How much it cost to own a mcdonalds

How much it cost to own a mcdonalds

McDonald’s, one of the famed fast food eateries is widely known to all. Their dine-in and drive-thru branches are celebrated throughout the world. Furthermore McDonald’s is one of the top international franchising restaurants. It has been a great vision for countless entrepreneurs to obtain McDonald’s franchise. How much does a McDonald’s franchise cost?

Here are some facts on McDonald’s Franchise Cost and Expenses:

Commencing Franchise Fee:

Initially you need to pay an amount of approximately $45,000.00 to the franchiser. Please note that this is not an extra payment. The commencing fee is part of the total investment. However the total fee may differ between the restaurants. Consequently the deposit may also vary.

Minimum Requirement:

In order to join the franchising program, minimum requirement is necessary. A franchisee should have at least $500,000 of liquid assets. That is to say $500,000 of non-borrowed personal assets. Only this will give you the opportunity to join hands with them in business.

Other Payments:

Apart from that, the franchisee ought to pay other expenses as well. For example, the rent and service fee. Firstly the rent is a percentage of the month-long sales. Whereas the service fee depends on the outcome of the restaurant. At present they are charging a fee of 4.0% of sales on a monthly basis.

Overall Investment Cost:

On the whole, McDonald’s franchise price is roughly around $1,008,000 to $2,214,080. This is the cost to start a customary McDonald’s franchise. Visit their website to learn more about franchising with them.

Other Franchises:

McDonald’s is certainly popular for its brand. However the cost to attain its franchise is massive. And this would be very difficult for up-and-coming entrepreneurs. There are many other reasonable franchise opportunities. For example, Uncle Fluffy and Paisano’s franchise. Uncle Fluffy franchise fee is around $30,000 to $50,000. On the other hand Paisano’s franchise is about USD $40,000.

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How much it cost to own a mcdonalds

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This article is based on its 2022 FDD

McDonald’s is the quintessential American fast-foodchain restaurant. It was foundedin 1940 as a restaurant operated by Richard and Maurice McDonald in San Bernardino, California, United States. Since then, they have been serving hamburgers, chicken nuggets, french fries, milkshakes, and ice cream. In the present day, it has over 36,000 locations in over 100countries around the world. 

Contents

Mc Donald's: Franchising company

McDonald’s has been a franchising company since 1955 and has relied on its franchisees to play a major role in the system’s success. Currently, about 95% of all U.S. restaurants are franchised to independent franchisees and about 5% are company-owned.

Chris Kempczinski is the current President and Chief Executive Officer of McDonald’s Corporation. He joined the company in 2015 overseeing global business strategy, business development, and innovation. In addition to this, he previously served as the President of McDonald’s USA and was responsible for the business operations of approximately 14,000 McDonald’s franchises in the US.

While we expect that 2022 will be a year of continued progress, we also anticipate that many of the challenges we experienced in 2021 will endure.

How much it cost to own a mcdonalds

How is McDonald's Positioned in the Fast Food Industry?

McDonald’s is the leader in the fast-food industry with its large presence around the world stage. Naturally, it faces competition from other fast-food chains such as Burger King, Wendy’s, and Five Guys.

How much do the franchises cost?

The total investment to begin the operation of a traditional McDonald’s franchise ranges from $1,366,000 to $2,450,000, which includes an initial franchise fee of $45,000- that must be paid to the franchisor. Initial franchise fee for satellite locations is $500 (none if it’s on a Walmart location), for STR/STO locations is $22,500 and Franchisees with a ten year term or less agreement will get a prorated initial fee.

 Below is a breakdown of the total initial investment:

Your Estimated Initial Investment

Type of expeditureAmountMethod of paymentWhen dueTo whom payment is to be made
Initial Franchise Fee $45,000; Lump Sum On opening McDonald’s
$22,500;
$0 to $500
Real Estate and Building — 3 Months’ rent Base Rent $0 to $313,000; Monthly Base: Current month, Base Rent due, 1st of the month; Percent: 10th of following month McDonald’s
$0 to $60,000;
$0 to $60,000;
Percentage Rent 0.00% to 0.31.75%;
0.00% to 0.15%;
0.00% to 15.75%
Signs, Seating, Equipment, and Decor $1.000,000 to $1,600,000; Lump Sum Before Opening Vendors
$670,000 to $1,210,000;
$340,000 to $520,000
Open Inventory $20,000 to $39,000; Lump Sum Before Opening Vendors
$13,500 to $25,000;
$10,000 to $32,000
Miscellaneous Opening Expenses $48,000 to $60,000 As Incurred As Incurred Vendors Utilities
Travel and Living expenses While Traveling $3,000 to $38,000 As Incurred As Incurred Airlines Hotels Restaurants
Additional Funds — 3 months $250,000 to $355,000; As Incurred As Incurred Employee Suppliers Utilities
$185,000 to $225,000;
$80,000 to $110,000
TOTAL $1,366,000 to $2,450,000;
$942,000 to $1,640,500;
$481,000 to $820,500

Requirements to open a McDonald’s Franchise

They require significant Business Experience, as well as other requisites such as:

  • Business plan
  • Good Credit History
  • Manage finances well

Franchised restaurants generated the highest revenue averaging about $6.09 billion annually.

