Freddy’s Franchise Cost and Owners Profits
Enjoy eating a burger and frozen custard and want to make a living off of it? It could happen with Freddy’s Franchise!
Freddys Frozen Custard and Steakburgers offer franchises where you can own and operate one. This chain offers steakburgers, fries, custards, hot dogs, chicken sandwiches, and frozen custard which includes concretes and sundaes.
From 2016-2021 there has been an annual growth of 4.1% but it’s predicted the industry will only grow by 1.2% from 2021-2026. But for now, it’s still a very profitable industry and if you think you can make Freddys the exception keep reading.
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Fast food is a $13.7 billion industry that makes $273.2 billion in revenue. This could be due to the increase of healthy lifestyles in America and the demand for more healthy foods
History of Freddy's Franchise
Freddy’s was founded in 2002 by Scott Redler a restaurateur and two brothers named Bill and Randy Simon. The company was founded in Kansas and was named after Bill and Randy’s father Freddy Simon. Freddy Simon was a war veteran for World War II which was to pay homage to him.
The CEO, President, and Managing Member are Randy J. Simon also is the co-founder. Randy has been CEO and President since 2017. Randy has been managing members since 2016. The CFO of Freddys is William W. Valentas since 2018.
Freddy's Franchise Cost
For the initial franchise fee, there is the development fee and license fee. The development fee is $5,000 multiplied by how many restaurants you open. The License fee is $25,000 when you sign the license agreement.
Your Estimated Initial Investment In-Line, End Cap And Standalone Restaurants
| Type of Expenditure | In-Line No Drive-thru | End Cap With Drive-thru | Standalone With Drive-thru |
|---|---|---|---|
| License Fee | $ 25,000 | $ 25,000 | $ 25,000 |
| Training Expenses (Travel, Meals, Lodging, and Employee Wages) | $20,000 to $30,000 | $20,000 to $30,000 | $20,000 to $30,000 |
| Construction, Remodeling, and Leasehold Improvements | $256,800 to $574,008 | $324,000 to $1,187,774 | $650,660 to $1,314,577 |
| Real Property Rent (one month) | $5,667 to $11,500 | $5,667 to $12,500 | $5,667 to $15,750 |
| Security Deposit | $5,667 to $11,500 | $5,667 to $12,500 | $5,667 to $15,750 |
| Computer, Point of Sale Equipment, Outdoor Ordering System and Software, Security Cameras, Drive-Thru Headsets | $30,102 to $32,827 | $53,764 to $68,656 | $53,764 to $69,218 |
| Equipment, Furniture, Fixtures and Décor | $259,816 to $327,223 | $287,574 to $409,241 | $287,574 to $409,241 |
| Bulding Signage /Interior Neon/ LED Border | $6,000 to $24,668 | $12,890 to $49,220 | $22,090 to $100,830 |
| Miscellaneous Opening Costs | $8,000 to $15,000 | $8,000 to $15,000 | $8,000 to $15,000 |
| Opening Inventory and Supplies | $9,000 to $15,000 | $9,000 to $15,000 | $9,000 to $15,000 |
| Insurance | $2,000 to $10,000 | $2,000 to $10,000 | $2,000 to $10,000 |
| Grand Opening Advertising | $2,500 to $5,000 | $2,500 to $5,000 | $2,500 to $5,000 |
| Additional Funds – 3 months | $10,000 to $50,000 | $10,000 to $50,000 | $10,000 to $50,000 |
| TOTAL ESTIMATED INITIAL INVESTMENT | $640,552 to $1,131,726 | $766,062 to $1,889,891 | $1,101,922 to $2,077,046 |
Opening up Freddy’s franchise will cost around $640,000 to $2,000,000 depending on the type of restaurant. A large portion of this cost is the construction, remodeling, and leasehold improvements which cost between $256,800 to $ 1.3 million. This makes sense since building or fixing up a restaurant is very expensive and Freddys like many franchises requires a specific design for the franchise.’
Another major cost is equipment, furniture, fixtures, and designs which cost between $259,818 to $ 327,223. This depends on the size of the restaurant and this includes all the equipment not including computers to run and operate a Freddy’s.
The majority of the costs above are mandatory to get but the cost can be lowered depending on how big you decide on the franchise.
Freddy's Frozen Custard Ongoing Costs and Fees
Royalty
4,5% of all Gross Receipts. Payable the 3rd day after the end of each consecutive week during each 28-day operating period.
Marketing and Advertising Fund:
0% – 3% of Gross Receipts; currently, 0.375% of Gross Receipts. Payable the 3rd day after the end of each consecutive week during each 28-day operating period.
Site Selection:
$0 – $2,000 per trip. Upon demand. At present they do not charge for these services but, if they do charge, they will require reimbursement for travel, food, and other reasonable expenses incurred.
Cooperative Advertising:
0% – 2% of Gross Receipts. Payable on the 15th day after the end of each 28-day operating period. Your obligation to contribute to a Cooperative Advertising Program will commence 30 days after notice of implementation by them.
