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How Much to Franchise McDonald’s? True McDonald’s Franchise Cost (2022)

Written by: Collins Kibet
Last Updated by Marina Longo: May 11, 2022
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This 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. 

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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.

McDonald's 2021 Annual Report

How is McDonald's  Positioned in the Fast Food Industry?

McDonald’s is the leader in the fast-food industry 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 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:

Your Estimated Initial Investment

Type of expeditureAmountMethod of paymentWhen dueTo whom payment is to be made
Initial Franchise Fee$45,000;Lump SumOn openingMcDonald’s
$22,500;
$0 to $500
Real Estate and Building — 3 Months’ rentBase Rent $0 to $313,000;MonthlyBase: Current month, Base Rent due, 1st of the month; Percent: 10th of following monthMcDonald’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 SumBefore OpeningVendors
$670,000 to $1,210,000;
$340,000 to $520,000
Open Inventory$20,000 to $39,000;Lump SumBefore OpeningVendors
$13,500 to $25,000;
$10,000 to $32,000
Miscellaneous Opening Expenses$48,000 to $60,000As IncurredAs IncurredVendors Utilities
Travel and Living expenses While Traveling$3,000 to $38,000As IncurredAs IncurredAirlines Hotels Restaurants
Additional Funds — 3 months$250,000 to $355,000;As IncurredAs IncurredEmployee 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

 Advertising and Promotion take more than 4% of gross sales

mcdonald's franchises

How much do McDonald’s franchises owners make?

The median annual sales 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 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 (midpoint)%Profit margin of median franchise salesEstimated ProfitsTime to recoup the investment (including 2 years for scaling up)
$1,813,89710%$290,8008.5 years
15%$436,2006.5 years
20%$581,6005.5 years

With a profit margin of 10% or more, it would take about 8.5 years or less to recoup your initial investment.

franchise advisor

Are McDonald’s Franchises profit worth the franchise cost?

When you go to sell a McDonald’s franchise based on the median multiple of 0.34 and net sales of $2,908,000 in 2020, it would sell for $988,720. This is lower than the midpoint initial investment 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. 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)

 202120202019
REVENUES 
Sales by Company-operated restaurants$2,616.5$2,394.7$2,489.7
Revenues from franchised restaurants6,093.95,261.05,353.0
Other revenues154.6173.0160.1
Total Revenues8,865.07,828.58,002.8
OPERATING COSTS AND EXPENSES 
Company-operated restaurant expenses 
Food & paper719.6676.6724.2
Payroll & employee benefits822.4765.3828.5
Occupancy & other operating expenses564.0547.6548.9
Franchised restaurants — occupancy expenses1,188.21,164.31,125.7
Selling, general & administrative expenses695.6625.1586.8
Other operating (income) expense, net13.3133.40.5
Other Restaurant Expense107.3127.1119.5
Total operating costs and expenses4,110.44,039.43,934.1
Operating income before royalty to parent4,754.63,789.14,068.7
Royalty expense to parent923.2813.5811.6
Operating income3,831.42,975.63,257.1
Interest expense — net of capitalized interest of $3.3, $2.7 and $3.545.879.397.5
Non-operating (income) expense, net(1.7)(2.5)(4.1)
Income before provision for income taxes3,787.32,898.83,163.7
Provision for income taxes934.2391.9782.7
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 business with an average annual net income 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 business.

McDonald’s Franchise Cash Flow Statement

Consolidated Statement of Cash Flows, Years ended Dec 31 (dollars in millions)

 202120202019
Operating activities 
Net income$2,853.1$2,206.9$2,381.0
Adjustments to reconcile to cash provided by operations 
Charges and credits: 
Depreciation and amortization840.7813.9726.7
Deferred income taxes11.7139.3151.2
Other17.2(4.0)(137.8)
Changes in working capital items: 
Accounts receivable66.8189.9121.7
Inventories, prepaid expenses and other current assets(14.4)3.425.7
Accounts payable14.9(11.9)(26.3)
Income taxes, state77.9(31.8)2.8
Other accrued liabilities117.3(44.4)14.2
Due (to) from parent, net52.2(146.0)(279.9)
Cash provided by operations4,037.43,115.32,979.3
Investing activities 
Property and equipment expeditures(940.7)(890.4)(1,480.5)
Purchases of restaurant businesses(255.5)(1.6)(6.7)
Sales of restaurant businesses and property104.39.6126.7
Other, Net(92.4)(12.4)(333.5)
Cash used for investing activities(1,184.3)(894.8)(1,694.0)
Financing activities 
Long-term financing issuances0.10.10.1
Long-term financing repayments(0.2)(0.4)(0.4)
Other financing(18.7)(13.9)
Dividends to parent(2,853.1)(2,212.9)(1,280.6)
Cash used for financing activities(2,871.9)(2,213.2)(1,294.8)
Cash and equivalents increase (decrease)$(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$42.0
Supplemental cash flow disclosures 
Interest paid (excluding amounts paid to parent)$—$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 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.

franchise specialist

How many McDonald’s units have opened and closed?

System-wide Outlet Summary for years 2019 to 2021

Outlet typeYearOutlets at the Start of the YearOutlets at the End of the YearNet Change
Franchised201913,22913,185-44
202013,18513,022-163
202113,02213,775-247
Company-Owned2019683559-24
2020659657-2
2021657661+4
Total Outlets201913,91213,844-68
202013,84413,679-165
202113,67913,436-243
mcdonald's franchises

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 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: 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 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 from a McDonald’s franchise 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 business with net incomes averaging over $2 billion annually.

mcdonald's franchises

If you want to own a franchise, 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.

franchise specialist

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