Buying a McDonald’s Franchise: Costs & Terms
Do you want start a fast food business? Then you should know the answer of how much does it cost to buy an existing Mc Donalds franchise? Why McDonalds?
According to Franchise Direct, McDonalds is the first rank among the Top 100 Global Franchises. The company established in 1955 and from that date giving franchise. In other words, McDonalds is experienced in franchising for more than 60 years.
Information About Mc Donald’s
McDonalds is not just a restaurant, but a system that provides high quality food through uniform preparation method. The philosophy of the system is consistency. The company’s main motivation is getting the same taste in all over the world. To do so, both franchises and suppliers become have made active partners. The slogan “In business for yourself, but not by yourself” is the outcome of this understanding. The system is founded on three legs: franchises, suppliers and employees.
The company operates in more than 100 countries and has more than 35,000 restaurants in these countries. In the US there are approximately 15,000 McDonald’s franchises. Predominantly, the company works with the franchises. Among all the restaurants, the company only owns 15%.
How The System Works?
Most new franchises prefer to enter the system by purchasing an existing McDonald’s restaurant rather than purchasing a new restaurant. If you think to buy a McDonald’s franchise, it is easier to buy an existing restaurant instead of starting from scratch. You can buy the franchise directly from McDonald’s or one of the operators.
The price of an existing restaurant varies depending on a number of factors like:
- Sales volume,
- Occupancy costs
- Reinvestment or improvement needs
- Competition volume,
The company offers four types of franchises:
- Traditional Restaurant: It is the fullrestaurant version. It can be located in freestanding buildings, store fronts, food courts etc. These kinds of franchises serve a full-menu.
- Satellite Locations: It is the franchise located in diverse areas like retail store, strip center, airport, universities, hospitals etc. These restaurants serve traditional McDonald’s products with a scaleddown menu.
- STO and STR Locations (Small Town Oil Locations or SmallTown Retail Locations): STOs are located in fuel stations and operate a full-menu McDonald’s restaurants. STRs are located in retail center in rural communities.
- BFL Franchises (Business Facilities Lease): BFL’s are granted franchises, with leases including business facilities.
What Should You Do?
If you want to buy an existing franchise, you can apply to the company or an Owner. An online application is available. You can submit online procedure electronically. You can also download the forms and send via e-mail/ fax.
Once you have applied and pass the first step, you are expected to complete McDonald’s training program. Once you have succeeded, a Franchising Manager responsible for your region will present the available restaurant options to you. In some cases, you may compete with existing Operator or other candidates.
Since the company’s overall performance depends on its franchises, it supports them extensively. Especially training is the integral part of the system. However, not only for training, McDonald’s will assist you whenever you need.
If you connect directly to the operator and decide to buy a restaurant, McDonald’s must approve this trade before you can start the job.
A minimum of 25% of the payment should be done in cash. The remaining part can be paid by installments, but this period cannot exceed 7 years. McDonald’s does not offer financing, but you can enjoy the good reputation of the Company for lowest rates.
For a traditional type, the normal period of a franchise is 20 years.
The Requirements for McDonald’s Franchise
Other than costs that are described below, there are other requirements to open a McDonald’s:
- You are expected to have a significant business experience. A successful ownership or management of multiple businesses or in multiple departments is demanded from the applicant.
- The motivation of a rapid growth is a must and applicant should convince McDonald’s that she has that capacity.
- You are expected to be capable of developing a business plan.
- Your financial aspect should be strong. You should able to manage the finances of the restaurant.
- Your communication skills should be strong.
- You can manage the daily business of the restaurant carefully.
- Since you are expected to complete the training program of the Company, you should be willing to get training. You are also expected to get experience at a restaurant in your neighborhood. It may take between 918 months.
- You must have a good credit history and high credit scores.
Costs and Profits
If you prefer to buy a new restaurant, you should pay 40% of the total cost initially. On the other hand, the initial payment for an existing restaurant is 25% of the total cost. This part of the payment should come from non-borrowed personal resources including one of these:
- Securities, bonds and debentures
- Vested profit sharing (net of taxes)
- Business or real estate equity (your personal residence is not accepted)
Although the minimum amount of initial payment varies, on average you should have a minimum of $500,000 cash or equivalent.
There are also periodic payments you should consider:
- Service fee: Based on the restaurant’s sales, you are expected to pay a monthly service fee. Currently it is determined as 4% of the monthly sales.
- Rent: You should pay a monthly base rent or percentage rent depending on your agreement with McDonalds.
If you prefer to open a new restaurant, you should pay for alteration and equipment. These can cost up to $2,000,000.
The probability of your restaurant depends on many factors like:
- Operating costs
- Occupancy costs
- Financing terms
- Your ability to operate your restaurant effectively
There are some more points you should note before starting to process.
- McDonald’s don’t franchise territories. The company do not willing to work with applicants who desire a specific location or limit herself to a geographic area.
- From a highly institutional perspective, McDonald’s does not support any individual action. For instance, even you have a property you cannot build your own McDonald’s. Instead, you can sell or lease it to the Company.
- Normally, you are not allowed to work with partners. On the other hand, any exception can be evaluated by Franchising Office.
- Similar to a partnership, you are also not allowed to work with family members as partners. They can work in your business as employees. Franchises are granted to individuals.
- Moreover, you cannot buy a franchise for your son or daughter. Each application should be done individually and initial payments should be met from personal resources.