How to value a franchise business
Whether you are buying a resale or planning your exit, the same question decides the deal: what is this franchise actually worth?
How do you value a franchise business?
Start with normalised earnings
The seller's stated profit is rarely the number to multiply. Normalise it: add back one-off costs and a genuine owner's wage, strip out anything personal run through the business, and adjust for any revenue that will not transfer to you. Base the valuation on what a new owner would realistically earn, not the best year the seller can point to.
- Add back one-off or non-recurring expenses.
- Replace the owner's drawings with a market-rate wage for the hours worked.
- Remove revenue that depends on the departing owner personally.
What the multiple depends on
- Earnings stability, steady multi-year profit earns a higher multiple than a single good year.
- Owner dependence, a business that runs without the owner is worth more than one that is the owner.
- Remaining terms, a short lease or a franchise agreement near renewal drags the multiple down.
- Franchise system health, a growing network with low closures supports value; high churn erodes it.
Goodwill and the sanity check
The gap between the asset value and the price is goodwill, what you pay for an established customer base and cash flow. It is legitimate, but only if the verified earnings support it. Always have an accountant review the numbers and test the price against comparable sales; the Fee Index gives you category cost benchmarks to sense-check the investment.
- Who owns the goodwill in a franchise? Exit value, forced sales and non-renewal9 min
- How to read a franchise's financials8 min
- How to sell your franchise7 min
- When is the right time to sell your franchise?7 min
- How to prepare your franchise for sale8 min
- Half-price franchise resales: red flags and the questions to ask8 min
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Frequently asked questions
What multiple do franchises sell for?
Small franchise businesses commonly sell at a low single-digit multiple of adjusted annual earnings, but the exact figure depends on earnings stability, owner dependence and the remaining lease and agreement terms. Always base it on verified, normalised profit, not the seller's headline figure.
What is goodwill in a franchise sale?
Goodwill is the part of the price above the tangible asset value, what you pay for an established customer base, cash flow and reputation. It is only justified if verified earnings support it, so have an accountant test it against the actual numbers.
How do I avoid overpaying for a franchise?
Normalise the earnings (add back one-offs, deduct a real owner's wage), verify them against bank statements and BAS, and test the price against comparable sales and category cost benchmarks. Never pay a goodwill premium on unverified figures.
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