According to a 2013 Forbes Magazine report, McDonald's restaurants averaged $2.6 million in sales per store -- second among fast-food chains. McDonald's stringently controls the franchisees that trade under its name to protect its brand. To purchase a franchise of this high-dollar and high-profile brand, you will need significant funds to start and operate your restaurant according to McDonald's standards.
According to McDonald's, the majority of prospective franchisees generally buy existing restaurants, though a few open new sites. Before you enter the McDonald's network, you must undergo training as an owner/operator. The program consists of a week at "Hamburger University" at McDonald's headquarters in Elk Grove Village, Illinois. Training is also available for 12 to 24 months at a McDonald's restaurant. McDonald's selects the sites for its restaurants, so the fact that you have land of your own does not automatically mean that McDonald's will award you a franchise.
Buying a New Franchise
McDonald's charges an initial $45,000 franchise fee to get a new store. The costs of opening the store, which you pay to contractors and suppliers, will run from $995,703 to $2,290,145, depending on factors such as the restaurant size and location. According to Entrepreneur.com, your total investment could run between $1,000,708 and $2,335,146. McDonald's caps what you can borrow for a new franchise at 60 percent of the costs. Thus, four of every 10 dollars you spend must come from your own cash, stocks, bonds or your equity in property other than your home.
Buying Existing Arches
To buy an existing McDonald's, you'll need at least 25 percent non-borrowed funds for the down payment. Your loan term for the rest of the purchase cannot exceed seven years. You, rather than McDonald's, negotiate with the seller on the price. The restaurant's location, sales and profitability, traffic, needs for remodeling and the number and quality of competing restaurants can guide your discussions with the seller. McDonald's must approve your purchase.
Flipping a Restaurant
The restaurant you find may need upgrades to meet McDonald's current interior design standards. According to the Journal of Case Research in Business and Economics, renovating costs have risen from the historical figure of half a million dollars to $700,000, due especially to the equipment and area needed to make and sell premium coffees and smoothies. To demolish and rebuild from scratch a significantly outdated McDonald's store will cost twice as much as a remodel.
Your payments to McDonald's don't end when you open for business. According to FranchiseDirect.com, the advertising by McDonald's will cost you at least four percent of gross sales. Forbes notes that higher-performing stores pay more for national advertising than those with lower sales. Bloomberg reports that some franchisees fork over as much as 12 percent of their gross sales to McDonald's for rent; this translates to an average of $300,000 a year in rent based on average annual gross sales of $2.5 million.
- Entrepreneur.com: McDonald's Franchise Information
- Bloomberg: McDonald’s Franchisees Rebel as Chain Raises Store Fees; Leslie Patton
- Journal of Case Research in Business and Economics: Financing a Remodel -- The Case of a McDonald's Franchise; Anne Macy, Jean Walker and Neil Terry;
- Franchise Direct: McDonald's Franchise Costs & Fees
- Forbes: Million-Dollar Burger -- The Most Lucrative Fast-Food Restaurants; Carol Tice
Christopher Raines enjoys sharing his knowledge of business, financial matters and the law. He earned his business administration and law degrees from the University of North Carolina at Chapel Hill. As a lawyer since August 1996, Raines has handled cases involving business, consumer and other areas of the law.