Maybe the idea of a new venture appeals to you, and perhaps that includes running a business. And maybe you don’t want to start from scratch, but rather jump into a business that already has a tried-and-true method of doing things. You sound like a perfect candidate for a franchise.
When you buy a franchise, you’re buying the franchisor’s name and business model. The McDonald’s franchise system began in 1955, and McDonald’s now has more than 36,000 restaurants in 100-plus nations. If you’ve ever pondered buying a McDonald’s franchise, read on to learn how arduous — and expensive — it can be to join the ownership ranks.
First, the Application Process
It takes more than the ability to plop down a lot of cash to buy a U.S.-based McDonald’s franchise, and it starts with the application process. At the time you apply, you’ll need at least $500,000 of “unencumbered funds” — meaning money that isn’t needed to pay costs of the business — to even get consideration for approval.
The application also asks for demographic information, your business experience, the time you have to devote to a franchise, whether you’d be willing to relocate and the amount of non-borrowed money you can invest in your future restaurant.
Once your application gets the go-ahead to proceed, several steps remain before you can slap on your apron and start wrapping your first Egg McMuffin. In the second stage, you’ll go through a phone interview along with background and credit checks before proceeding to the next three stages: a panel interview, financial and asset verification, and a review of legal documents.
The Next Step
Once you’ve gotten through the application process, and been approved, you’ll enter the Franchisee Training Program. It’s open to those who have shown they can buy a franchise on their own financially — without partners or investors — and devote full-time hours to running the business. In addition, according to McDonald’s, prospective franchisees must “embrace our values, future vision and investment strategies to meet the needs of today’s and tomorrow’s customers.”
Once the training program is over, and if you pass, McDonald’s will, “in its sole and absolute discretion,” confirm that you’ve got the chance to buy a franchise. It might not come right away, however. There could be a gap between the end of training and the availability of a restaurant. Franchisees will either buy an existing restaurant from a current owner or from the company itself.
In most cases, McDonald’s reserves the sale of new locations for current franchise owners.
Cost of a Franchise
While McDonald’s is forthcoming about many of the franchisee requirements on its website pages devoted to potential restaurant ownership, it doesn’t list the cost of buying your own share of the Golden Arches other than to say it is a “substantial investment.”
The capital needed isn’t the same from one location to the next. The company says the price of an existing restaurant varies depending on factors that include location, profitability, sales volume and occupancy cost.
As you go through the process of a potential purchase, you’ll receive a copy of McDonald’s Franchise Disclosure Document (FDD), which the Federal Trade Commission requires. Legally, you can ask for the FDD once your application is under consideration.
Franchise Direct, an online resource for prospective franchisees, has a copy of the 2021 McDonald’s FDD available for download on its website. In the nearly 400-page document, McDonald’s details line-item costs that add up to get the total investment necessary to begin operation a “traditional” McDonald’s franchise: anywhere between $1.3 to $2.3 million dollars.
The costs include such things as the initial franchise fee of $45,000, rent, equipment, signs, seating and décor, and the opening inventory.
Keep in mind, too, that once your franchise is up and running, you’ll pay ongoing fees to the company that include a percentage of your sales. That’s on top of salaries, inventory, taxes and the cost of the keeping the fryers running.
What’s the Payoff?
So, once you’ve bought your franchise, how much can you expect to earn per year? That, of course, varies per restaurant, and in the FDD, McDonald’s advises prospective franchisees to talk to current and former franchisees about their experiences to get an idea of a dollar figure.
Still, McDonald’s does offer some information about sales per restaurant. According to the FDD, the median annual sales volume in 2020 of U.S. outlets open at least one year was $2.9 million.
In summation, buying a McDonald’s franchise isn’t cheap. But if the costs fit your financial portfolio, start by completing the application. You could find yourself in a training program and on your way to owning a million-dollar franchise.
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