Franchisors: Take Franchisee Satisfaction Seriously When It Comes to Valuations

A recent article in the Financial Post pointed out the importance of collecting financial information for franchisees –and having it well-organized and recorded–when it comes to franchise valuations.

They liken it to staging a home for sale: When you can clearly demonstrate profitability and make it easy for the buyer to assess unit economics, the more attractive the deal.

The same rule applies to franchisee satisfaction. Research shows that franchisee satisfaction is a primary leading indicator of current system health and a predictor of future performance and long-term system growth. With the growing trend toward mergers and acquisitions in the franchise industry, having franchisee satisfaction data available to buyers is critical.

Franchise ownership groups and private equity firms want to know the strengths and weaknesses of a brand before they buy. A franchisee satisfaction survey conducted by a third-party gives them an independent analysis of the business.

If your franchisee satisfaction is strong, it’s a tremendous selling point and can potentially justify a higher valuation. But even if it’s not, or you simply have a few disgruntled (and potentially loud) franchisees within the system, being transparent about where there are issues gives you an opportunity to explain what’s being done to address the issues and the management team’s plan for growth and improved performance.

Franchise Business Review’s surveys can give you detailed data on your system to provide to interested buyers, including franchisee satisfaction reports as well as industry benchmarking information to show how your brand’s satisfaction compares to your competitors.

Having this information readily available should be part of “home staging” process. If you haven’t surveyed your franchisees with a third-party firm, now’s the time. Private equity firms are increasingly looking to franchisee satisfaction as a metric for gauging risk.