Franchises On-going Fees

Service Fee: A monthly fee of 4% of gross sales (4.5% of Gross Sales in Alaska, Hawaii, Guam, and the Northern Mariana Islands)

Advertising and Promotion take more than 4% of gross sales

How much it cost to own a mcdonalds

How much do the franchises owners make?

The median annual sales volume of franchised McDonald’s restaurants open at least 1 year as of December 31, 2021, was $3,366,000 during 2021 —a $458,000 increase compared with the amount recorded in the previous FDD regarding 2020 numbers.

Using the median annual sales and the midpoint investment of $1,813,897, we calculated the time it would take you to recoup your investment and below are the results of our analysis.

Initial investment (midpoint)%Profit margin of median franchise salesEstimated ProfitsTime to recoup the investment (including 2 years for scaling up)
$1,813,897 10% $290,800 8.5 years
15% $436,200 6.5 years
20% $581,600 5.5 years

With a profit margin of 10% or more, it would take about 8.5 years or less to recoup your initial investment.

How much it cost to own a mcdonalds

Are McDonald’s Franchises profit worth the franchise cost?

When you go to sell a McDonald’s franchise based on the median multiple of 0.34 and net sales of $2,908,000 in 2020, it would sell for $988,720. This is lower than the midpoint initial investment of $1,813,897 by about $800k. Your business would therefore sell for less than your initial total investment.

However, with net sales over $5 million, the median multiple increases to 0.86. In consequence, owning several franchises whose average net sales are over $5 million would yield a bigger income. For example, if you own 10 outlets, the estimated net sales would be about $29,080,000. With a sell median multiple of 0.86, the resale value of this multi-system business would be $25,008,000 which is higher than the estimated initial investment of $18,138,970. Therefore, the business will be worth over $6 millionmore than your initial investment.

McDonald’s Franchise Income Statement

Consolidated Statement of Income for McDonald’s USA, LLC, Years ended Dec 31 (dollars in millions)

202120202019
REVENUES
Sales by Company-operated restaurants $2,616.5 $2,394.7 $2,489.7
Revenues from franchised restaurants 6,093.9 5,261.0 5,353.0
Other revenues 154.6 173.0 160.1
Total Revenues 8,865.0 7,828.5 8,002.8
OPERATING COSTS AND EXPENSES
Company-operated restaurant expenses
Food & paper 719.6 676.6 724.2
Payroll & employee benefits 822.4 765.3 828.5
Occupancy & other operating expenses 564.0 547.6 548.9
Franchised restaurants — occupancy expenses 1,188.2 1,164.3 1,125.7
Selling, general & administrative expenses 695.6 625.1 586.8
Other operating (income) expense, net 13.3 133.4 0.5
Other Restaurant Expense 107.3 127.1 119.5
Total operating costs and expenses 4,110.4 4,039.4 3,934.1
Operating income before royalty to parent 4,754.6 3,789.1 4,068.7
Royalty expense to parent 923.2 813.5 811.6
Operating income 3,831.4 2,975.6 3,257.1
Interest expense — net of capitalized interest of $3.3, $2.7 and $3.5 45.8 79.3 97.5
Non-operating (income) expense, net (1.7) (2.5) (4.1)
Income before provision for income taxes 3,787.3 2,898.8 3,163.7
Provision for income taxes 934.2 391.9 782.7
Net income $2,853.1 $2,206.9 $2,381.0

Income statement key insights

To the franchisor, McDonald’s is a very profitable business with an average annual net income of over 2 billion dollars. The average net income of 2021, 2020, and 2019 was $2.480 billion. Franchised restaurants generated the highest revenue averaging about $5.5 billion annually. High net incomes are a testament to the success of the McDonald’s franchise business.