Additional Training:
$100 – $18,000. Upon demand. They will provide initial training at no cost to you although you are responsible for your employees’ and their employees’ travel, lodging, and food expenses. You must reimburse them for training replacement personnel and other required or optional training we may provide your employees.
New Product / Service Testing
$0 – $1,000 per product or service. Upon demand. We may inspect and test samples of items you desire to purchase or lease from a source not previously approved by us in writing. You or the proposed source must pay the reasonable expenses of the testing or inspection.
Audit Expenses
$500 – $5,000 per location. Upon demand. Payable if audit shows an understatement of reported Gross Receipts of 2% or more. Also Payable if you fail to file required financial reports.
Loan Approvals
Loan Approvals:
$1,000 – $5,000 not including the cost of outside services not performed by them. As incurred. You must pay them an amount determined by them to fully reimburse them for their reasonable costs and expenses associated with reviewing the proposed loan arrangement, including legal and accounting fees.
Transfer:
$2,500. Before consummation of transfer. Payable when you transfer an interest in the License Agreement or the Development Agreement. No transfer fee is payable if you transfer the interest to them, to an entity you form for convenience of ownership and not involving a change of beneficial ownership, or to your employees (if less than 25% of your ownership interests) and the transfer satisfies other conditions specified in the Development Agreement or the Licence Agreement.
Private Offering Fee:
$1,000 – $5,000 not including the cost of outside services not performed by them. As Incurred. You must pay them an amount determined by them to fully reimburse them for their reasonable costs and expenses associated with reviewing the proposed private offering, including legal and accounting fees.
Interest:
1.5% per month or as allowed by law. Upon demand. Payable on overdue amounts owed to them. Interest begins from the date of the underpayment.
Renewal Fee:
One-third of our then-current initial license fee. Upon signing of new License Agreement before expiration of initial term of License Agreement.
Costs and Attorney’s Fees:
Will vary under the circumstances. As incurred. Payable if incurred by us in obtaining injunctive or other relief for the enforcement of any term in the Development Agreement or License Agreement and for collecting any monies you to them.
Indemnification:
Will vary under the circumstances. As incurred. You must reimburse them for claims arising from your Restaurants’ operations or any occurrence at your Restaurant.
Fees
Reimbursement of Insurance Costs: Our costs of obtaining coverage on your behalf. Upon demand. If you fail to obtain or maintain the required minimum insurance, they may obtain the insurance and charge its cost along with their reasonable expenses to you.
Taxes: Any fees or assessments imposed on them (other than income taxes) for acting as a franchisor or licensing the Marks. Upon demand.
Early Termination Fee:
Will vary under the circumstances. Upon demand. Payable if we terminate the License Agreement after your default. Amount due equals the sum of all License Fees, royalty fees, marketing and advertising fees, and other fees required under the License Agreement for the 18, 28-day operating periods of operation at the Restaurant preceding your default.
EcoSure/Restaurant Inspection Fees: $206. As incurred. Payable upon revisit following a failed inspection.
OAR Restaurant Inspection Fees: Will vary under the circumstances. As incurred. You must reimburse them for their costs for the reinspection of your restaurant following a failed OAR inspection.
Marketing and Advertising
The marketing and advertising fund is between 0%-3% of gross receipts, currently, it is .375% for each franchise. This could vary from year to year but it should stay around this range. There is also cooperative advertising which is between 0%-2% of gross receipts. The cooperative advertising depends on the geography of the restaurant. Many of the costs will vary on different circumstances of the franchise which makes it unclear how much everything will cost as your restaurant will operate. But you will have a much more clear idea when talking with the business in-depth about the financials.
Franchise Royalty Fee
The royalty fee is 4.5% of all gross receipts.
How Much Does the Franchisor Make
Periods 1-6 Weekly Gross Receipts of Franchised Restaurants for the First Half of FY2020
| Type of Restaurant | Stand Alone Drive-thru | End Cap Drive-thru | No Drive-thru | All Restaurants |
|---|---|---|---|---|
| Average Weekly Gross Receipts | $28,386 | $25,976 | $15,122 | $28,058 |
| No. and % of Restaurants that Met or Exceeded the Average | 722 of 1626 (44%) | 73 of 144 (51%) | 9 of 18 (50%) | 798 of 1788 (45%) |
| Median Weekly Gross Receipts | $27,036 | $26,137 | $15,813 | $26,958 |
| Range of Weekly Gross Receipts | $7,209 – $78,792 | $8,211 – $78,323 | $3,333 – $20,588 | $3,333 – $78,792 |
The chart above it shows the weekly gross receipts of the franchised restaurants in the first half of 2020. It shows that stand-alone drive-thru restaurants make the most amount of money which is something to consider when figuring out what type of restaurant you want. The average weekly gross receipt is $28,058 and around 45% of restaurants meet or exceed that average.
Freddy's Units Opened and Closed
Systemwide Outlet Summary for Years 2017 to 2019
| