Economy & Finances Explained

If you are a self-employed agent, or trade under a franchise (or licence), you own a business that has a value to you because you earn an income from it; but does it also have a capital value? In previous articles I explained that capital value in a business derives from its income (or profits) and that the quantum (or amount) of value is usually arrived at by capitalising estimated future profits by a multiple such as a P/E ratio. I explained, also, that for there to be value for the owner, the business and the income deriving from it has to be capable of being transferred to a third party. Most franchisees earn income, like any other business, by buying and selling goods and services, but the key difference for franchisees is that they are only able to continue this trade as long as their franchise agreement is in place. Also, their ability to exit the business by selling it on to another owner is subject to their agreement.