Restaurant Franchise - a Valuation Case Study
Disclaimer: The following case study includes fictitious company names and altered details for privacy protection. Any resemblance to real companies or individuals is purely coincidental. This document is designed for educational and illustrative purposes only.
BizWorth's meticulous valuation process provided us with a clear understanding of our company's worth. Their expertise and attention to detail were invaluable in guiding our business decisions.
At the request of the shareholders of FunTime Entertainment, Inc. ("FunTime Entertainment"), BizWorth has conducted a comprehensive valuation of 100% equity interest in FunTime Entertainment as of March 29, 2023. This valuation aimed to assist the shareholders in evaluating a potential sale. The estimated fair market value, determined as of that date, was $2,568,000.
Nature & History of FunTime Entertainment
FunTime Entertainment, Inc. is a remarkable amusement and pizza franchising company founded in 2003 by Mr. James Turner and Ms. Laura Turner. The essence of their enterprise revolves around offering a unique experience to children and families, blending a range of games with high-quality pizza. The story began in Texas, where Mr. Turner owned pizza restaurants, and arcade games were introduced. This pioneering concept evolved into larger restaurants in Springfield, California, which were characterized by the triumvirate of pizza, games, and various recreational activities.
As of the valuation date in March 2023, FunTime Entertainment stood out with several key strengths. It boasted an experienced management team, held a strong financial reputation, and had a well-established history of delivering quality services. However, the company's primary vulnerability lay in its reliance on disposable consumer income for franchise revenue. Economic downturns could lead to reduced demand for new franchise locations.
Valuation Overview
- Governing Standard: National Association of Certified Valuators and Analysts (NACVA) and USPAP
- Purpose: Potential Sale
- Standard of Value: Fair Market Value
- Premise of Value: Going Concern
- Client Name: Mr. James Turner
- Business Name: FunTime Entertainment, Inc.
- Type of Entity: Limited Liability Corporation (LLC)
- Industry Classification: SIC: 7993 and 7996, NAICS: 55, GICS: 25301030
- Valuation Date: March 29, 2023
- Report Date: July 19, 2023
Valuation Methodology
The valuation process involved a meticulous analysis, considering multiple approaches, including income, market, and asset-based methods. The income approach, particularly the multi-stage growth method, emerged as the preferred valuation method due to its alignment with the company's performance and economic outlook. The discount rate calculation meticulously factored in the risks associated with achieving the company's expected earnings. The market approach, employing the comparable private transaction method, was not the primary choice due to limited data and comparability issues. The asset approach was set aside, as the company showed negative equity as of March 29, 2023. Notably, no discounts for lack of control or lack of marketability were applied to the valuation of 100% equity interest in FunTime Entertainment.
BizWorth's Approach
During the process of conducting this valuation, BizWorth rigorously undertook a comprehensive examination of the inherent strengths and limitations associated with each valuation methodology. Our commitment to precision extended to the meticulous scrutiny of the data that formed the bedrock of our calculations. Within this comprehensive evaluation, the cornerstone of our approach was the Income Approach. This method, particularly the Multi-Stage Growth Method, emerged as the lynchpin of our valuation, yielding an estimated worth of $2,568,000. We selected the Income Approach not merely as a matter of preference, but due to its alignment with the prevailing circumstances and performance indicators characterizing FunTime Entertainment, Inc. This approach essentially served as the linchpin of our valuation, underscoring the depth and thoroughness of our analysis, which, in turn, instills confidence in the accuracy of the valuation estimate.
Overview of FunTime Entertainment
FunTime Entertainment, Inc. operates as a franchising company managing a network of amusement and dining establishments in central United States. Founded in 2003 by Mr. James Turner and Mrs. Laura Turner, the company's headquarters are nestled in Springfield, California. As of the valuation date in March 2023, FunTime Entertainment was responsible for the management of approximately nine franchises and company-owned stores, with a workforce of 40 employees.
Services
The core of FunTime Entertainment's business revolves around providing franchising and management services to third parties. These services encompass the franchising and management of family entertainment and dining establishments.
Customers
FunTime Entertainment primarily serves franchisees, who play a crucial role in expanding the company's reach. Their efforts generate royalties and actively promote the brand. The company's business model is centered around offering large-scale amusement centers that provide a variety of entertainment options alongside on-site food and beverage services.
Competition
FunTime Entertainment faces competition from prominent franchises such as Main Event, Chuck E. Cheese, and Dave & Buster's. To stand out, the company focuses on delivering large-scale amusement centers with a diverse range of entertainment options and exceptional customer service.
Management and Key Personnel
Key personnel at FunTime Entertainment, Inc., as of the valuation date, are detailed in Table 2.
Strengths and Weaknesses
FunTime Entertainment possesses several strengths, including an experienced management team, a sterling reputation for quality, and robust financial management. However, the company's reliance on disposable consumer income for franchise revenue poses a significant risk, as reduced consumer spending can lead to lower demand for new franchise locations.
Summary
In conclusion, the valuation of FunTime Entertainment, Inc. has revealed its estimated fair market value of $2,568,000 as of March 29, 2023. While the company has enjoyed success with a strong financial reputation, experienced management, and a history of quality service delivery, it also faces a notable vulnerability in its dependence on disposable consumer income for franchise revenue. The comprehensive valuation process, anchored in the Income Approach, serves as a valuable tool to guide the shareholders in their future endeavors, whether they choose to explore new horizons or continue their existing journey. This evaluation ensures that they are well-informed and prepared to navigate the dynamic landscape of business with a clear understanding of the company's worth.
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