It's distressing to hear Owner/Operators talk about cash
flow as a way to value their stores. Certainly that's a
starting pint but there are at least a dozen other major
factors that determine your eventual sale price.
Back in the good old days a wise Owner/Operator would
look at each of their stores as a separate business. Today
it's become acceptable to feed cash into a quarter or a
third of your stores just to keep them open so McDonald's
can collect their rental income.
But when analyzing your equity position one needs to break
out each store as a separate business and balance the stores
carrying negative equity against the value of your better stores.
Woe to the Operator who looks at their annual cash flow,
applies a ratio to that number, and goes forward thinking
this might be the sale price of their stores.
After Corp deducts the "required" reinvestment, few stores have much value anymore unless you keep them for cash flow. We have certainly bought ourselves a JOB.
One of the primary motivators
for franchisees is the idea that
they might build something that
has resale value in the future.
The worst place for a
franchised brand to go is to
have a franchisee base that
only looks at short term cash
In a well run system that allows
franchisees to build equity most
involved work for the long term
health of the brand.
It appears that McDonald's is
evolving into the type of system
where franchisees maximize cash
flow in order to move money out
of the stores into better investments.
In other words, corporate actions
force them to build equity
The goal of mcd is to force us to leave our equity in the system when we leave
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