Lessons From Warren Buffett

Lessons From Warren Buffett: A Franchisor Has to Have a Good Business for the Franchisee

Corporations that rely on the franchise model can’t just focus on squeezing the maximum amount of revenue out of their franchises if they want to truly be successful. According to Warren Buffett, who in 1998 purchased International Dairy Queen, a quick service restaurant chain that relies on the franchise model, you have to focus on building a great business that franchisees can be successful owning, and even eventually selling at a profit down the road.

Investors looking to buy shares in companies that rely heavily on the franchise model, would be wise to look beyond corporate financial reports, and personally visit franchisees to learn whether they feel they own a business that they can be successful with over the long term.

“You have to have a good business for the franchisee to, over time, have a good business for the parent company,” Warren Buffett said at the 1998 Berkshire Hathaway Annual Meeting. “A successful franchisee can sell his operation for significantly more than he has invested in tangible assets. And we want it that way, obviously, because that means he’s got a successful business, and it means that, over time, we will have a successful business. You want the franchise operator to make money and you want him to create a capital asset that’s worth more than he’s put in it. That’s the goal.”

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© 2022 David Mazor

Disclosure: David Mazor is a freelance writer focusing on Berkshire Hathaway. The author is long in Berkshire Hathaway, and this article is not a recommendation on whether to buy or sell the stock. The information contained in this article should not be construed as personalized or individualized investment advice. Past performance is no guarantee of future results.

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