Is Five Guys Franchise Cost Worth It? (2024)
This article is based on its most recent FDD. Keep reading or watch the video originally recorded on Vetted Biz Youtube Channel
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.
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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
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 |
2020 Five Guys Sales and Break-Even Point:
Royalty Fee: 6% 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 |
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)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| 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 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)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
|
|||
| Net income (loss) | $(66,921) | $(96,180) | $(63,153) |
Adjustments to reconcile net income (loss) to net cash provided by operating activities |
|||
| Depreciation and amortization | 50,747 | 53,570 | 52,904 |
| Amortization of debt issuance costs | 2,308 | ||
| Impairment of long lived assets | 5,431 | 4,324 | 1,801 |
| Bad debt provision | 35 | 399 | (504) |
| Deferred income taxes (benefit) | 7,771 | 13,463 | 12,371 |
| Tax valuation allowance | (7,771) | 13,463 | 12,371 |
| Loss on property and equipment disposal | 225 | 639 | 633 |
| (Gain) loss on embedded derivative liability | 56,410 | 41,559 | 6,052 |
| Gain on sale of company-owned locations | (12,543) | – | – |
| Deferred compensation expense | (5,659) | 21,636 | 11,929 |
| Stock-based compensation | 581 | 2,302 | 2,111 |
| Proceeds from settlement of auto and workers compensation insurance claims | 36 | 201 | 109 |
Changes in operating assets and liabilities |
|||
| Accounts receivable | 2,680 | (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 assets | 3,887 | (1,520) | (1,451) |
| Prepaid taxes | (1,544) | (5) | (352) |
| Long-term investments | (875) | (982) | 396 |
| Security deposits | 82 | (863) | (266) |
| Deferred commissions | 634 | 2,835 | 312 |
| Accounts payable | 1,004 | (2,809) | 624 |
| Accrued expenses and other current liabilities | 6,146 | 265 | 3,001 |
| Accrued payroll and related taxes | 9,092 | 3,730 | 8 |
| Deferred compensation liability | (4,000) | – | – |
| Creative fund payable | – | – | (2,981) |
| Deferred revenue | (3,247) | (5,666) | (2,121) |
| Deferred rent and other | 583 | (743) | 1,737 |
| Net cash provided by operating activities | 43,665 | 20,895 | 6,915 |
CASH FLOWS FROM INVESTING ACTIVITIES |
|||
| Deferred compensation contributions | (1,125) | (1,033) | (972) |
| Deferred compensation distributions | 428 | 188 | 50 |
| Purchases of property and equipment | (21,893) | (41,057) | (49,826) |
| Proceeds from settlement of property insurance claims | 222 | 432 | 262 |
| Pre-purchase costs | 43 | (177) | (4) |
| Acquisitions of franchise locations | (1,041) | (7,403) | (20,675) |
| Proceeds from sale of company-owned locations | 28,955 | – | – |
| Holdback settlements related to acquisitions | (405) | – | (1,471) |
| Advances to related parties | – | (170) | (5,000) |
| Collections of related party advances and other | 138 | 187 | 125 |
| Net cash provided by (used in) investing activities | 5,322 | (49,033) | (77,511) |
CASH FLOWS FROM FINANCING ACTIVITIES |
|||
| Payments under capital lease obligations | $(1,230) | $(1,695) | $(1,526) |
| Proceeds from line of credit | 8,700 | 10,000 | – |
| Proceeds from long-term debt | 58,575 | – | – |
| Repayment of long-term debt | – | – | (2,000) |
| Payment of deferred financing fees | (3,205) | – | (86) |
| Employee loans—stockholder advances | (253) | – | (209) |
| Employee loans—stockholder collections | – | 728 | – |
| Purchase of treasury stock | (300) | (7,200) | (300) |
| Distributions | (2,644) | (2,974) | (12,781) |
| Net cash provided by (used in) financing activities | 59,643 | (1,141) | (16,902) |
| NET CHANGE IN CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 108,630 | (29,279) | (87,498) |
| NET EFFECT OF EXCHANGE RATES ON CASH, CASH EQUIVALENTS, AND RESTRICTED CASH | 519 | 371 | (451) |
| CASH, CASH EQUIVALENTS, RESTRICTED CASH—Beginning | 59,812 | 88,720 | 176,669 |
| 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 |
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.
