When appraising the assets of my Chop5 Salad Kitchen restaurant, is goodwill taken into account?
Chop5_Salad_Kitchen Franchise · 2024 FDDAnswer from 2024 FDD Document
Within 60 days after the appointment of the third appraiser, the three (3) appraisers shall appraise the assets at fair market value without taking into account any value for goodwill (the "Appraised Value").
If the three (3) appraisers agree on a single value, then they shall issue a joint report and the Appraised Value shall be the value determined by the agreement of the three (3) appraisers.
If two (2) of the three (3) appraisers agree on a single value, these two (2) appraisers shall issue a joint report, and the dissenting appraiser may (but need not) issue a separate report, and the value determined by agreement of the two (2) appraisers who shall agree shall be the Appraised Value.
If none of the appraisers are able to agree on a single value, each appraiser shall issue a report setting forth the value determined by him or her, and the average of the two values that are closest to each other shall be the Appraised Value.
Before the issuance of a report by any appraiser, each appraiser shall advise the others of the value that will appear in his or her report to ensure that the determination of value made by any appraiser is made with knowledge of the values determined by the other appraisers.
If for any reason there shall be only a single appraiser, then the Appraised Value shall be the value determined by the single appraiser.
You and we shall equally bear the cost of the appraisal.
Source: Item 23 — RECEIPT (FDD pages 50–178)
What This Means (2024 FDD)
According to Chop5 Salad Kitchen's 2024 Franchise Disclosure Document, when appraising the assets of your restaurant, the fair market value will be determined without considering any value for goodwill. This "Appraised Value" is determined by independent appraisers.
The appraisal process involves either three appraisers or a single appraiser. If three appraisers are used, you must provide them with your current financial statements and financial statements from the prior three years (or for the period you have operated the restaurant, if less than three years), along with any other financial data or documents they request. The appraisers can consider any other information they deem relevant, but specifically cannot include goodwill in their valuation.
The three appraisers will then appraise the assets at fair market value, without considering goodwill. If all three appraisers agree on a value, they will issue a joint report. If only two appraisers agree, they will issue a joint report, and the dissenting appraiser may issue a separate report. If no single value is agreed upon, each appraiser issues a report, and the average of the two closest values will be the Appraised Value. Each appraiser must inform the others of the value that will appear in their report before issuance. The cost of the appraisal is equally shared between you and Chop5 Salad Kitchen.
This process ensures an objective valuation of the restaurant's tangible assets, excluding the intangible value of the brand's reputation or customer loyalty. This is a common practice in franchise agreements to provide a clear and unbiased assessment of the restaurant's worth based on its physical assets and financial performance, rather than subjective factors like brand recognition.