How Much to Franchise McDonald’s? True McDonald’s Franchise Cost (2022)
Written by: Collins Kibet
Free Download Our Exclusive Food and Beverage Industry Guide
Download NowThis article is based on its 2022 FDD and the video above, from Vetted Biz Youtube Channel
Contents
McDonald’s is the quintessential American fast-food chain restaurant. It was founded in 1940 as a restaurant operated by Richard and Maurice McDonald in San Bernardino, California, United States. Since, they have been serving hamburgers, chicken nuggets, french fries, milkshakes, and ice cream. And today it has over 36,000 locations in over 100 countries around the world.
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. He also 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 is McDonald's Positioned in the Fast Food Industry?
McDonald’s is the leader in the fast-food industry A particular form or branch of economic or commercial activity. Subindustries are often referred to as categories on Vettedbiz.com with its large presence around the world stage. It faces competition from other fast-food chains like Burger King, Wendy’s, and Five Guys.
How much do McDonald's franchises cost?
The total investment to begin operation of a traditional McDonald’s franchise A franchise is when a business (franchisor) allows a party (franchisee) to acquire its know-how, procedures, processes, trademarks, intellectual property, use of its business… 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.
Below is a breakdown of the total initial investment The amount of funds necessary to begin operations of a business or franchise including the first three months of operation.:
Your Estimated Initial Investment
| Type of expediture | Amount | Method of payment | When due | To whom payment is to be made |
|---|---|---|---|---|
| Initial Franchise Fee Is a fee that franchisees pay to franchisors when signing an agreement, for establishing a franchise relationship, and getting some initial services. It is… | $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 The value of the total finished and unfinished goods and materials the business holds for future sale. | $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 AFN = Projected increase in assets – spontaneous increase in liabilities – any increase in retained earnings Known as AFN or additional funds needed… — 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
Significant Business Experience.
- Business plan
- Good Credit History
- Manage finances well
Franchised restaurants generated the highest revenue averaging about $6.09 billion annually.
McDonald's Franchises On-going Fees
Service Fee: A monthly fee of 4% of gross sales The total amount in dollars made in the business before expenses are deducted. See also Gross Revenue.
Advertising and Promotion take more than 4% of gross sales
How much do McDonald’s franchises owners make?
The median annual sales The total amount in dollars made in the business before expenses are deducted. See also Gross Revenue. 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 The total amount in dollars made in the business before expenses are deducted. See also Gross Revenue. 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 The amount of funds necessary to begin operations of a business or franchise including the first three months of operation. (midpoint) | %Profit margin of median franchise A franchise is when a business (franchisor) allows a party (franchisee) to acquire its know-how, procedures, processes, trademarks, intellectual property, use of its business… sales The total amount in dollars made in the business before expenses are deducted. See also Gross Revenue. | Estimated Profits | Time 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 The amount of funds necessary to begin operations of a business or franchise including the first three months of operation..
Are McDonald’s Franchises profit worth the franchise cost?
When you go to sell a McDonald’s franchise A franchise is when a business (franchisor) allows a party (franchisee) to acquire its know-how, procedures, processes, trademarks, intellectual property, use of its business… based on the median multiple of 0.34 and net sales The total amount in dollars made in the business before expenses are deducted. See also Gross Revenue. of $2,908,000 in 2020, it would sell for $988,720. This is lower than the midpoint initial investment The amount of funds necessary to begin operations of a business or franchise including the first three months of operation. 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. Hence, owning multiple franchises whose average net sales are over $5 million would yield a bigger income Income, also known as earnings or profits, is money that a person or a business receives in return for working, providing a product or…. 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. The business will therefore be worth over $6 million more than your initial investment.
