Initially it is important to clarify what the special characteristics of a Franchise business are. So how is the valuation of a franchise business different from other businesses?
In simple words, a franchise is a business partnership between the franchisor and the franchisee for a common economic success. When you want to value a franchise business it is important to look at the value of the profits and assets of the franchise and also the value of the support the franchisor can offer the franchisee. Furthermore it is important in valuing the franchise not just to value the business of the franchisee but also the strength of the franchisor.
So there are some significant key drivers which can show you whether to buy a franchise or not. First of all, you should know how long the franchise has been in business and how successful the franchisees are. Secondly, you have to know if the franchise company has a high brand awareness and a good reputation for its service and products. Thirdly it is an important factor for the value of a franchise, if there is a good partnership between franchisors and franchisees.
Finally, if the franchisor has established a successful marketing concept, the franchisee can concentrate on his own business and the relationship between him and the customers. This adds value.