Summary minutes of a Meeting held on Thursday, December 9 at the Hyatt Regency, Birmingham, beginning after the bfa AGM.

Present:

• Sir Bernard Ingham (Chairman)
• Mike Bradshaw - Chem-Dry
• Lance Griffiths - Driver Hire
• Justin Brookes - Mail Boxes Etc
• Herjit Ghosal - Wimpy

Also Present

• Cathryn Hayes (National Franchise Mgr) - HSBC
• Mark Scott (National Franchise Mgr) - NatWest
• Catherine Jackson (Accreditation Manager) - bfa
• Johanna Roughley (Communications Manager) - bfa

1. WELCOME AND APOLOGIES FOR ABSENCE

   Sir Bernard Ingham chaired the Forum meeting, which was attended by three National Franchisee Forum members, two bfa staff and two bankers. Apologies were received from six Forum members.

   Sir Bernard informed the Forum of the outcome of the bfa elections at the AGM held before the meeting: Apollo Blinds, Cash Generator, Chem-Dry, Chemex, McDonalds and Wimpy were returning bfa Board Members; Driver Hire, Mail Boxes Etc and Post Office were not re-elected and were replaced on the Board by Antal International, Prontaprint and Snap-on Tools. Sir Bernard thanked the leaving Forum members for their efforts and wished everyone a happy New Year.

2. MINUTES OF THE LAST MEETING AND MATTERS ARISING

   The minutes were accepted as a correct record with the following matter arising:

   bfa Membership Accreditation Project

   Forum members asked Catherine Jackson to update them at the next meeting.

3. HOW BANKS VALUE FRANCHISED BUSINESSES

   Forum members and guest speakers from two bfa Affiliate banks discussed the financing and resale of franchised businesses. They concluded franchisors approached valuing a resale business differently, but goodwill was an important consideration in the final price. Some calculated goodwill as a percentage of the outlet’s annual turnover and added a fixed amount, to come to a final resale figure. Other businesses, like fast food franchisors, calculated resale prices as a percentage of weekly turnover. However, others considered a percentage multiplier of adjusted net profit (after tax, depreciation etc) instead.

   These examples led to a discussion between the group on the relevance of the figures and concluded they gave franchisors something to base their figures on. One member discussed his franchisor’s a new system for resales where each franchisee could only own one territory and the resale amount was calculated as 10 times weekly turnover, after studying 100 resales over the past four years. The group expressed concern that only allowing each franchisee one territory could hamper their growth potential, force franchisees out of business prematurely and devalue the business. Alternatively, the Forum also said this approach meant franchisees would not be overstretched and encouraged them to fully exploit their territory. Another member commented that in his network multiple-territory owners seemed more successful, as single owners were more likely to slip into a comfort zone.

   The Forum also discussed the problems facing a failing franchisee who wanted to sell their business, and how this would affect the value of goodwill and, therefore, the outlet’s resale value. The banks agreed this would affect the value of the business. The discussion then moved to using transfer agents and brokers for franchise resales. Some franchisors used transfer agents to sell businesses on the open market. The banks encouraged franchisors to set benchmarks and produce a structured approach to resales so franchisees knew where they stood.

   In conclusion, the banks said they took comfort from the established business structure in a resale, but how the business was performing determined the level of lending. If the business was not franchised, the bank would look at existing figures, the area and business plan, but if it was a franchise resale the track record of other franchisees in the network could encourage the bank to lend more favourably, meaning a franchised business could have greater value than a non-franchised one. bfa Membership also helped a lending application.

4. ANY OTHER BUSINESS

   There was no other business.

5. DATE OF NEXT MEETING

   The Forum will meet twice during 2005 on Thursday, April 14, and Wednesday, November 2, at Scarman House, Warwick University. The Forum will convene twice more at Scarman House for Joint bfa Board/Franchisee Forum meetings on Wednesday, June 29, and Thursday, December 1.