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    2 Replies Latest reply on Sep 17, 2008 9:08 AM by PiperE

    Franchise Cost 'Formula'

    TexOHx3 Newbie

      Hi... Can anyone help confirm what I've learned about traditional pricing for an existing franchise? I have been told that it is common for franchises to be priced at 'x3 Cash Value'. I also read that the following formula is a good guideline: ONE YEAR CASH VALUE + VALUE OF FURNITURE/FIXTURES + INVENTORY. The franchise we are looking at has been in business for 3 years. It is a Merle Norman business but has other attractions to bring more interest to the business, such as Turbosonic Vibration machine, Infrared Body Wraps, and Wigs/Hair pieces. The M.N. franchise, along with the other services, is bringing in profit at the current 3 year mark. What is the best way to determine if an existing franchise is priced fairly? Any help would be appreciated!
        • Re: Franchise Cost 'Formula'
          LUCKIEST Guide
          Franchise Cost 'Formula', Welcome

          It would be nice to know more about you and your background.. Where are you located??

          There are Accountants who specialize in determining if an existing franchise is priced fairly.

          If you are looking to purchase a franchise you should have An Accountant, a Lawyer
          and an Insurance Agent.

          Good luck, LUCKIEST
          • Re: Franchise Cost 'Formula'
            PiperE Wayfarer
            Merle Norman? Are they still around? Wow! What attracts you to this pasrticular business model and this particular unit? Obviously it is not price because you don't know if it is priced fairly. Have you seen the financials? What is your ROI (return on investment?) Exactly what are you buying? Equipment? Cash flow? Why are the owners selling? How much does it cost to open a new unit? Have you interviewed at least 5 other franchisees?

            Have you read the FDD (franchise disclosure document)? Does the franchisor require that you purchase anything from them? Have you looked at the success rate of franchisees in this franchise (see itme 20 of the FDD.

            And my big question, didn't this franchise hit it's reak a long, long time ago and is now declining? Again, Item 20 of the FDD will give you the answer.

            After all of my questions, on to yours, if you are very, very serious about buying this particular unit, then for heaven's sake write a check and talk to an expert. Find a good account who is business savvy (they aren't all business savvy). How about speaking to a number of business brokers? In fact you should have a business broker representing you.

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            Paula Serber
            SBA, franchise loans and unsecured business lines of credit