Buying or selling an existing franchise, also known as a franchise resale, is common in Australia. Many franchise owners decide to sell due to retirement, lifestyle changes, or new opportunities. For buyers, a resale can be appealing because the business is already operating and has an established customer base. Understanding how to value a franchise resale is important for both buyers and sellers, as it helps ensure the price reflects the true worth of the business.
What Is a Franchise Resale?
A franchise resale occurs when an existing franchisee sells their operating franchise to a new owner. Unlike buying a new franchise, a resale includes an established location, existing staff, and a trading history. In Australia, franchise resales must follow the Franchising Code of Conduct, and the franchisor must approve the new buyer.
The value of a franchise resale is not just based on the brand name. It depends on financial performance, location, lease terms, and how well the business is managed.
Financial Performance And Profitability
One of the most important factors in valuing a franchise resale is its financial performance. Buyers usually review at least two to three years of financial records. This includes revenue, expenses, and net profit.
In Australia, franchise resales are often valued based on a multiple of the business’s annual profit. A profitable and stable franchise with consistent earnings will generally attract a higher valuation. If profits are declining or inconsistent, the value may be lower, even if the brand is well known.
Location And Lease Conditions
Location plays a major role in franchise value. A franchise located in a busy shopping centre, high-traffic street, or strong local community is often more valuable than one in a less visible area. Foot traffic, nearby competition, and local demand all influence performance.
Lease terms are also critical. Buyers look closely at how long the lease runs, whether there are options to renew, and what the rent increases look like. In Australia, short or unfavourable lease terms can reduce the value of a franchise resale, as they increase risk for the buyer.
Franchise Brand And System Strength
The strength of the franchise brand has a strong impact on resale value. Well-established Australian and international brands with good reputations often achieve higher resale prices. Buyers are more confident in systems that offer strong training, marketing support, and ongoing assistance.
If a franchise system has high franchisee turnover or poor support, this can reduce buyer confidence and lower the resale value.
Condition Of The Business And Assets
The physical condition of the business also affects its value. Fit-out, equipment, and signage should be in good working order and meet current brand standards. If upgrades or refurbishments are required, buyers may factor these costs into the purchase price.
For service-based franchises, assets such as vehicles, tools, and customer contracts are considered as part of the valuation.
Franchisor Approval And Transfer Costs
In Australia, franchisors must approve the transfer of a franchise to a new owner. Transfer fees, training costs, and legal expenses can affect the final value of the resale. Buyers often consider these costs when deciding how much they are willing to pay.
A smooth and supportive transfer process can make a resale more attractive and help maintain its value.
Conclusion
Valuing a franchise resale in Australia involves more than just looking at the asking price. Financial performance, location, lease terms, brand strength, and business condition all play an important role. Both buyers and sellers benefit from understanding these factors and seeking professional advice where needed. With careful evaluation, a franchise resale can be a fair and rewarding opportunity for everyone involved.
