TL;DR
A franchise resale is priced as a multiple of adjusted annual earnings, not as a multiple of revenue. Take your net profit, add back the costs a new owner will not carry, and apply a multiple. In the buyer conversations we have had over the past year, quoted multiples have run roughly 2.5x to 5x adjusted earnings, and where a business sits in that range is mostly decided by how much of it depends on you.
What moves your number, in order of how much it moves it:
- Owner dependence. An owner-operated unit sells at the bottom of the range. One with a manager who runs it without you sells at the top. This is the single biggest lever, and it is the one you can still change.
- Earnings quality. Clean, documented books with defensible add-backs. Buyers discount what they cannot verify.
- Remaining franchise term. A buyer financing over ten years needs a franchise agreement that lasts longer than the loan.
- Royalty and ad fund load. Every point of royalty comes out of the earnings the buyer is pricing.
- Territory and transfer terms. Protected territory, transfer fee, and whether the franchisor has a right of first refusal.
- Brand momentum. A system that is opening units and supporting owners prices differently from one that is closing them.
Revenue multiples are not how this works. If someone has told you your business is worth “one times revenue,” ask them what your adjusted earnings are. If they cannot say, they have not valued your business.
Start with the right number: earnings, not revenue
The most common mistake we see is an owner who has anchored on revenue. A $2M-revenue unit earning $150,000 is worth substantially less than a $900,000-revenue unit earning $300,000, and no amount of top-line will change that.
Buyers price the earnings. Which measure of earnings depends on the size and structure of your business:
SDE — Seller’s Discretionary Earnings. Used for owner-operated businesses, typically smaller units. It is net profit plus one owner’s total compensation and benefits, plus interest, taxes, depreciation and amortisation, plus non-recurring and personal expenses. The logic: a buyer who will work in the business themselves cares about the total money the business generates for its working owner.
Adjusted EBITDA. Used for larger, managed businesses and for most multi-unit portfolios. Here a market-rate manager’s salary stays as an expense, because the buyer will need to pay someone to do the job you are currently doing. The logic: a buyer who will not work in the business cares what it earns after paying someone to run it.
The difference matters enormously. If you take a $120,000 salary and a buyer would pay a manager $85,000 to do your job, your SDE and your adjusted EBITDA differ by $85,000 — and at a 3x multiple, that is a $255,000 difference in price. This is the single most common source of a gap between what an owner expected and what a buyer offered.
Which one applies to you is not a matter of preference. It follows from how the business will be run after you leave. A broker should tell you which basis they are using and why, in the first conversation.
Add-backs: what legitimately comes back
An add-back is a cost in your accounts that a new owner will not carry. Adding them back is not creative accounting — it is how a buyer sees what the business actually produces. What makes an add-back work is documentation, not argument.
Generally accepted:
- Your own salary, payroll taxes and benefits (in an SDE calculation)
- Interest on debt the buyer will not assume
- Depreciation and amortisation
- Personal vehicles, phones, travel and meals run through the business
- Health insurance and retirement contributions for you and family members not working in the business
- One-time, genuinely non-recurring costs: a legal settlement, a relocation, a flood repair, a one-off system conversion
- Above-market rent paid to a property entity you also own
Here is the shape of one a buyer accepted in a live deal, in the owner’s own words:
“Line 70 — 401K Plan Employer Contribution is also an add back since this was a one time adjustment to resolve the plan being top heavy.”
That is a good add-back: specific, documented, plainly non-recurring, and explained before anyone had to ask.
Generally rejected, or heavily scrutinised:
- A family member on payroll who actually does a job the buyer will need to replace
- “Investments” in marketing or equipment that turn out to recur every year
- Deferred maintenance you chose not to do
- Owner compensation added back twice — once as salary, once as distributions
- Anything you cannot evidence with an invoice, a contract or a bank statement
The practical rule: every add-back you cannot document is an add-back a buyer will remove during diligence, usually after the price has been agreed. That is the worst moment to lose it. Build the adjusted earnings you can defend, not the highest one you can construct.
What buyers are actually quoting
We do not publish ranges we cannot source, so here is exactly what we have and where it comes from: these are multiples buyers and owners stated to us directly in conversations over the past twelve months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three things are worth drawing out of those numbers.
The first buyer said the quiet part out loud. “Depending on owner involvement” is not a footnote — it is the whole spread. The same earnings, in a business that needs you five days a week versus one that runs with a manager, is the difference between the bottom and the top of that range.
Categories price differently. A recurring-revenue, membership-based model with a management layer will out-price a project-based service business with identical earnings, because the buyer’s risk is different.
These are quotes, not comparables. A stated buying range is what someone is willing to pay in principle. What your unit is actually worth depends on your books, your brand and your lease — which is why the next section matters more than the table.
[STUART: this is where FIG’s own data replaces everyone else’s guesswork.] Insert here: the number of franchise resales FIG has closed, across how many brands, and the actual range of multiples achieved. One sentence with real closed-deal figures makes this the only page on the internet that can answer the question with evidence rather than opinion.
The six things that move a franchise multiple
This is where a franchise is different from an independent business with the same earnings — and where most generic valuation advice stops being useful.
1. Owner dependence
The largest single factor. Ask yourself honestly: if you were unavailable for sixty days, what happens? If the answer is “revenue falls,” your buyer is buying a job, and jobs trade at low multiples. If the answer is “my manager handles it,” you are selling an asset.
