It’s very common for business owners to develop magical thinking when it comes time to sell their company, and franchise owners are no exception. Here are three common myths we hear from owners(sellers).

I already know what my business is worth.

Sometimes, this is magical thinking, but sometimes, it’s a question of doing simple math instead of a true valuation. “The franchisee on the other side of town does $2.5 million in sales, and so do I, so my business must be worth what his is.” Or “He owns three units just like I do, so mine must be worth what he just sold for.”

Top-line revenue is only a single data point in a company’s value. What matters more is the profitability, which you can’t see until you research the owner’s books. The value of the company is all about cash flow and Seller’s Discretionary Income (SDE.) That’s what a buyer will base his offer on. It’s what an underwriter underwrites on; that is what appraisers appraise on.

Sometimes, owners fall prey to “back of the envelope” math. Franchisors find it easy to talk about a sale price based on a percentage of sales. If you hear someone talk about getting 50 – 70% of your annual gross sales as a starting price, you’re getting an estimate that’s a guess at best. You’ll only get a real glimpse of your selling price after an in-depth look at your cash flow.

My store/location is special, and that adds to its value.

We often get sellers who invite us to come see their store. “It’s a great location with lots of walk-through traffic. Our store is immaculate. We have ivy-covered walls along the front of the building!”

Curb appeal is a great thing to have, but it’s not a driving factor in value. You can have the most beautiful location in the world, but if you’re losing money every month, it won’t matter. Even a profitable company won’t get any discernible bump in value because it’s pretty. A buyer only has eyes for cash flow.

I can sell my company by myself.

“I already have an interested buyer, and he’s made a reasonable offer. I’d rather save the commission you guys will charge and manage the sale myself.”

We’ve heard it before. People who think selling a company is like selling a home (which they may have done several times in their lives.) We know that selling a company is many times more complex than that. The diligence alone can take months and hours and hours of time. Most business owners find out that the sale becomes a full-time job in itself. When you calculate what your time is worth (your salary divided by hours) you may find you’re investing at least half our commission doing your own paperwork. And you get 100% of the headaches.

When owners try to use the team of professionals they work with on a daily basis for the sale, they often find that the deal just can’t get done. Your local banker and business attorney may be smart and experienced, but they probably don’t have this kind of expertise. That’s part of the value we bring – a team of professionals, especially lenders, who understand these kinds of deals and can get them done fast.

From experience, we know that time kills deals. Advisors help speed up the process by ensuring that accountants, attorneys, lenders, and other professionals follow up and keep things moving. We make sure the deal is progressing so you can focus on your business.

Lastly, having a single prospect for your business is never a way to get full value. No matter how good it sounds, you’ll almost never get top price and terms when you have just one offer. The only way to know how much your business is really worth is to have two or more qualified and motivated buyers competing to acquire it. Most owners don’t have the time or resources to find and screen a pool of qualified and motivated buyers. (And franchisors are less helpful than you’d think.)

But that’s our job. When we bring a couple of qualified prospects who are really interested in buying your franchise, you know you’re going to get the best offer the market can provide. That bump in value, along with correctly pricing your business, is where we earn our money.

If we can help you plan to sell your business, the first step is to give us a call or get a complimentary and confidential opinion of value.