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Here’s How Much It Costs to Start a Checkers Franchise in 2023

Written by: Parth Parth
Last Updated by Rocio Somoza: January 19, 2023
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This article is based on its 2022 FDD

Rally’s is a chain of double drive-thru restaurants in the United States. The company operates Checkers and Rally’s restaurants in 28 states and the District of Columbia. They specialize in hamburgers, hot dogs, french fries, and milkshakes. There are currently 542 branches in operation.

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How is Checkers Franchise Positioned in the Food and Beverage Industry?

The Food and Beverage industry in the USA accounts for 13% of all manufacturing employment in the country. Around 1.46 million people get employed in this industry. Food franchises make up to 36% of the total franchise establishments in the USA and it is expected to create 1.6million more jobs by 2027. The annual growth rate in the industry is around 2% and the EBITDA multiplier is around 3x.

checkers franchise

How Much is a Checkers Franchise?

The initial Checkers Franchise Fee is $20,000 – $30,000. You have to pay this upfront fee when opening a Checkers franchise.

Checkers Franchise Cost

The estimated total investment necessary to begin the operation of a Checkers Franchise ranges from $790,797 – $2,368,316. The following costs are part of the upfront costs included in the initial investment for a Rally’s Restaurants. Many of these are one-time fees that are needed to launch the franchise. Review the chart below to see how much it costs to buy a Checkers franchise in 2022.

Type of ExpenditureAmountTo Whom Payment is to be Made
Initial Franchise Fee$20,000 – $30,000Us
Initial Advertising Deposit$10,000National Production Fund
Restaurant Building Costs$370,000 – $1,219,243Suppliers, Lending Institutions
Restaurant Building Shipping Costs$8,400 – $49,660Suppliers
Restaurant Equipment & Technology$177,733 – $226,010Suppliers
Soft Costs$889 – $41,380Contractors, Suppliers, Lending Institutions
Site Development$150,000 – $641,000Contractors, Suppliers, Lending Institutions
Signage including Menuboards$12,775 – $56,023Suppliers
Inventory$1,000 – $5,000Suppliers
Additional Funds$40,000 – $90,000Employees, Suppliers, Utilities, etc.
TOTAL ESTIMATED INITIAL INVESTMENT$790,797 – $2,368,316 

Checkers Franchise Requirements

For a Rally’s Restaurant, you need a $750,000 minimum net worth of which $250,000 needs to be liquid.

Owning a Checkers Franchise Requires Ongoing Fees

Royalty: 4% of your Net Sales or 2% of your Net Sales if you operate a Restaurant from a Non-Traditional Site

National Production Fund Contributions: You may be required to pay up to 3% of Net Sales.

Advertising Expenditure Requirement: 4.5% of your Net Sales

How much do Checkers franchise owners make?

All Checkers Restaurants

Category of RestaurantAverage Net Sales 2021 Fiscal YearNumber of Restaurants% Attaining or Exceeding AverageMedian Net Sales 2021 Fiscal YearLow and High Net Sales
Company-owned$1,176,06413266 or 50%$1,177,314$285,337 – $2,064,452
Franchised$1,125,598372158 or 42%$1,039,773$233,924 – $2,724,932

2021 Checkers Median Franchise Sales: $1,039,773

Initial Investment (midpoint)%Profit margin of average franchise salesEstimated profitsTime to recoup investment
$1,579,55610%$103,97716.5 years
$1,579,55615%$155,96511.5 years
$1,579,55620%$207,9549 years

Based on the median sales provided by Checkers’s franchise locations, at an average of a 15% profit margin it will take around 11.5 years to recoup your investment. This is longer than other franchise opportunities. You may not get a 15% profit margin which would elongate getting a return on your investment.

Many factors affect the sales, costs, and expenses of your Franchised Store. Such as the Franchised Store’s size, geographic location, menu mix, and competition in the marketplace. The presence of other Food and Beverage stores; the extent of market penetration and brand awareness that Checkers stores have attained in your market. Also, the quality of management and service at your Franchised Store are major factors.

Is the Checkers Franchise Profit Worth the Franchise Cost?

To assign a valuation multiple for Checkers franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We reviewed the larger franchise industry as well as selling price multiples for larger systems where more transaction data is available.

Under $5 Million Net Sales

  • Estimated Selling Price = Net Sales * 0.55

When you go to sell a Checkers franchise based on the median multiple of .55 and net sales in 2021 of $1,039,773, it would sell for $571,875. This is significantly lower than the midpoint investment of $1,579,556.

The more franchises you own, the more earning potential you have as private equity firms become interested in your business instead of individual owner-operators.

Checkers (Franchisor) Income Statement Key Insights:

Checkers Drive-In Restaurants, Inc. and Subsidiaries Consolidated Statements of Cash Flows

For the Year Ended
January 3, 2022 December 28, 2020 December 30, 2019
Operating activities
Net income (loss) $(10,066) $84 (221,921)
Adjustments to reconcile net income (loss) to net cash provided by /used in) operating activities
Depreciation and amortization 17,193 15,907 15,844
Amortization of deferred financing costs 1,570
Provision for bad debts 274 (2,214) 3,051
Deferred income tax benefit (215) (809) (2,169)
Noncash stock-based compensation 758 857 329
Noncash interest on Second Lien Credit Agreement 9,198 11,136 6,080
Impairment of goodwill and brands intangibles 178,907
Net loss on disposal of fixed assets 1,305 597 1,723
Net (gain) loss on sales of restaurants (206) 3,827
Gain on acquisition of restaurants (1,578)
Changes in assets and liabilities, net of acquisitions:
(Increase) in accounts, notes and leases receivables (685) (780) (4,295)
Decrease (increase) in inventory (449) 116 112
Decrease (increase) in prepaid expenses and other current assets (797) 477 324
(Increase) decrease in other assets 159 (107) 841
(Decrease) increase in accounts payable (142) (4,019) 1,879
Increase (decrease) in accrued liabilities, accrued wages and benefits, deferred revenue, self insurance, and long-term liabilities (1,205) 6,713 4,748
(Decrease) increase in reserves for restaurant retirement and refranchising costs (544) (604) 1,641
Net cash provided by (used in) operating activities 16,354 25,570 (9,079)

Checkers is a very profitable business for the franchisor with retained earnings of $16.35 million in 2021.

How many Checkers units have opened and closed?

Over the last three years, the company has been in decline. Over the last three years, franchises have closed at a rate of around 15 units a year. This is an indicator that these stores may not be performing well or their franchise term is up and they are not renewing it.

Conclusion

Checkers offers people the opportunity to be a part of a business that has a slightly long payback period and shaky financials while recovering from COVID.

While this may be the business for you, make sure also to check out other companies offered on Vetted Biz and in the Food and Beverage Industry.

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