When franchisee candidates come calling, I have always tried to determine whether a candidate was more interested in developing a business to extract as much money as possible while they were operating it, or more interested in re-investing profits back into their business.It is a difficult thing to find out by direct questioning.

In my experience, re-investing profits back into their business to expanding it maximizes re-sale value when the time comes to convert equity into cash at some distant point in the future.

The vast majority of franchisees I have come to know strongly favor extracting cash over building long term resale value. That is until it came time to sell. And then they were unable to attract offers even close to what they wanted or needed because their businesses were more dependent on them personally than on robust systems and valuable, experienced employees, and other factors that tend to drive up value to prospective acquirers.

But its not just franchise owners. The dozens of acquisitions in my professional life have demonstrated to me that independent business owners are no more inclined to properly develop businesses with resale in mind than franchisees are.

Lesson learned: A business owner must become a savvy financial investor outside their business. Unless they learn how to do that, it is doubtful they will be able to build wealth to the degree they could by building the value of their business for future cash out.

Editor's note: Sometimes CEOs / presidents want to dive in and have frank discussions without fingers pointing at their franchise chain. This article is from a leader of a large-size franchise chain and the founder of various franchise-related companies. He has chosen to post using a pseudonym so that the focus is on the message.

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