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Five Guys Franchise Cost Worth It In 2022?

Written by: Collins Kibet
Last Updated: January 27, 2022
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This article is based on its most recent FDD.

The Five Guys restaurant chain offers fast casual dining restaurants which specialize in the sale of freshly made hamburgers, french fries, and hotdogs. The restaurant offers a menu that is plain and simple and contains a variety of burgers made from 100% fresh never-frozen ground beef.  

 

The Five Guys Burgers and Fries first opened in 1986, and began offering franchise opportunities in 2002. As of 2020, over 1400+ Five Guys franchises have opened across the country and they continue to expand. 

Victor J. Murrell is the current President of Five Guys. Victor has been serving in that role since April 2017. He has also served as secretary and treasurer of five guys inc. since 1997. 

Five Guys competes in the fast-food market against big brand companies such as McDonald’s and Burger King. Five Guys franchisees (“Operators”) also compete against other nearby Five Guys locations. 

How Much is a Five Guys Franchise? 

 The initial total investment required to establish a Five Guys Franchise ranges from $306,200 to $641,250 in all states apart from Alaska, Hawaii, and Puerto Rico where the initial investment ranges from $381,200 to $716,250.

Estimated Initial Investment

Expediture Estimated Amounts When Payable Method of Payment To Whom Paid
Initial Franchise Fee $25,000 On signing Franchise Agreement Lump Sum Us
Development Fee $50,000 per Restaurant ($125,000 per Restaurant in Alaska, Hawaii and Puerto Rico) On signing Development Agreement Lump Sum Us
Leasehold Improvements $100,000 to $300,000 As Arranged As Invoiced Independent Contractors
Lease Payments and other rental expenses $7,500 to $20,000 Monthly Per Lease Landlord
Equipment $55,000 to $105,000 As Arranged As Invoiced Designated Vendors
Signage $6,500 to $15,000 As Arranged As Invoiced Designated Vendors
Initial Inventory $10,000 to $15,000 As Arranged As Invoiced Designated Vendors and Five Guys Bakery
Architectural / Engineering $7,000 to $25,000 As Arranged As Invoiced Designated Vendors
Electronic Cash Register System with Modem $15,000 to $25,000 Lump Sum As Invoiced Designated Vendors
Facsimile Machine $350 to $500 Lump Sum As Invoiced Designated Independent Vendor
Travel, lodging and meals for initial training $100 to $5,000 As Incurred As Incurred Independent Suppliers
Business Supplies (stationery, business cards, menus, gift cards, paper and other materials) $4,000 to $8,500 Lump Sum As Invoiced Independent Suppliers
Business licenses, permits, utility deposits, etc. (for first year) $5,000 to $15,000 As Arranged As Incurred Various Agencies
Delivery and catering expenses $0 to $1,000 As Incurred As Incurred Us and Various Vendors
Insurance deposits and premiums $$750 to $1,250 As Arranged As Invoiced Independent Carrier
Additional Funds for first 3 months $20,000 to $25,000 As Arranged As Incurred Various Vendors
TOTAL $306,200 to $641,250 ($381,200 to $716,250 for Alaska, Hawaii and Puerto Rico)

Five Guys’ Franchise Requirements 

Five Guys new locations are generally opened by existing franchisees. At this time, Five Guys is not actively recruiting franchisees who do not currently operate a Five Guys restaurant. 

Five Guys’ On-going cost and fees 

Royalty Fees: 6% of Weekly Gross Sales, *8% if franchise is located in Alaska, Hawaii, or Puerto Rico 

Creative Fund: Up to 2% of weekly Gross Sales 

Local Advertising: not less than 2% of Gross Sales annually 

five-guys

How Much Do Five Guys Franchise Owners Make? 

Five Guys does not make any representations about a franchisee’s future financial  performance or the past financial performance of company-owned or franchised outlets. However, if you(franchisee) are purchasing an existing outlet, Five Guys may provide you with the actual records of that outlet. 

Through our analysis of the Franchisor’s income statement we can estimate sales figures from the revenue depicted in the income statement.  

2019 Five Guys Sales and Break-Even Point: 

Royalty Fee: 6% of Gross Sales 

2019 Five Guys Royalty Revenue$77 million 

Estimated Total Franchise Sales: $1.28 billion 

Number of franchised outlets at the end of 2019: 941

Estimated Average Franchise Revenue: $1,363,443 

Initial investment (midpoint) %Profit margin of median franchise sales Estimated Profits Time to recoup investment
$473,725 10% $136,344 6 years
15% $204,516 5 years
20% $272,688 4 years
five-guys-store

2020 Five Guys Sales and Break-Even Point: 

Royalty Fee6% of Gross Sales 

2020 Five Guys Royalty Revenue$80 million 

Estimated Total Franchise Sales: $1.33 billion 

Estimated Average Franchise Revenue: $1,319,444 

Initial investment (midpoint) %Profit margin of median franchise sales Estimated Profits Time to recoup investment
$473,725 10% $131,444 6 years
15% $197,916 5 years
20% $263,888 4.5 years
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It’s important to note that it takes about 2.5 years for a franchise in the food industry to scale up. This period is included in the calculation of the time it takes to recoup your initial investment.