McDonald’s Franchise Income Statement
Consolidated Statement of Income, Years ended Dec 31 (dollars in millions)
| 2021 | 2020 | 2019 | |
|---|---|---|---|
| REVENUES | |||
| Sales The total amount in dollars made in the business before expenses are deducted. See also Gross Revenue. 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 An operating expense is an expense a business incurs through its normal business operations. Often abbreviated as OPEX, operating expenses include rent, equipment, inventory… | 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 Income, also known as earnings or profits, is money that a person or a business receives in return for working, providing a product or…) 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 Operating Income = Revenue*- COGS or cost of revenue−Operating Expenses or Operating Income=Gross Income−Operating Expenses Also known as Income from operations, income before interest… 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 A payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum, at… 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 |
McDonald’s Income statement key insights
To the franchisor, McDonald’s is a very profitable When the earnings in a given period of time is more than the expenses in a business. business with an average annual net income Income, also known as earnings or profits, is money that a person or a business receives in return for working, providing a product or… 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. The high net incomes are a testament to the success of the McDonald’s franchise A franchise is when a business (franchisor) allows a party (franchisee) to acquire its know-how, procedures, processes, trademarks, intellectual property, use of its business… business.
McDonald’s Franchise Cash Flow Statement
Consolidated Statement of Cash Flows, Years ended Dec 31 (dollars in millions)
| 2021 | 2020 | 2019 | |
|---|---|---|---|
| Operating activities Operating activities are the core activities of a business. These activities are related to providing goods and/or services to the market of their industry…. | |||
| Net income Income, also known as earnings or profits, is money that a person or a business receives in return for working, providing a product or… | $2,853.1 | $2,206.9 | $2,381.0 |
| Adjustments to reconcile to cash provided by operations | |||
| Charges and credits: | |||
| Depreciation A reduction in the value of an asset over time, due to wear and tear. and amortization The term “amortization” refers to: • In accounting, Amortization is very similar to depreciation, it’s a decrease in the value of an intangible asset, which… | 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 The total amount in dollars made in the business before expenses are deducted. See also Gross Revenue. 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 | |||
| Long-term financing issuances | 0.1 | 0.1 | 0.1 |
| Long-term financing repayments | (0.2) | (0.4) | (0.4) |
| Other financing | (18.7) | — | (13.9) |
| Dividends A dividend is the distribution of some of a company’s earnings to a class of its shareholders, as determined by the company’s board of… to parent | (2,853.1) | (2,212.9) | (1,280.6) |
| Cash used for financing activities | (2,871.9) | (2,213.2) | (1,294.8) |
| Cash and equivalents increase (decrease) | $(18.8) | $7.3 | $(9.5) |
| Cash and equivalents at beginning of year | $49.3 | $42.0 | $51.5 |
| Cash and equivalents at end of year | $30.5 | $49.3 | $42.0 |
| Supplemental cash flow The net profit before taxes plus payments to the owner(s), interest, and depreciation of assets. disclosures | |||
| Interest A payment from a borrower or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum, at… 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. Its cash flow The net profit before taxes plus payments to the owner(s), interest, and depreciation of assets. statement, therefore, 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 many McDonald’s units have opened and closed?
System-wide Outlet Summary for years 2019 to 2021
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2019 | 13,229 | 13,185 | -44 |
| 2020 | 13,185 | 13,022 | -163 | |
| 2021 | 13,022 | 13,775 | -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 |
At the end of 2021, there were 13,775 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 A franchise is when a business (franchisor) allows a party (franchisee) to acquire its know-how, procedures, processes, trademarks, intellectual property, use of its business… at the end of the specified term. Also, 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. So that’s also part of the problem that we’re seeing with the informal eating-out brands. So in order to gain revenue, you have to gain it through other methods if you’re not gaining it 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 Based on Business Listings, Vetted Biz requires Businesses for Sale to share financial information on sales and earnings through credible sources, including but not…: 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 The amount of funds necessary to begin operations of a business or franchise including the first three months of operation. 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 The total amount in dollars made in the business before expenses are deducted. See also Gross Revenue. from a McDonald’s franchise A franchise is when a business (franchisor) allows a party (franchisee) to acquire its know-how, procedures, processes, trademarks, intellectual property, use of its business… 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 When the earnings in a given period of time is more than the expenses in a business. business with net incomes averaging over $2 billion annually.
If you want to own a franchise A franchise is when a business (franchisor) allows a party (franchisee) to acquire its know-how, procedures, processes, trademarks, intellectual property, use of its business…, 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.
