanding real market value is essential for making informed decisions, so owners should take the time to research and calculate an accurate assessment of their company’s worth before entering negotiations. To help owners gain insight into this topic, we will share the most common themes from middle-market businesses that have been recently sold.
What Can Be Learned from Previous Owners
Business valuations proved to be a critical point during negotiations. Even those that had a certified public accountant’s appraisal done for their business were still required to reduce expectations when confronted with buyers’ persuasive arguments. As a result, most ended up selling at a lower price than originally projected.
This experience resonates with former owners who emphasize the importance of properly assessing business value well before sale time – something many only recognized once they were ready to sell. In fact, one former owner shared that they had assumed they had an accurate understanding of what their business was worth but soon realized after beginning the sales process that they were significantly off.
Undervaluing a business is not typically the main problem; more often than not, it is overvaluation that causes issues in transactions. Multiple surveys conducted by the M&A sector have shown that sellers with overly inflated expectations of their company’s worth are what most commonly cause deals to fall through.
Lost Opportunities
The unfortunate truth for many business owners is that despite years of toiling and dedication, the full value of their businesses may not be realized until it is too late to make meaningful changes. Often, the opportunity has already passed before they are able to uncover the true worth of their assets, and they find that the proceeds from a sale are not enough to sustain the lifestyle they currently enjoy. To avoid such a situation, owners need to implement value-creating strategies far ahead of an eventual sale, as reaping the rewards of such strategies will take some time. Doing so can help ensure that these hard-working entrepreneurs have the means necessary to retire in a comfortable fashion.
Opposite Effect
It should not be overlooked that the amount of potential acquirers for privately owned middle market companies is limited and mostly consists of professional investors such as private equity funds, family offices, and larger corporations. This limited pool of highly discerning buyers creates limited chances of reaching a successful deal. Owners must consider all of the confidential information that must be shared with potential buyers during this process, as it would be careless to expose the business for sale with little chance of finding a buyer. Setting the value too high can also have the opposite effect. Rather than attracting a lucrative deal, buyers will be discouraged from participating in the competitive process, and this decreased demand will result in the business being sold at a lower value than it could have been otherwise.
Post Transaction Risks
As a business owner, setting an appropriate value for your company when you put it up for sale is of paramount importance. Not only will the valuation determine how much money you receive in exchange, but also the success of the entire transaction and your relationship with the buyer. If the owner significantly overpays for your business, they may blame you if they suffer any losses after closing. They may even allege you withheld material information, misrepresented facts, or defrauded them.
These allegations can be costly to fight, and no matter how innocent you are, involving attorneys will lead to expensive processes that could have been avoided in the first place. Additionally, buyers who overpay for businesses may struggle to remain solvent due to financial strain, leading to potential negative consequences for everyone involved.
These reasons demonstrate why it’s essential to properly assess the value of a middle-market business before selling it and why doing so is beneficial for both sellers and buyers alike. With accurate information on hand and realistic expectations, all parties can benefit from a successful sale transaction without facing any unnecessary legal issues down the line.
Bottom Line for Company Valuation
Business owners should be knowledgeable about how to properly value the worth of their company and conduct regular updates to ensure the best results. To maximize success when selling or merging, it is important to use realistic assumptions that reflect current trends in the industry and understand financial language. A comprehensive understanding of factors that influence business valuation can help ensure an optimal deal is negotiated, and greater profits are gained. Finally, seeking the assistance of a professional M&A advisor can make all the difference in the outcome and overall success of the deal. Not only can an M&A advisor conduct a proper business valuation, but they also provide a wide array of different services to assist business owners in selling their business from start to finish.
Read MoreV-AID Group Selected as Top 5 Best Business Brokers in Dallas by DBEST
V-AID Group is thrilled to have been selected as Top 5 best business brokers in Dallas by DBEST.CO. DBEST is a local company based in Dallas providing honest reviews of local businesses that provide the best products and services. From local restaurants to plumbers and country clubs, DBEST and its team has a strict criterion that must be met to be featured in their top 5 including testing products and services they feature by looking through every resource there is while scouring databases, different kinds of platforms, and are guided by referrals and recommendations from their leads.
The selection was made using the following criteria.
- Professional credibility – Relevant licenses, achievements, and the overall reputation of the business broker.
- Scope of services – The different services provided by the broker to every business owner or prospective buyer
- Transaction efficiency – The overall efficiency of the buying or selling process in every business transaction made.
- Customer service – How well the client is treated and accommodated by the business broker in every step of the process.
- Availability – How easy it is to contact the broker and receive important information or updates regarding its services.
About V-AID Group
Since 2001, V-AID Group, a team of resilient business brokers and M&A advisors in Dallas TX, has been specializing in selling small to mid-size businesses in the main street to the lower middle market. V-AID’s experienced team of experts has a proven strategy that will ensure strict confidentiality, a streamlined selling process, and the maximum value for the business. With deep expertise accumulated from hundreds of done deals, V-AID delivers superior results by providing clients with strategic planning and creative solutions tailored to each transaction. Combining V-AID’s proprietary database of buyer networks and industry-leading marketing, V-AID offers a proven selling method that has been the solution to a value-added exit for hundreds of business owners with a completion of 609 transactions totaling over 135 Million Dollars and continuing.
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