Is the Five Guys Franchise Profit Worth the Franchise Cost? 

To assign a valuation multiple for Five Guys franchises, we leverage estimates from DealStats, a database of acquired private company transactions sourced from U.S. business brokers and SEC filings. We used the valuation of franchise food businesses in our calculations. 

 


If you own 5 franchises, you would be expecting ~$6 million in net sales


 

Under $1 Million Net Sales 

  • Estimated Selling Price = Net Sales * 0.32 

$1 – $5 Million Net Sales 

  • Estimated Selling Price = Net Sales * 0.31 

Over $5 Millions Net Sales 

  • Estimated Selling Price = Net Sales * 0.69 

When you go to sell a Five Guys franchise based on the median multiple of 0.31 and an average net sales of $1,341,443 from 2019 and 2020, it would sell for $415,847. The resale value is very close to the midpoint investment of $473,725 which indicates a low earning potential from reselling your business.  

However, if you decide to own multiple Five Guys Franchises, you increase your earning potential since there is a higher median multiple of 0.69 for businesses making over $5 million dollars in net sales.  

For example, if you own 5 Five Guys franchises, you would be expecting ~$6 million in net sales. Selling this multi-unit franchise system would amount to about  $ 4 million which is almost twice as much as the average initial investment of establishing the 5 franchises. 

Five Guys Holdings, Inc. Income Statement 

FIVE GUYS HOLDINGS, INC. AND SUBSIDIARIES. Consolidated statements of operations and comprehensive loss for the years ended December 31, 2019 and 2018 (Dollars in thousands)

 202020192018
REVENUE   
Restaurant sales$546,257$569,255$529,271
Bakery sales$49,611$52,208$48,241
Royalty fees$79,688$77,581$70,598
Development fees$2,454$2,344$3,934
Franchise fees$1,673$1,848$1,460
Other revenue$2,015$2,188$3,701
Creative fund revenue$25,152$30,659$-
Total revenue$706,850$736,083$657,205
OPERATING EXPENSES
   
Cost of Sales   
Food, beverage and shipping$155,129$163,167$153,296
Labor$188,109$192,188$174,811
Occupancy$64,928$67,203$63,620
Other operating costs$129,400$123,461$117,802
General and administrative$143,129$163,167$163,296
Creative fund expense$28,015$34,610$-
Gain on sale of company-owned locations$(12,543)$-$-
Total operating expenses$696,823$769,501$691,893
INCOME (LOSS) FROM OPERATIONS$10,027$(33,418)$(34,688)
OTHER INCOME (EXPENSE)
   
Interest income$503$638$572
Interest expense$(24,553)$(18,961)$(18,843)
Loss on embedded derivative$(56,410)$(41,559)$(6,052)
Other income (expense)$(1,900)$(2,306)$(1,275)
Total other expense$(82,360)$(62,188)$(25,598)
LOST BEFORE INCOME TAX EXPENSE$(72,333)$(95,606)$(60,286)
INCOME TAX EXPENSE (BENEFIT)   
Total income tax expense (benefit)$(5,412)$(574)$(2,867)
NET LOSS$(66,921)$(96,180)$(63,153)
OTHER COMPREHENSIVE INCOME (LOSS)—Foreign currency translation adjustment$519$371$(451)
COMPREHENSIVE LOSS$(66,402)$(95,809)$(63,604)
five guys featured

Five Guys Holdings, Inc. Income Statement Key Insights 

Five Guys Holdings Inc. is the franchisor of all Five Guys franchises. The company made losses in three consecutive years: 2020, 2019 and 2018  with the big loss of $95 million occurring in 2019.  This does not indicate a profitable business and it may take a long time to start making profit.  

