Franchise multiples vs. regular businesses

by a searcher from Northwestern University - Kellogg School of Management

3 weeks ago

I’ve been looking at a certain industry and it seems like regular businesses are going for 3X but franchises are going for 4X. Same industry.

why?  Ultimately, I’m looking at how much money is left after I pay off my loan and franchises just never look as good. There something I’m missing?

I thought about making an offer to ask people to lower the price, but I would love to hear thoughts from the community first

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9 comments

investor from New York University - Leonard N. Stern School of Business

Franchises have limitations in terms of geographical territory constraints, limited acquisition opportunities (must be in-system and approved by the franchisor), limits on additional products / services you can offer, etc. So while you might have a higher floor, you also have a lower ceiling. I'm not arguing for franchisees to trade at a discount to independent players, but there are both advantage and disadvantages. Note that I'm a fan of franchise resales as a path for ETA, so this isn't meant to be negative at all. Like everything else - it depends...

Also - even if they don't give you a copy of the franchise agreement pre-LOI, you can likely find the FDD on websites like franchimp.com, which will contain the franchise transfer fee as well as other relevant info.

3 weeks ago | like reply | 0 likes

searcher from University of Florida

Not enough details to really say - but just look at it objectively like any business first, then as a franchise second. If it's a strong business in a strong franchise system then it may be worth more, A weak business in a strong franchise isn't attractive but a better turn around candidate than a weak business with no name brand recognition. I personally avoid strong business in a weak franchise, and definitely weak business in a weak franchise.

3 weeks ago | like reply | 0 likes

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