Short Answer…
Yes.

The Concept of Business Valuation
Whether you own a business and want to sell it, or else you’re an entrepreneur who desires to buy an existing small business, somehow or other you need to know what the company is worth.  On the selling side, the plan is to make the price low enough to attract a bevy of buyers, while making sure you’re not giving away potential profits.  From the buyer’s standpoint, you want to assess the value of a business in comparison to its posted cost.  The price you pay for a small business can seriously affect months or years of down-the-road profits, so this factor is not to be taken lightly.  In many cases, a seller will engage the services of an expert to determine a reasonable market value.  Buyers oftentimes hire their own experts to assess the price of a business they wish to acquire.  These dueling experts may arrive at vastly different figures.  Their ability to compromise can result in a mutually satisfactory transaction for both buyer and seller, but much of that process may be based upon what method each side uses to arrive at a price.

Determining the Value of a Business
There are three reasons why an owner of a small business will hire someone to determine its value—a pending sale, some sort of lawsuit, or else tax and estate-planning issues.  For the purposes of this article we are concerned only with the first, but the process is the same no matter why a valuation is required.  There are three basic methods experts use to value a business:

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Creative Business Financing
There are a number of interesting ways to finance a business purchase.  The most traditional method involves securing a loan from a bank or a credit union.  You could also pool funds from friends and relatives or ask the seller to carry a note for a portion of the purchase price, or even all of it.  But one of the secrets for small business finance may be sitting closer than you might expect—your retirement fund.

What is a 401(k) Plan?
While the pension plan has pretty much gone the way of the dodo bird, companies have found other ways to allow their employees to set aside money for their retirement.  The 401(k) plan allows a salaried worker to deposit a small portion of his or her wages every pay period into a tax-exempt account.  Employers offer to match these funds up to a certain percentage or dollar amount; this figure may also vary depending upon the fiscal health of the corporation—where a year with greater profits will mean a higher matching deposit.  Oftentimes there are “vesting” issues, where the employer’s contribution does not completely accrue to the employee until he or she has been there a predetermined number of years.  No matter how these issues are structured, the money contributed by the worker is sacrosanct.  Surprisingly, you can use this money for financing a business.

Penalties Versus No Penalties
Once funds are deposited into your 401(k), whether they are yours directly or else matching contributions from your employer, the I.R.S.

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Creating the Franchise Concept
The wily entrepreneur will always express a desire to start a business and make lots of money.  While there are no guarantees, it is difficult to succeed if you don’t even try.  One of the ways to leave a lasting impression on the world of business is to start a company, watch it grow and profit over the years, and then take the next step—turn it into a franchise operation that allows others to benefit from your proven system.  You will multiply your earnings many times over thanks to the upfront fees you receive from new franchisees, plus from ongoing royalty payments.  You will also see your brand spread out across the countryside, perhaps even becoming a household word.  After all, there was no McDonald’s chain prior to Ray Kroc, nor a Dunkin’ Donuts until Bill Rosenberg dipped his first lump of dough into a vat of fry oil.

Good Legal Advice Is a Top Priority
When turning an existing business into a franchise opportunity, the best place to start is to engage a competent attorney—one who knows the franchise industry and is familiar with various state and federal requirements regarding disclosure and other touchy issues.  Before you ever solicit your first franchisee, you will need a comprehensive package of material that conforms to specific government regulations.  The Uniform Franchise Offering Circular (UFOC) is a legal requirement as mandated by the U.S.

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Choices - Lots of Choices
The decision to buy a franchise as your entry into the world of business ownership should not be taken lightly.  Franchising is one of the most popular ways for people to run their own business, but even that field can be divided into subsidiary choices.  Once you have determined that a franchise purchase is the right path to take, your next move is to decide what sort of franchise to buy.  There are five distinct types:

1. New Single-Unit Franchise
This is the most common form of franchise operation.  Whether retail or wholesale, mobile or work-from-home, a single-unit franchise involves direct, day-to-day oversight by the owner.  In most cases, a small group of employees assist the owner in all aspects of the business, except for management.  In others, especially those that operate longer hours or even around the clock - a convenience store, for example - one or two assistant managers supervise the business whenever the owner is away.  For smaller single-unit franchises, the owner may actually be the only employee.  This could include mobile-type operations like a carpet cleaning service or home decorating consultancy.

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What is ROI?
There are a number of technical definitions to describe the business term ROI, or “return on investment”.  For example, InvestorWords.com says, “A measure of a corporation’s profitability, equal to a fiscal year’s income divided by common stock and preferred stock equity, plus long-term debt.  But what does that mean to a prospective franchisee?  Not very much!

A Definition of Franchise ROI
In the simplest of terms, your return-on-investment is an analysis of the amount of money you pay to acquire a business compared to your expected or actual profit.  If you buy a business for $100 and show a net profit at the end of the first year of $20, then your annual ROI for that period is 20 percent.  In this scenario, and assuming a similar rate of return each subsequent year, it would take you five years to recoup your initial investment.

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Franchising: A Two-Way Street
After choosing to purchase a franchise, you rightfully expect the parent company to come through with a great deal of support.  After all, you are forking over tens of thousands of hard-earned dollars in the form of a franchise fee, not to mention additional sums of cash for equipment, supplies, inventory, and so on.  But you have responsibilities as well - to yourself and your employees, and to the corporation whose brand you represent.

Be an Investor
When a corporation adds a new franchisee to its roster, the people at the home office have already done a great deal of due diligence.  Notably, they examined your financial situation and decided you had sufficient capital to move the business forward as well as supply the start-up cash.  Most new businesses need time to find their market and attract enough customers to pay the bills and provide a profit.  One of your first responsibilities as a franchisee is to keep things running smoothly.  Pay your suppliers on time, pay your employees a fair wage, and address all your financial obligations in a consummately professional manner.  If you can afford it, take your early profits and plow them back into the business.  This will benefit you in the long run, especially if you have plans to open additional locations at some point down the road.

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Retirement Is Not a Dead End
Americans today are living longer than ever and enjoying an active lifestyle at a more advanced age than their parents ever did.  A famous saying from a decade or two ago was, “Forty is the new thirty.”  When it comes to business owners, though, you might say, “Seventy is the new fifty.”  Even though the traditional retirement age is 65, many people work well beyond that, correctly believing that remaining physically and mentally sharp in their golden years will greatly improve their overall quality of life.  Others choose to work longer due to economic concerns, as retirement funds and pensions have taken a financial hit in recent years.  Embarking on a second career can be a very rewarding experience, and many retirees choose the route of buying a franchise.

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Why Business Valuation Is Important
The process of arriving at an accurate assessment when valuing a business is perhaps the most challenging aspect of any prospective small business purchase.  A seller has arrived at a specific price he or she wants for the company, and one must determine if that business value is accurate.  Pay too much, and you will struggle to make a profit.  Pay too little—well, there’s hardly a down side there, but the scenario is unlikely at best.  There are several ways to value a business; choosing the most appropriate one for your situation—and ensuring that it’s accurate—can make the difference between success and failure.

Three Basic Approaches
Small business valuation generally falls into one of three categories:

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