Do you want to start a McDonald’s franchise and want to know the fees, agreement, details? If YES, here’s how much it will cost you to buy a McDonald’s franchise. McDonald’s has long been an icon in the American fast food industry.
With more than 36,000 locations the world over, the fast food chain has firmly established itself in the world market. It is estimated that the average McDonald’s franchise generates about $2.5 million in annual sales, making it a very juicy investment opportunity for entrepreneurs who can afford its startup costs.
The fact is that if you can meet the costs involved, the venture can be very financially rewarding. With about 85 percent of its restaurants operating through franchise agreements and joint ventures, the chain is ever ready to welcome new investors. So, if you are curious about the costs involved in starting or acquiring a McDonald’s franchise, then you have to read on.
Buying a McDonald’s Franchise
Details to Note
An intending franchisee is expected to note the following details before starting the process. Note that most of these information were sourced from McDonald’s Franchise Disclosure Document.
- Franchise Fee
The McDonald’s franchise fee is $45,000, but the total cost of opening a franchise store has been put at between $1 to $2.2 million with a liquid capital base of $750,000. Franchises are required to pay 40 percent of the startup costs with cash and other non-borrowed resources, while the rest can be financed.
But when purchasing an existing restaurant, you get to pay 25 percent in cash while the rest can come from shares, stocks, debentures, etc.
- Location Requirements
When opening a McDonald’s franchise, you can either buy an existing restaurant or open a new one. Ideally, the size of a McDonald’s restaurant should be at least 50,000 square feet.
There should be at least 4,000 square feet available to erect the building on, and the restaurant must be sited near the corner of two major streets. The minimum height of the building should be 23’4″ and you should provide a large parking area.
- Training
An intending McDonald’s franchisee has to undergo mandatory training of between 9 to 18 months; that is apart from the few days working test you are mandated to go through during your interviewing process. You are also required to pay a refundable fee of 5,000 pounds security deposit when you start your training. This amount would be refunded when you buy or erect your first restaurant.
McDonald’s operate a Hamburger University where all its trainings are done. The minimum core training which franchises must complete to be qualified to operate a McDonald’s franchise is known as Restaurant Department Management (RDM) curriculum.
It takes approximately two years to complete all RDM learning plans, from shift manager to general manager. It is also required that franchisees complete the training before signing the franchise agreement. Franchisees are also required to attend annual meetings, conventions and workshops all at their own expenses.
- Franchise Renewal
The duration of the original franchise is pegged at 20 years. Franchisees are not given any right to renew or extend the franchise after the expiration of the original term of the contract.
- Supplies
Franchisees are required to purchase their supplies from designated McDonald’s restaurants, and they need to acquire the proper permits in their various state that would enable them buy and sell food.
McDonald’s corporation provides franchisees the food supplies they need in their restaurants, so you need to learn how to place orders (this is one of the things that is taught in training). A franchisee is not allowed to purchase food supplies from any other unauthorized source.
- Operating Hours
Depending on your city of operation, it might be a great idea to stay open until 2 or 3am so that patrons can find food after the bars or clubs close. You are also free to operate 24 hours if you can afford it and if your location of operation allows it.
- Financing
McDonald’s inc. doesn’t offer financing but McDonald’s owners/operators enjoy the benefits of established relationships with many national lending institutions that offer very low lending rates. McDonald’s may also issue an operators lease for each site owned and leased by it.
- Restrictions
Franchisees are only required to sell products authorized by McDonald’s, and the premises should only be used as a McDonald’s restaurant. Franchisees are equally only mandated to dispense, sell and utilize only ingredients, packaging and preparation methods that meet McDonald’s system specifications.
- General fees
McDonald’s charges the following fees asides from its franchise fees;
- Monthly service fee – 5 percent of gross sales
- Rent – 8.5 percent of monthly sales, but it varies depending on restaurant size
- Equipment cost – between $959,450 to $2.11 million
- National marketing fee – 4.5 percent
- Travelling and training – $3,000 – $35,000
- Relocation contribution – $50, 000
- Restaurant file maintenance – $150
- Software maintenance – $125
- Microsoft subscription license – $465
- Restaurant system management – $250
- Identity management fee – $75
- Store mail fee – $73.80
- PCI compliance/security fee – $250
- Restaurant support fee – $475
- ISP migration fee – $300
- Digital – (MCD US) – $900 one-time cost; and $390 annually
- Digital – (MCD Corp) – $660
- Learning technologies – (McD Corp) – $175
- Endpoint security licenses and managed services – $100
- Cashless fee – $216 license fee ( one-time fee); $154 annual maintenance fee
- New POS integration fee – $1,000 integration fee; $500 annual integration fee
- Advertising fee – Not less than 4 percent of gross sales
- Satellite annual fee – $500 to $2,500
Other Non-financial Requirements to Become a McDonald’s Franchisee
- Significant business experience: the entrepreneur intending to acquire a McDonald’s franchise is expected to have had significant business experience, and demonstrated successful ownership and management of multiple business units or have managed multiple departments. It is not compulsory that the experience must be in the restaurant or food industry.
