Navigating the World of Franchise Business Brokers: Tips for Finding the Right One
| April 2023
Are you in the market to buy or sell a franchise business? If so, you’re in good company. Many business owners and investors recognize the value of ventures that follow this model and seek opportunities to make a profit.
According to stats shared by MarketWatch, the franchise market overall is expected to increase from $101 billion to $176 billion over the six years from 2021 to 2027.
If you want to sell your franchise or buy one for the potential upside, it pays to work with a broker who is savvy about the market. A professional franchise business broker can provide invaluable assistance throughout the process and ensure that you emerge a winner.
How A Franchise Business Broker Can Help Sellers
The daily demands of running a franchise are difficult enough. A broker can especially come in handy when it's time to sell.
Complications can arise when trying to sell a business as a franchisee, including everything from business transfer fees to meeting contract obligations and working within the constraints of your original franchise agreement.
Because the franchisor is an essential third party in the process, it also takes an extra level of adeptness and skill to ensure everyone involved sees a satisfactory conclusion.
It can be nearly impossible to navigate all the particulars as a busy franchise owner. Selecting a business broker with franchise experience is a wise move for increasing your chances of a smooth sale.
Make sure you work with a business broker who can help you in the following ways:
| Securing An Accurate Valuation For Your Franchise
Whether you run a fast food restaurant, clothing store, gym, or tutoring service under an established brand, there's a lot that will go into determining the monetary worth of your business. An experienced broker will take all the necessary factors into consideration.
First, a broker may start with a common valuation formula.
One such formula is EBITDA (earnings before interest, taxes, depreciation, and amortization). As the name implies, EBITDA adds back expenses to the earnings total. It’s not unusual for a franchise to be valued at 4x - 5x EBITDA.
Another method is to assess the business based on potential future earnings by a new owner. This involves the use of the seller’s discretionary earnings (SDE) formula:
(Pre-tax, pre-interest earnings) + (vehicles, travel, and other transactions listed as business expenses)
SDE adds back business expenses with some level of personal benefit to the owner, including charitable donations, vehicles for business use, and the owner’s salary.
In conjunction with those formulas, a broker will consider the value of the franchisor's brand and assets, their history, and other factors. They'll also look at your franchise agreement, your sales trends, and comparable local businesses to determine a fair range of possible sale prices.
| Connecting You With Qualified Buyers
A good franchise business broker will have a wide network of potential buyers they can introduce you to. These prospective buyers often understand the franchise market and are willing to operate under an existing brand.
As a franchisee, it's hard to evaluate prospects yourself. A potential buyer has the finances to offer a fair price for your business, a keen understanding of franchise operations, and a clean record free of legal entanglements and reputational risk.
A good broker will bring you leads that match these qualifications and even conduct background checks as necessary to make sure a prospect is worth engaging with.
| Completing Your Due Diligence Thoroughly
Sellers often find due diligence the most challenging aspect of the sale process. The right franchise business broker will help you complete it without increasing your burdens as a busy manager.
They’ll help ensure your business’s financial, legal, and operational health is intact and advise you on all the documentation needed with a reasonable, step-by-step plan to secure it.
Throughout the due diligence process, a professional broker will not only uncover any deep operational issues with your franchise — they'll help you fix them and make your business more marketable.
Advantages Of A Seasoned Franchise Business Broker For Buyers
A franchise can be a great investment opportunity. If you find one that’s running under a high-value brand with a track record of successful satellite operations, it may be smart to consider acquiring it.
As much upside as there can be, however, every buyer should be aware of the potential issues that can arise. Not every franchise that seems to be a thriving enterprise will be easy to run, profitable under new management, or even simple to acquire.
That’s where a good franchise business broker comes in. Choose one with the following attributes:
| Access To Many Opportunities
Brokers in the franchise market will have their eye on profitable operations — especially those run by responsible, levelheaded owners in good standing with their franchisors.
Among these opportunities, a broker can help you identify which exact target lines up best with your investment strategy and operations management acumen.
In addition, should you need help navigating a new relationship with a franchisor, acquiring or retaining staff, or securing additional financing, a savvy franchise business broker can advise you on every step.
| Expertise In Negotiations
Even if you've bought a business before, negotiating over acquiring a franchise can be complicated. You'll have to be approved by the franchisor, who may have strict stipulations that will instantly apply to you as the new owner.
There may be commercial lease agreements, contracts, and health and environmental regulations you may have to adhere to, among other legal matters.
A well-qualified franchise business broker will be familiar with all of the above. They'll ensure you're in step with every key contractual obligation while advocating for your interests to both the franchisor and the seller to secure the best ultimate terms.
| Aligning Your Acquisition With Your Goals And Future Directions
Your goals are something worth considering when buying a franchise. Will the purchase be aligned with your existing business? Does a given acquisition target fit the informed investment approach you want to take?
These questions matter; a good franchise business broker will help you address them. In particular, an experienced broker will help you select the franchise whose financial performance, operational health, and appeal to local consumers best fit your short- and long-term goals.
Professional Qualities To Look For In A Franchise Business Broker
Whether buying or selling a franchise business, franchise-specific experience is a must for any broker you consider working with. Only brokers who know the market will be able to walk you through the legalities and contractual intricacies of franchises while helping you avoid the pitfalls.
However, you'll also want a few other qualities in your broker to help guarantee a good outcome, including:
Communication skills. There are at least three parties at the table — the franchisor, seller, and buyer — so great communication skills are a must! Clarity and consistency will be essential at the negotiating table.
Integrity. Your broker must be willing to maintain confidentiality, fully transparent about every action taken on your behalf, and be trustworthy when handling your sensitive financial interests.
Choose a broker who fits this picture for the best shot at a successful deal.
How A Raincatcher Broker Can Help
The franchise business brokers at Raincatcher are second-to-none when it comes to experience in the franchise market, as well as a deep awareness of the legalities and practicalities of transferring such a business between owners.
If you’re a seller, our brokers can help by providing an accurate valuation of your business, helping you navigate the due diligence process, and tapping into their network of qualified buyers with the ultimate goal of securing a lucrative deal for you.
If you’re looking to buy a franchise, our brokers can spot the opportunities most aligned with your interests, walk you through every relevant contract, agreement, and matter of compliance, and ensure you buy a business that positions you for strategic and financial success.
Ready to start the process of selling or buying a franchise business?
