Building a Business Through Franchising

Franchise Your Business:  Higher Valuations

As a business owner, it is difficult to get “out” of the day to day grind and work on building the business you’ve worked so hard to make successful.  The E-Myth describes this problem well of business leaders getting stuck “in” the business and being rendered unable to work “on” the business.

As the leader of an organization, this problem can be much easier to develop a solution for theoretically than logically….when you start your business it just takes a lot of work from everyone involved in order to make it successful.  BUT – when you scale the operations and begin to acheive that critical mass of operations where employees can take on the operational responsibilities and you are “freed up” to at least act like a manager instead of your own employee….it might be time to start thinking about franchising.

To Franchise a business is the ultimate form of scaling a company.  It is the most leveraged and highest form of scaling an operation one can acheive.  Many business owners and leaders can train sales people or operations employees within their organizations, but the skill and mindset needed to train a franchisee to operate the entire organization on their own requires another level of skill and patience.

The beauty of franchising is that it allows businesses that are typically NOT scalable to become scalable.  The restaurant industry is always a great example.  With the operational and financial commitments that come with each new location, the owners tend to get sucked in deeper and deeper into the operating requirements of running a location with each new unit that is opened.  Franchising has allowed restaurants to become a scalable business model by leveraging the business system and putting owner operators in place who manage the day to day business.

Scalable businesses are always good, it typically means higher valuations and sale prices when the company is sold.  This is why technology companies and pharmaceutical businesses get such high valuations (Think Groupon and LinkedIn).  Franchise systems are typically valued at 8-10 times EBITDA which when compared to a 3-5 range for company owned businesses this puts a significant premium on scaled systems.  The reasoning behind this is that new revenue and the ability to grow quickly is much larger through an independently owned distribution model.  Local operators who have their own capital invested manage the locations more profitably (McDonalds franchises average 20% higher profitability than company owned locations).  Franchisees also provide investment capital needed to open new locations while keeping the debt structure of the franchisor leaner and more manageable.

For more information on how to franchise your business and whether franchising could be a good fit for your company, contact us:  (800) 610-0292  /  [email protected]