- Business plan: the individual should have a well detailed business plan, and should have the ability to execute a business plan. This is a very important requirement that the franchisee should put a lot of thoughts and efforts to putting together.
- Financial knowledge: the individual should have demonstrated high ability to manage finances, and he or she has to have thorough knowledge of business financial statements. Acquiring a franchise involves a lot of financial details, so you should be able to handle them expertly.
- Good management skills: he has to have the ability to manage every aspect of the business as well as its day to day operations.
- Training: he or she should complete the extensive McDonald’s world class training program and should be willing to spend 9-18 months working at a McDonald’s restaurant near him to become proficient in all aspects of the business.
- Good credit history: the applicant must of necessity have a great credit history. A good credit history would make it easy to get loans from banks or financial houses to complete your franchise process.
7 Steps to Opening a McDonald’s Franchise
i. Read the Franchise Disclosure Document
Before you can think of opening a McDonald’s franchise, you should get and study the Franchise Disclosure Document (FDD). This 375 paged document explains the basics of cost, location, training, operation and ongoing fees.
The document also contains a 15 paged franchise agreement, and it is advised that you get a lawyer to help you go through the agreement so you don’t miss out or misunderstand any aspect. You can purchase McDonald’s FDD online using PayPal or credit card.
ii. Start the Application Process
After you must have read and understood the franchise disclosure document, then you can apply to be a franchise owner. In order not to get your application thrown out, you must have adequate entrepreneurial experience, excellent credit history and adequate funding. You would start the application by filling out an online form that would contain your personal details, credit history, financial situation and educational background.
iii. Interview-: After your application has been accepted, you would undergo a phone interview and a round of personality and ability testing.
iv. Practical Study
After the interviews and assessment, you would be required to spend a few days working in a McDonald’s restaurant where you would be under observation. You would also have to undergo another round of interviews after your practical study. If you scale through these processes successfully, you would be invited for a one-on-one interview where it would be decided whether your application would be accepted or rejected.
v. Undergo Training: Before you are allowed to open your restaurant, you would be required to undergo intensive training that would last between 10 to 24 months. Here you would be taught all the basics of operating the business.
vi. Hire
After training, you are now ready to hire employees. You would need to hire kitchen workers, servers, janitors/cleaners, managers etc. You should also hire a good construction crew if you are building a new location. When hiring, you need to comply with McDonald’s specific hiring processes, and if you don’t know how to go about it, you can consult other franchisees to help you out.
vi. Open your Restaurant
After the hiring and training has been done, supplies have been bought and the restaurant has been put in order, then it is time to open to the public. You should spend a good percentage of your advertising revenue to create awareness of your opening to help push the word.
During the opening, you can offer one-off incentives such as a ‘buy one and get one free’, or you could tell a certain set of people to eat free. The bottom line is for you to use any legal strategy that works to bring customers to your restaurant.
A Brief History of McDonald’s
Industry Overview of McDonald’s
- Date of Incorporation – 1955
- Date of franchise – 1955
- Headquarters – Oak Brook, Illinois
Their birthplace was in Manchester, New Hampshire, and that was where life started for the brothers. The two brothers Richard James and Maurice James McDonald, who not wanting to toe the line of farmers, which was the normal profession of the community, headed West to seek a fortune in the movie industry. Richard and Maurice had a dream of becoming millionaires and retiring at age 50, a feat they thought can only be accomplished in the movie industry.
In 2012, the chain built its biggest restaurant yet on the London Olympic site, and in the same year, revenue had exceeded $27 billion with 2,400 restaurants updated and 1,300 new ones opened. In 2015, McDonald’s started offering its breakfast menu all day, though not without criticisms and the first McDonald store opened in Hong Kong.
As at 2016, McDonald’s has about 853 million shares outstanding, and with a price of about $117 per share, putting McDonald’s market capitalization around $100 million. Around the same period, McDonald’s financial statements put a $33.1 billion value on its assets. It was broken down as follows;
- $3.1 billion in cash and short term investments
- $1.3 billion in account receivables
- $600 million in inventory, pre-paid expenses and other current assets
- $1 billion in long term investments
- $4 billion in Goodwill and other long term assets