Knowing the value of your franchise business is a critical step in making the best decisions in terms of operating a business profitably, borrowing money, remodeling assets or participating in high prices paid by sophisticated buyers in the sale of franchise businesses in today’s M&A environment.
Hey, this is Rick Ormsby at Unbridled Capital.
The process of selling a business, a franchise business has changed a lot over the last 15 years, as you've seen an influx of more sophisticated capital and larger capital providers coming into the business attracted to the returns in the franchise business, it's a great business. And so, because of this, there is a need for those who want to sell their company, or are investigating the sale of their company there is a real need to understand a process. It's a very process driven model of selling a company these days. It wasn't that way years ago, but now it is.
And much like, I use, the analogy of Nick Saban and the University of Alabama, and he talks a lot about taking a team through a process to become great at the end of the season. If you're going to sell a company, you need to understand the process, or have someone guide you through the process of the various steps in order to get to the place where you can get the highest price for your business on the best terms with the least amount of risk.
Today, I just want to talk about one of the several factors that are really important in understanding of the sale process and the business and that would be valuations. Valuations are a critical component because if you don't know the value of your company, you can't make the right business decision. And then, it flows all the way through to who the buyer would be, and where the buyer would buy it from, and how it would be operated and managed, and how it would be financed. So, you have to understand the value of your business first.
And the value of your business is driven off of several key items one is EBITDA and EBITDA multiples. I'm sure you've heard about that in the industry. And, of course, that swings wildly between different franchise brands and how well they've done in the marketplace over the last three to five years. You hear about cap rates, which pertains to how to value the real estate portion of your franchise investment. We look at leases and what the life cycle of your leases are. And then, obviously, a big component of any franchise business is franchisor required or mandated remodeling programs, and how that impacts your ability to borrow and your ability to sell an asset that you already have. And those items come together along with a real detailed analysis of the financial picture of your business to figure out what exactly the value would be, and then how to go about selling it in a detailed process.
I know it's a lot for one conversation. If you have any interest in talking more about it, give me a call at any time, be happy to talk.