The asking price is determined using a cash flow and asset methodology. Cash flow is the sum of net income from the business plus any non-cash expenses, non-recurring items and any seller’s personal expenses. The asset methodology takes into account what it could cost to open a similar business in equipment and square feet. A multi-factor multiplier is applied to the cash flow based on the condition of the business and the asset value is added to that result.
For this business, a three-year average cash flow is applied. The multiplier applied in this case is 3x, is the standard multiplier for franchises and based on recent sales of the same type of business with similar gross sales and SDE
The SDE value takes into account time to build up the goodwill and customer base. If you were to build out a similar space with like equipment it could cost upwards of $475,000 or more per the franchisor.