If I’m looking into buying an existing Dairy Queen franchise, what are important factors to consider?

A close family member is looking to buy a Dairy Queen franchise and I want to help make sure they do their due diligence.

I didn't know what the best sub to post the question would be, so if you guys have ideas on a sub that is more focused on this type of thing, please let me know!

Basically, my family is mostly full of small business owners (gas stations, other retail businesses, motels/hotels), but we have limited experience in franchises. This is also the first food business we're looking at. We have retail experience so we did all the research through that lens, but we may be missing some key factors specific to this type of business.

The selling price is $1.2 million, owner absolutely cannot do owner financing so we have to go through a bank. We can bring together between 10-15% as a down payment within the family (no one is particularly liquid right now). We will be setting up an LLC and filing as an S corporation and do not want to use any of our other assets as collateral.

Question 1: With the owner out of the picture when it comes to financing, how can we get creative with the bank to get the best deal possible? How will banks value the business on their end?

The net income for the current owner is approximately $300k for 2016. The gross revenues have increased about 12% year over year since 2010 (when the current owner purchased it). According to the owner, he bought it from a seller who was not taking care of the business. Employees closing up shop random times every night, skimming off the top, not showing up or calling in sick, etc.

Question 2: Should we expect growth to continue or should we assume it will reverse, etc? The current owner bought soon after the recession and all asset classes and consumer spending have rallied since then so I'm not sure how much of the growth is attributable to his management versus general economic growth.

Question 3: At the current asking price, the seller is asking 1 year of gross revenues. Is this a proper way to value this business? For retail, we tend to use 3x annual net income as a rule of thumb, which in this case would give us a purchase price of around $900k.

Question 4: We've run the numbers and they make sense for us, we like the business. However, is there anything specific to fast food or even Dairy Queen that we should make sure we know about?

Thank you for helping us out, I really appreciate your time! I know this is a very specific ask for a more general subreddit, so please let me know if there's a better one where I should post!


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