BUYING A FRANCHISE
An old proverb reminds us that if you are searching for a jewel, it too often may be hiding in plain sight! Most searchers discount the opportunity to become the CEO/owner of a franchise for a variety of reasons, including size, limited growth, low margins, restricted flexibility, and “status.” According to Statista, in 2019, there were approximately 780,000 franchise “establishments” in the US with an economic output of about $787.5 billion and with 8.43 million people working for them—certainly not an insignificant niche.
In a survey of 147 Entrepreneurship through Acquisition (EtA) businesses purchased by Harvard Business School graduates in the past decade, 10 (or 7%) purchased franchise operations—2 immediately upon graduation and 8 mid-career (See Blog Post: Searching Mid-Career). All were self-funded, paying an average earnings before interest, taxes, depreciation, and amortization (EBITDA) multiple of 4.2x with a range of 2.7x to 5.5x. The median seller note was 20% of the purchase price with 15.5% outside equity and the remainder financed by bank debt. Of these franchises, five were single-unit operations, and five ranged between 13 and 23 units. Employee count ranged from 8 to 300. Searchers took a median of 12 months from search launch to close with a range of 6 to 35 months. One additional searcher/CEO decided to “build” rather than “buy” a territory for seven car wash facilities.
You can read more in my blog post here: https://jimsteinsharpe.com/searching/buying-a-franchise/
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