BUYING A McDONALDS FRANCHISE: INVESTMENT COST, ANNUAL SALES AND FINANCIAL RESULTS – GETTING THE McDONALDS FDD
With over 30,000 locations and fifty years in the burger business, the McDonalds brand is the most recognized and successful franchise in the world. Not surprisingly, before considering anything else many would-be franchise owners ask themselves: How much does a McDonalds franchise cost and how can I buy a McDonalds franchise? They hear it only costs $45,000 to get a Mighty Mac franchise, an investment that’s quite within their franchise affordability range.
The McDonalds Franchise Fee As with most things in life, a little information is a dangerous thing. While it’s true McDonalds charges a $45,000 franchise fee, this is only the initial franchise fee for licensing rights – the upfront fee charged to join the network. There’s a LOT more financial commitment and cost involved to buy a McDonalds franchise after that. On top of the investment, there are other qualifications besides having the money.
Different McDonalds Franchise Ownership Options According to McDonalds, there are two ways to buy a McDonalds franchise and enter their system. The first, and most frequently used method is purchasing an existing restaurant, either one operated directly by McDonalds or from a McDonalds franchise owner/operator. The second, infrequently used way is obtaining franchise rights for a new restaurant. Let’s consider these in reverse order, since McDonalds provides few financial details on the first, most frequently used method.
Buying A New McDonalds Franchise For franchise licensing rights to a new McDonalds, the company charges its standard $45,000 initial franchise fee, except if the franhise is for a McDonalds in a gas station or convenience store, the fee is rduced to $22,500. There is also a reduced franchise fee for McDonalds Satellites located in universities, hospitals, etc.
The other cost categories for a new McDonalds franchise include real estate, signage, seats, equipment, decor, opening inventory, training and working capital. These are broken down in Item 7 of the McDonalds FDD.
For a Satellite McDonalds, the range is $118,375 to $928,400; for a McDonalds located in a gas station or convenience store, the range is $680,750 to $1.2 million. The standard, new McDonalds restaurant clocks in with a range of $1 million to $1.8 million.
So, basically a new McDonalds franchise is a $118, 375 to $1.8 million investment depending on the model selected.
The factors impacting new restaurant costs are: size of the McDonalds restaurant facility, area of the country, pre-opening expenses, inventory, selection of kitchen equipment, signage, and style of decor and landscaping, McDonalds says. A detailed breakdown of the initial investment costs into discrete categories, including a working capital component, is provided in the McDonalds FDD Franchise Disclosure Document which can be obtained at the Franchise Foundations website (see link below).
Owner/operators must pay forty percent (40%) of the total cost from liquid, personal assets and may finance the remainder from traditional lending sources.
Buying An Existing McDonalds Franchise What about the most frequently used way to buy a McDonalds franchise – purchasing an existing restaurant from a current McDonalds franchise owner or one that’s company-owned by McDonalds and sold as a “turnkey franchise”? Unfortunately, details about how much this type of McDonalds franchise costs are not specified, other than the following statement:
“The purchase price of an existing restaurant varies and is dependent upon a number of factors including sales volume, profitablity, occupancy costs, reinvestment or improvement needs, competition and location.”
To get a better handle on this statement, when existing, “turnkey franchises” are sold in any industry (McDonalds franchises included) the purchase price reflects the value of the business as a going concern, generating (in the case of McDonalds) $X million in sales and $Y in profits. A typical McDonalds restaurant that’s been operating for at least one year produces over $2,000,000 in annual sales, with profits in the low six-figure range. I estimate the sales price of an existing McDonalds franchise (or company-owned restaurants sold as turnkey franchises) to be in the $2 million to $5 million range, plus or minus. Twenty-five percent (25%) of the purchase price must come from liquid, personal assets and the balance can be financed from traditional lending sources.
Ready to whip out your checkbook? Even if you are, there’s a lot more to obtaining a McDonalds franchise than just have the investment capital.
The McDonalds Franchise – Item 19 Financial Performance Representations According to the McDonalds FDD Item 19, the average annual sales volume of traditional restaurants in the U.S. open at least one year as of 12-31-09 was $2,37 million in 2009. The highest sales volume for a U.S. McDonalds in 2009 was $9.3 million (the “star” performer). The lowest performing McDonalds clocked in at $387,000.
Item 19 of the McDonalds FDD goes on to list proforma financial results for restaurants that hit three different sales levels – $2 million, $2.2 million and $2.4 million, showing cost of sales, gross profit and operating profit at each level. Unlike other franchise companies with similar investment levels, McDonalds steps up to the plate and provides franchise earnings information in Item 19 of its FDD.
Getting the McDonalds FDD Franchise Disclosure Document If you would like a copy of the entire 383-page McDonalds FDD published 2010 (or just particular sections of the FDD, like Item 19 Financial Performance Representations or Item 7 Estimated Initial Investment) to review and get further information, go to the McDonalds Franchisepage of the Franchise Foundations website.
copyright 2008-2010, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved
For further information, visit the Franchise Foundations website
About the Author
Franchise Attorney and internationally-recognized franchise expert, known in the industry as Mr. Franchise, Mr. Murphy is also an author, teacher and former franchise owner. He holds degrees in Business Administration (B.S.B.A.) and Law (J.D.) from the University of San Francisco and a Master’s degree in Business Administration (M.B.A.) from San Francisco State University. For over two decades he has specialized exclusively in the franchise industry as a San Francisco franchise attorney, international franchise expert and owner a very successful franchise in the home improvement field. He has written over 30 publications, including four books on franchising and one book on trade secrets. Mr. Franchise instructs franchise company personnel in best franchise practices and teaches franchise, licensing and intellectual property courses to attorneys. He has drafted, reviewed and negotiated over 500 Franchise Disclosure Documents. Mr. Franchise is a franchise attorney and Director of Operations for Franchise Foundations a San Francisco-based professional law corporation.