How much it cost to own a mcdonalds

McDonald’s Franchise Cash Flow Statement

Consolidated Statement of Cash Flows for McDonald’s USA, LLC, Years ended Dec 31 (dollars in millions)

 202120202019
Operating activities  
Net income $2,853.1 $2,206.9 $2,381.0
Adjustments to reconcile to cash provided by operations  
Charges and credits:  
Depreciation and amortization 840.7 813.9 726.7
Deferred income taxes 11.7 139.3 151.2
Other 17.2 (4.0) (137.8)
Changes in working capital items:  
Accounts receivable 66.8 189.9 121.7
Inventories, prepaid expenses and other current assets (14.4) 3.4 25.7
Accounts payable 14.9 (11.9) (26.3)
Income taxes, state 77.9 (31.8) 2.8
Other accrued liabilities 117.3 (44.4) 14.2
Due (to) from parent, net 52.2 (146.0) (279.9)
Cash provided by operations 4,037.4 3,115.3 2,979.3
Investing activities  
Property and equipment expeditures (940.7) (890.4) (1,480.5)
Purchases of restaurant businesses (255.5) (1.6) (6.7)
Sales of restaurant businesses and property 104.3 9.6 126.7
Other, Net (92.4) (12.4) (333.5)
Cash used for investing activities (1,184.3) (894.8) (1,694.0)
Financing activities  
1. Long-term financing issuances 0.1 0.1 0.1
2. Long-term financing repayments (0.2) (0.4) (0.4)
Other financing (18.7) (13.9)
Dividends to parent (2,853.1) (2,212.9) (1,280.6)
1. Cash used for financing activities (2,871.9) (2,213.2) (1,294.8)
2. Cash and equivalents increase (decrease) $(18.8) $7.3 $(9.5)
3. Cash and equivalents at beginning of year $49.3 $42.0 $51.5
4. Cash and equivalents at end of year $30.5 $49.3 $42.0
Supplemental cash flow disclosures  
Interest paid (excluding amounts paid to parent) $— $0.3 $0.3
State income taxes paid (excluding amounts paid to parent) $121.0 $70.7 $64.8

McDonald’s Franchise Cash Flow Statement key insights

McDonald’s reported positive cash and equivalents at the end of 2021, 2020, and 2019, averaging about $40.6 million. Therefore, its cash flow statement indicates that the business manages their investing and financing activities appropriately, which is a sign of healthy financials.

The company has a long history of franchising dating back to 1955 which has played a big role in its success over time.

How much it cost to own a mcdonalds

How many units have opened and closed?

System-wide Outlet Summary for years 2019 to 2021

Outlet typeYearOutlets at the Start of the YearOutlets at the End of the YearNet Change
Franchised 2019 13,229 13,185 -44
2020 13,185 13,022 -163
2021 13,022 12,775 -247
Company-Owned 2019 683 559 -24
2020 659 657 -2
2021 657 661 +4
Total Outlets 2019 13,912 13,844 -68
2020 13,844 13,679 -165
2021 13,679 13,436 -243

How much it cost to own a mcdonalds

At the end of 2021, there were 12,775 franchised outlets. A total of 247 outlets closed down in 2021 and 163 had closed down in 2020. The 2020 closures could be attributed to the negative economic effects of the Covid19 pandemic, which led to most franchisees not renewing or extending the franchise at the end of the specified term. Furthermore, the closures could be a result of a mutual agreement during the franchise term.

Former Region Insights Lead at McDonald’s Corporation Quotes

Former Region Insights Lead at McDonald’s Corporation, leaving December 2018. Expert can compare the different quick- service business models and can speak to the consumer perspectives.

I had an intimate relationship with franchisees being on the corporate side. I would be communicating with over 100 franchises on a daily basis.

“In terms of the category, look, from a traffic perspective, it is not a growing category”

Eventually, if you don’t attract younger customers, your core customer is going to eventually go away. That’s also part of the problem that we’re seeing with the informal eating-out brands. That’s why, in order to gain revenue, you have to get it through other methods if you’re not doing so through traffic.

“The only main thing that you have mentioned is that the prices are a little bit more comparable or maybe McDonald’s isn’t perceived as such a great value as it used to be. But the other thing that’s happening, and I’m sure you’ve noticed, is that the food at-home pricing is now actually increasing at a faster rate than food away from home being restaurants.”

Source: www.tegus.com.ar

Is it worth investing in a McDonald’s Franchise?

There are over 36,000 McDonald’s franchises around the world with about 13,000 of them in the United States. The company has a long history of franchising dating back to 1955 which has played a big role in its success over time.

With an average initial investment of about $1.8 million, it would take you 8.5 years or less to recoup your investment with a 10% or more profit margin. These figures are calculated from the 2020 average median net sales from a McDonald’s franchise in the US which is about $2.9 million. The number of franchised outlets has continued to increase in the US apart from 2019 and 2020 when 207 outlets closed down. This could be attributed to the negative economic effects of the Covid19 pandemic which saw a lot of small businesses around the country shut down. To the franchisor, McDonald’s is a very profitable business with net incomes averaging over $2 billion annually.

How much it cost to own a mcdonalds

If you want to own a franchise, we advise that you speak to at least 5 McDonald’s franchisees to get a better understanding of their business. You can also explore other potential franchising opportunities on our Vetted Biz website which has accessible and analytical data on franchises and businesses available in the U.S.

How much it cost to own a mcdonalds