The difference between profit and value
The difference between profit and value and how to increase the value of your franchiseIf your franchise is making a profit then you’re succeeding, right? And when it comes time to sell, the profits will speak for themselves.
Not necessarily. Profit is just one aspect of a franchise that appeals to prospective buyers. Value encompasses profit and much, much more.
Profit is retrospective – it only measures what has happened in the past.
Value is a measure of your franchise’s financial success in the past and its future potential. Value also measures more than just money. Other things that could make a franchise appeal to a particular buyer include intellectual property, plant and machinery, other assets, employee contribution, client loyalty, and lifestyle or other perks.
If you were thinking about buying a franchise, would you look only at profits? If you did, it would be very short-sighted. Rather, you would consider the franchise system underpinning the business, the brand, its position in the market, consumer perception, available support, your investment (money, time, effort etc), the talent in the team (if one already exists), the list goes on.
Once you understand the value that drives your franchise success, you can then plan to increase that value and profit will naturally follow.
Tips to increase the value of your franchise:
Keep key employees – Look after your staff (the good ones) by building long-term incentives, stability and career progression opportunities. If you’re selling, motivate them to stay for the new owners.
Differentiate your franchise – What makes your franchise unique? Is it the location? The staff? The customers? Although you are part of a franchise system, there is something that sets you about from the others, otherwise they would all be valued the same. Use your differentiating factor to appeal to buyers.
It’s not all about the money – When marketing to prospective buyers, put yourself in their shoes and remember money isn’t everything. What else does your franchise offer? A great lifestyle, top-notch staff to carry it through, a rock solid franchise system?
Increase sales – Sales drive every business, so always look at ways to consistently increase them. Secure recurring contracts for the medium to long-term and find ways to bring in additional clients.
Don’t be a loner – If a franchise is dependent on just one person it can negatively affect its value. If that person is you, then this is definitely true for prospective buyers. Ensure customer and staff loyalty is attached to the business and not to you.
Plan for tomorrow – Create a long term strategic plan that maps out your vision for the company, your market, its growth potential, any threats and how you intend to implement that plan. This will help give prospective buyers a true picture of your franchise’s value.
Selling your franchise is a major decision. Understand what drives the value in your business before you sell.
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