McDonald’s Corporation has 36,000 restaurants located in 100 countries and 80% of them are franchise operations. In other words, many entrepreneurs have chosen to make a living under the shadow of the ubiquitous golden arches. McDonald’s is a powerful brand, with many stores earning well over $2 million in sales annually. As a result, owning a franchise can be profitable for both the owner and McDonald’s when properly managed.
However, prospective franchise owners are well-advised to get their financial ducks in a row before applying to launch a new McDonald’s franchise or buy an existing restaurant.
- McDonald’s Corporation has 36,000 restaurants in 100 countries and 80% of them are franchise operations.
- McDonald's franchisee applicants must have a minimum of $500,000 available in liquid assets and pay a $45,000 franchise fee.
- Those looking to launch a new McDonald’s franchise can expect to shell out between $1,218,000 and $2,190,000.
- Existing franchise prices can cost upwards of $1 million or more.
Understanding the Costs of a McDonald's Franchise
McDonald’s has been around for more than seven decades, and many franchises have been established in that time. For this reason, the vast majority of entrepreneurs wanting to get into the restaurant franchise business buy existing franchises rather than launch new ones. Existing franchises typically come with trained staff and built-in customers, so, in that sense, these are true turnkey businesses.
However, all applicants are required to have a minimum of $500,000 available in liquid assets, which is essentially cash to be used for investing in a McDonald’s restaurant.
The cost of buying an existing franchise is based on the location’s profitability, renovation needs, and sales volume. In short, franchise prices vary and can be upwards of $1 million or more. Some existing franchises come on the market as a result of poor performance, and, as such, the price includes McDonald’s planned marketing costs to breathe life back into the location.
The amount of competition in an area, including other McDonald’s franchises and competitor restaurants, also plays a role in an existing franchise's price. McDonald’s requires prospective buyers to have 25% of the purchase price of an existing franchise in cash.
Buyers can borrow the remaining money–or 75%–of the purchase price from lending institutions. McDonald's does not offer any financing or lending. Also, the new owner must pay down the debt over seven years. In rare cases, McDonald's adjusts prospective owner qualifying standards for franchises in urban and rural areas.
In some cases, McDonald’s approves the opening of new franchises in regions where the company wishes to enter the market, which is also considered "buying" a franchise. Typically, candidates that are approved to open new locations are existing franchisees with experience owning and operating a McDonald’s restaurant.
Those approved to launch new McDonald’s franchises can expect to shell out between $1,218,000 and $2,190,000 to get the restaurants up and running. Owners pay an initial franchise fee of $45,000.
The costs can vary depending on the region of the country and store type as well as the restaurant's size. Some of the costs involved include:
- Kitchen equipment
- Construction expenses
- Interior decor and exterior landscaping
- Hiring and training
New franchise owners also must pay 40% of the total cost of building the restaurant upfront but can finance the remaining costs through various financial services firms that McDonald's has established relationships.
Franchise owners also pay McDonald’s fees on an ongoing basis. They must pay a 4% monthly fee, which is based on their restaurants' sales performance. Owners also pay the monthly rent to McDonald’s based on a percentage of sales.
Whether buying an existing McDonald’s franchise or building a new one, buyers can shop around to get the best interest rates on loans. Some lenders specialize in franchise loans and offer repayment terms longer than seven years, depending on how the owner plans to use the money.