The sale and purchase is based on the value of the assets and goodwill of the business. Normally, the value of the assets is based on their realisable value i.e. what the assets could be sold for in the open market, whereas goodwill is normally based on the future profit potential of the business. The price is the amount that a willing buyer will pay to a willing seller. Often this is a multiple of the business profit but getting to the right multiple is the skill and will vary from industry to industry.
An investor purchasing a resale should expect to recoup their initial investment together with a return based on the increased value they achieve for the business during their period of ownership. A starting point is to look at the return on investment; if you are looking for 20% (to reflect the risk of investing in the business) then this would equate to a multiple of 5 times profit (i.e. you might invest £200K for a return of £40K).
It's never as easy as this in practice as you need to look at the maturity of the business, its dependence on key customers or staff, the assets employed and so on.
If you need help in valuing a business you can take advice from an experienced bfa afffiliated accountant.
Derrick Simpson can help those looking to buy a franchise resale or sell their existing franchise.
Cathryn Hayes is able to answer any finance related questions you have.
If you would like to advertise your franchise for sale on whichfranchise, please contact firstname.lastname@example.org