Sell Your Company For 10 Times Cash Flow
Business owners many times have a misconception of what their business should be worth - They work hard, it has good cash flow, why shouldn't they be able to sell it for whatever they choose to? Businesses in the U.S. in most cases are valued at .75-1.5 times one year's worth of revenue. That's it.
3.5 net cash flow from a single year in business is another way to figure a business' value if sold based on current revenues and profitability. So if a business is generating $100k in profits, it will typically be sold for $350k in value.
Why then do franchise companies sell for 10 X EBITDA? This is a significantly higher valuation that a typical company owned business model....for example if you have a franchised business and are generating $100,000 in profit, you could sell your business for $1 million.
The reasons are simple, a Franchised business model has the following elements which create value for a buyer:
1. Scalability - the model has been proven to scale with the addition of new franchise partners in other markets.
2. Lack of dependability on the owner - the fear of buying a business is that it won't operate well without the owner in place....franchising proves that the systems and operating model don't NEED the owner to be in place. When a franchise organization is sold, the franchisees go with that transaction providing stability and operating management with "skin in the game".
3. Opportunities for Growth - Franchising creates growth channels to develop a brand, regaional or national brand and a significantly higher return on investment for the new buyer.
4. Franchising creates an exit strategy for an investor. Franchised businesses are more saleable than company owned businesses.
If you are looking for an exit strategy, a growth channel or a vehicle to build your business and brand, Franchising could be a viable alternative. Contact us to find out whether franchising makes sense for you.