This is also the only factor on this list you can still materially change. Owners who spend twelve months building a management layer before selling frequently recover far more than the cost of the salary.
2. Earnings quality and documentation
Buyers and their lenders price what they can verify. Tax returns that reconcile to your P&L, a clean chart of accounts, add-backs supported by documents, and monthly financials that do not require a verbal explanation. Messy books do not just reduce the multiple — they extend the timeline and increase the chance the deal fails in diligence.
3. Remaining term on the franchise agreement
A buyer borrowing over ten years needs a franchise agreement that runs longer than the loan, and a lender will check. If you have three years left, the buyer’s real question is what happens at renewal: do they sign the current agreement, at current royalty rates, possibly with a remodel requirement attached? Short remaining term is one of the most common quiet discounts applied to a franchise resale.
Check your renewal terms before you go to market. In some systems, renewing before you sell is the single highest-return action available to you.
4. Royalty and ad fund load
Royalties and advertising fund contributions come out of the earnings the buyer is pricing. They are also a signal — buyers compare what they pay against what the system delivers for it. A high royalty is not automatically a problem, but a high royalty in a system with thin support prices like a high royalty in a system with thin support.
5. Territory, transfer terms and the right of first refusal
Protected territory is an asset with real value, and its size and exclusivity should be stated in your listing. Transfer terms cut the other way: the transfer fee, who pays it, whether the buyer must attend training at their own cost, and whether the franchisor holds a right of first refusal to buy your unit on your buyer’s terms. All of it is in your franchise agreement and Item 17 of the FDD, and all of it is priced by a serious buyer.
6. Brand momentum and franchisor health
You are selling a business inside somebody else’s system, and the buyer is underwriting both. A system that is opening units, supporting owners and investing in the brand supports a higher multiple than one that is closing units or in litigation with its franchisees — regardless of how well your own unit performs.
A worked example
Illustrative figures, not a specific business.
A single-unit service franchise, nine years in operation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At a 3.0x SDE multiple, that is roughly $912,000 for an owner-operated unit.
Now change one thing. The owner spends the year before selling promoting a general manager at $78,000 and stepping back to two days a week. SDE on the adjusted-EBITDA basis is now $226,000 — a lower number — but the business is no longer owner-dependent and prices at 4.0x rather than 3.0x: roughly $904,000, while the owner also collected a year of profit without working full time in it.
The point of the example is that the multiple and the earnings move against each other. Which structure produces more depends on the manager’s cost, the category, and how much the earnings actually hold up when you step back. It is worth modelling both before you decide when to sell — and it is a conversation to have a year out, not a month out.
What lowers your number, sorted by how fixable it is
Fixable in 6–12 months: owner dependence · disorganised books · undocumented add-backs · customer concentration you can deliberately dilute · deferred maintenance · an expiring franchise term you can renew early.
Fixable, but only with notice: an expiring lease · a personal guarantee you want released · staff turnover in key roles · a compliance issue with the franchisor.
Not fixable — price it in: franchisor-wide problems · a category out of favour with lenders · a declining local market · a right of first refusal you did not negotiate and cannot remove.
What your unit is worth versus what your brand is worth
Two units in the same system, with the same revenue, routinely sell for materially different prices. Buyers price your earnings, your lease, your team and your remaining term — not the brand’s average.
Which is why “what is a [brand] franchise worth” is the right question to ask and the wrong question to stop at. We are publishing brand-by-brand pages as we go, based on units we have actually sold in those systems. If yours is not up yet, the fastest route to a real number is a conversation.
[STUART: closing CTA.] A valuation conversation, no fee, no listing agreement, confidential. Confirm the exact offer and the wording you want.
FAQ
How do you value a franchise business?
Franchise resales are valued on a multiple of adjusted annual earnings — SDE for owner-operated units, adjusted EBITDA for managed ones. Take net profit, add back costs the new owner will not carry, and apply a multiple set mainly by how dependent the business is on the current owner.
What multiple do franchises sell for?
In buyer conversations over the past year we have seen quoted ranges of roughly 2.5x to 5x adjusted earnings, varying by category and, above all, by owner involvement. An owner-operated unit sits at the bottom of that range and a fully managed one at the top.
Is a franchise valued on revenue or profit?
Profit, adjusted. Revenue multiples are not how franchise resales are priced. A high-revenue, low-margin unit is worth less than a smaller unit with stronger earnings.
What is an add-back?
A cost in your accounts that the new owner will not carry — your own salary and benefits, personal expenses run through the business, interest on debt that is not being assumed, depreciation, and genuinely one-time costs. Every add-back needs documentation, because undocumented ones are removed during diligence.
Does a franchise broker charge to value my business?
Ask before you engage. Some charge a fee for a formal valuation; others provide an opinion of value at no cost as part of a listing conversation.
How long does it take to sell a franchise?
Longer than most owners expect, because franchisor approval and lease assignment sit inside the timeline alongside the buyer’s financing.
Can I sell a franchise that isn’t profitable?
Often yes, but it is priced differently — on asset value, on territory rights, or on what a buyer believes they can do with the location. Several owners in exactly this position have sold successfully; the mistake is assuming there is no buyer and letting the lease run down first.
