How is a resale franchise valued?

Consideration must be given to each element of what is being bought and sold. These will often include fixed assets, current assets, that mystifying element called ‘goodwill’, plus whatever has to be paid to the franchisor for a new franchise agreement and training.  Fixed assets need to be valued at their current value to the purchaser. This takes into account the cost to purchase the assets new, less a reduction for wear and tear and whether the franchisor will allow the new franchisee to continue to use these assets.  Current assets, eg stock, should be valued on the current cost of the items, with a reduction for any old, unseasonable or unsaleable stock.  Goodwill is the area that can be most contentious. The rationale of goodwill is that there is already an established business that ought to immediately generate sales and profits for the purchaser and that this therefore provides a value to him over and above what he might expect from a ‘cold-start’ situation.  Potential purchasers should take professional advice from someone familiar with the franchise resale process, regarding this important element of the business valuation.