How to value a franchise resale: SDE, EBITDA and the multiple
Most franchise owners only think about valuation when they're about to sell — usually too late to optimise. Understanding how buyers value a unit lets you prepare early and sell for more. It comes down to cash flow and a multiple.
Updated 2026-07-21
SDE and EBITDA: what buyers actually pay for
For a small owner-operated unit, buyers usually value on SDE (Seller's Discretionary Earnings) — profit with the owner's salary and discretionary costs added back. It reflects the total financial benefit an owner-operator receives.
For larger units with a management team, buyers switch to EBITDA — because they'll hire an operator rather than run it themselves.
The valuation multiple
Estimated value = SDE (or EBITDA) × a multiple. The multiple reflects risk and appeal: a strong brand, stable cash flow and a long remaining term command a higher multiple.
Multiples vary by sector and size. Don't apply a large deal's multiple to a small unit — smaller scale is usually discounted.
What raises — or lowers — value
Raises value: steadily rising cash flow, clean books, low dependence on the owner personally, a long remaining term, a good location and lease, a stable team.
Lowers value: revenue that depends on the owner alone, messy records, ageing equipment due for replacement, a lease near expiry, a strained franchisor relationship.
The franchisor's role in the deal
Most franchise agreements require the franchisor to APPROVE the buyer and may charge a transfer fee. Some hold a right of first refusal.
Read the transfer clause early — it determines who you're free to sell to and what it costs you to exit.
Key takeaways
- Small units are valued on SDE; larger managed units on EBITDA.
- Value = cash flow × a multiple; the multiple reflects risk and appeal.
- Clean books and reduced owner-dependence are the two biggest value levers.
- The franchisor usually must approve the buyer — read the transfer clause early.
Put it to work with a tool
Turn the ideas into numbers for your own situation.
Frequently asked questions
How is SDE different from EBITDA?
SDE adds back an owner-operator's salary and benefits, suited to small units. EBITDA assumes a hired management team, suited to larger ones.
When should I start preparing to sell?
Ideally 12–24 months ahead. Clean books and steadily rising cash flow over that window directly lift the multiple.
Can I choose my own buyer?
Usually the franchisor must approve the buyer and may hold a right of first refusal. Check the transfer clause in your agreement.
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