Literature Review

Description

At its core, the commercial opportunity comprises four world-first instruments.

• An instrument used specifically to rate the efficiency of a franchise system.
• An instrument used specifically to value the goodwill of a franchisor’s business.
• An instrument used specifically to value the goodwill of a franchisee’s business.
• An instrument used specifically to identify non-conforming practices and underperforming elements of a franchise system.

The rating instrument comprises a network of four distinct but related levels that tests 472 performance drivers. These drivers consist of general drivers and benchmark drivers employed in measuring the efficiency of a franchise system. The evaluation process consists of a system of weighting, marking and scoring of 472 performance drivers to arrive at an efficiency factor. The efficiency factor returns a rating for the franchise system based on the weighted strength of its acculturation, organisation, communication, and incentives systems. In that context, efficiency is defined in terms of how effective the franchise system’s governance structure has been and is likely to be, in achieving the value maximisation goal of both franchisor and franchisee, by minimising the use of resources, time, and effort.

Why rate franchise systems?

Presently there is no published methodologies that systematically and comprehensively rate the efficiency of a franchise system except that which is offered by Marketforce. Given the growth and importance of franchising in Australia and other parts of the world, independent knowledge about the strength and viability of new, emerging, and mature franchise systems is paramount to franchisors, franchisees, lenders, professional advisers, government, and investors.

Specifically, a rating allows:

• Franchisors to identify any weak points in their system.
• Franchisees to assess the strength of their existing or potential franchisor.
• The valuation of goodwill of franchisee-operated businesses.
• Lenders to identify and rate risk when lending to franchisors or franchisees.
• Lenders to offer better risk rated non-RMBS loans to franchisees.
• Due diligence investigations of franchise systems engaged in mergers and acquisitions.
• Valuation of the franchisee and franchisor’s business for establishing value in establishing inheritance and wills.
• Valuation of franchise related business assets in matrimonial disputes.
• Determination of baseline and incremental KPIs for value-creation based executive compensation schemes.
• Identification of value drivers in growing and improving businesses at all stages of the growth cycle.
• Strategic decision-making such as whether to grow, merge, or divest.
• Valuation of goodwill and intellectual property for securitization.
• Franchisees and franchisors to justify a better value for their businesses based on a high rating.