Build value in your network to achieve a better selling price

Brian Duckett

It is no secret that there are several organisations currently interested in acquiring franchised networks to build a stable of such businesses. By Brian Duckett, chairman of The Franchising Centre.

They have the skills to build franchised networks and can provide a centralised service to provide the necessary recruitment and support functions, regardless of the end product or service which the franchisees will deliver.

Coincidentally, maybe fortunately, over the last couple of years we have been getting more and more enquiries from franchisors which are ready to think about exiting their businesses and selling their entire networks.

However these franchisors will not get anything like what the business is worth if they have not planned the sales process well in advance. Ideally, at least two to three years before they want to complete the transaction.

Anything which looks like a ‘fire-sale’ or a ‘desperation to be gone’ may not attract any interest at all. If it does, it will be from someone who will drive a very hard bargain and there will be little or no value at all for the seller.

So, we have developed a process to help franchisors grow the value of their business, while perhaps preparing it for sale sometime in the near or distant future. After all you would not sell a car without having it valeted, a house without tidying it up, or indeed a horse without getting it fit and shining its hooves.

To cut a long story short it is a benchmarking process called Value Builder which measures a number of Key Performance Indicators which are specific to the successful operation of a franchised network.

The point of the exercise is to establish where the business currently stands, not least in terms of its current value, against how it will need to score if it is to achieve the gross and net profit figures that will produce the required multiple to attain a selling price of £X million in Y years.

Over an initial meeting, which can take a couple of days, we take the franchisor’s senior team through approximately 80 questions related to how they recruit, train, monitor and motivate their franchisees.

Areas covered include:-

  • how well their system has been documented;
  • how well protected is their intellectual property;
  • how efficient is their franchise marketing and recruitment;
  • how effectively do their franchisees operate;
  • how can both the franchisor and franchisees increase their revenues and profits, and
  • how well qualified and effective is the management team?

The latter question is of course of particular interest to a buyer, especially the sort of corporate entity that will have the necessary funds.

The franchisor and his colleagues are encouraged to score themselves for each of the questions, with our facilitator questioning and cajoling them to change their minds based on what we know about their and many similar businesses.

Scores are subsequently transposed into a speedometer-style, traffic-light related graphic whereby:

  • Green means we are OK but could improve in time.
  • Amber means we are not too good and will need to address certain issues.
  • Red means we had better do something soon or we will be in serious trouble.

The final output of this first stage of work is a prioritised action plan which details what needs to be done, when it should be done by, who is going to do it and what it will cost.

No doubt we have all been through something similar in the past where someone has drawn up a plan but very little happened after that.

In my experience the value of such a process is greatly enhanced when the franchisor engages us, at The Franchising Centre, to continue to drive progress towards implementing the action plan with regular review meetings and intermittent telephone and email contact with the various members of the team.

People will often do more when a third-party is involved, indeed the chairman of a multi-million pound business once said to me at one of their review meetings: “I’ll admit to you Brian that if you hadn’t been coming today I doubt if any of my actions would have been completed”.

About the author
Brian Duckett is chairman of The Franchising Centre, the UK’S leading consultancy, training and staff recruitment group.