Five Guys Holdings, Inc. Cash Flow Statement and key insights 

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2020, 2019, AND 2018 (Dollars in thousands)

 202020192018

CASH FLOWS FROM OPERATING ACTIVITIES

   
Net income (loss)$(66,921)$(96,180)$(63,153)
Adjustments to reconcile net income (loss) to net cash provided by operating activities
   
Depreciation and amortization50,74753,57052,904
Amortization of debt issuance costs2,308  
Impairment of long lived assets5,4314,3241,801
Bad debt provision35399(504)
Deferred income taxes (benefit)7,77113,46312,371
Tax valuation allowance(7,771)13,46312,371
Loss on property and equipment disposal225639633
(Gain) loss on embedded derivative liability56,41041,5596,052
Gain on sale of company-owned locations(12,543)
Deferred compensation expense(5,659)21,63611,929
Stock-based compensation5812,3022,111
Proceeds from settlement of auto and workers compensation insurance claims36201109
Changes in operating assets and liabilities
   
Accounts receivable2,680(748)(3,530)
Other receivables(1,221)1,378(1,094)
Creative fund receivable(42)(1,649)
Inventory(164)(778)750
Prepaid expenses and other current assets3,887(1,520)(1,451)
Prepaid taxes(1,544)(5)(352)
Long-term investments(875)(982)396
Security deposits82(863)(266)
Deferred commissions6342,835312
Accounts payable1,004(2,809)624
Accrued expenses and other current liabilities6,1462653,001
Accrued payroll and related taxes9,0923,7308
Deferred compensation liability(4,000)
Creative fund payable(2,981)
Deferred revenue(3,247)(5,666)(2,121)
Deferred rent and other583(743)1,737
Net cash provided by operating activities43,66520,8956,915
CASH FLOWS FROM INVESTING ACTIVITIES
   
Deferred compensation contributions(1,125)(1,033)(972)
Deferred compensation distributions42818850
Purchases of property and equipment(21,893)(41,057)(49,826)
Proceeds from settlement of property insurance claims222432262
Pre-purchase costs43(177)(4)
Acquisitions of franchise locations(1,041)(7,403)(20,675)
Proceeds from sale of company-owned locations28,955
Holdback settlements related to acquisitions(405)(1,471)
Advances to related parties(170)(5,000)
Collections of related party advances and other138187125
Net cash provided by (used in) investing activities5,322(49,033)(77,511)
CASH FLOWS FROM FINANCING ACTIVITIES
   
Payments under capital lease obligations$(1,230)$(1,695)$(1,526)
Proceeds from line of credit8,70010,000
Proceeds from long-term debt58,575
Repayment of long-term debt(2,000)
Payment of deferred financing fees(3,205)(86)
Employee loans—stockholder advances(253)(209)
Employee loans—stockholder collections728
Purchase of treasury stock(300)(7,200)(300)
Distributions(2,644)(2,974)(12,781)
Net cash provided by (used in) financing activities59,643(1,141)(16,902)
NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH108,630(29,279)(87,498)
NET EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH519371(451)
CASH, CASH EQUIVALENTS, RESTRICTED CASH—Beginning59,81288,720176,669
CASH, CASH EQUIVALENTS, RESTRICTED CASH—End$168,961$59,812$88,720
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION—Cash paid for
   
Interest$21,765$18,917$18,801
Income taxes$102$27$920
NONCASH INVESTING ACTIVITY—Accrued property and equipment purchases$1,526$1,448$1,028
five-guys-employee

In the year ending in 2020, Five Guys had cash, cash equivalents, and restricted cash of $168 million. This was more than 3 times the amount in 2019 and almost 2 times the amount in 2018. The cash, cash equivalents, and restricted cash in 2019 and 2018 were $59 million and $88 million respectively. 

How many Five Guys units have opened and closed? 

SYSTEMWIDE OUTLET SUMMARY FOR FISCAL YEARS 2018 TO 2020

Outlet type Year Outlets at the Start of the Year Outlets at the End of the Year Net Change
Franchised 2018 919 930 +11
2019 930 941 +11
2020 941 1,008 +67
Company-Owned 2018 466 492 +26
2019 492 496 +4
2020 496 444 -52
Total Outlets 2018 1,385 1,422 +37
2019 1,422 1,437 +15
2020 1,437 1,452 +13

Despite the economic impact of the COVID19 pandemic, 67 new franchise outlets were opened in 2020 compared to only 11 in both 2019 and 2018. This shows that the business thrived during the pandemic as many outlets were opened in the midst of the crisis. All the 52 outlets that closed down in 2020 were company-owned and not franchised outlets. 

Is it worth investing in a Five Guys’ Franchise? 

Over the last 3 years, Five Guys Holdings, Inc. (the Franchisor) has incurred net losses to the tune of $224 million indicating that the company has been struggling. However, the  number of franchised outlets have increased by 89 from 2018 to 2020 with a record increase of 67 in 2020. In addition, our analysis indicates that it will take you 6 years or less to recoup your investment with a reasonable profit margin. These reasons show that owning a Five Guys franchise may be worth your investment. 

Be sure to speak to at least 5 Five Guys franchisees before you make a decision to move forward with a Five Guys Franchise 

Interested in learning more about the Five Guy’s restaurant and other franchise opportunities? Check out our listings page on the Vetted Biz website for much more information about franchise opportunities. 

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