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Read Article →Valuation BenchmarksApril 2025 · 7 min read
Franchise vs. Independent: Which Home Service Business Sells for More?
Does a franchise brand increase or decrease your home service business sale price? The honest analysis of franchise vs. independent valuations.
JT
Jason Taken
HedgeStone Business Advisors
Home service franchise owners often assume their brand adds value at sale. The reality is more nuanced — franchises sell differently than independents, and whether you get more or less depends on which franchise, the royalty structure, and your buyer pool.
How Franchise Businesses Are Valued
Franchise home service businesses are valued using the same SDE × Multiple framework as independents, with one key adjustment: royalty fees (typically 5–10% of revenue) reduce SDE. A franchise with $2M revenue and a 7% royalty has $140K/year in royalty expense already subtracted from SDE. The buyer also inherits the franchise agreement — which may have remaining term, geographic restrictions, and restrictions on how the business can be sold.
When Franchises Sell at a Premium
Some franchises genuinely add value: brands with strong consumer recognition that drives inbound demand without marketing spend (ServiceMaster, Molly Maid, Terminix franchises in strong markets), franchises with exclusive territories in high-growth areas, and franchise systems with strong operational support that reduces owner dependency. In these cases, the brand value can offset the royalty cost.
When Franchises Sell at a Discount vs. Independents
Franchise transactions require franchisor approval of the buyer — which narrows your buyer pool. PE and strategic acquirers often won't acquire franchise businesses because they can't roll them into their own branded platform. The remaining buyer pool is smaller, which reduces competitive pressure and multiples. High royalty structures (8–12%) that significantly compress margins also drag multiples down.
Franchise Resale Restrictions
Most franchise agreements include: right of first refusal (franchisor can match any offer and purchase the business themselves), buyer approval requirements (franchisor must approve the new franchisee), territory restrictions (can't sell to a buyer who plans to compete outside your territory), and transfer fees (2–5% of sale price payable to the franchisor at closing). These restrictions are legally enforceable and significantly affect the sale process.
Frequently Asked Questions
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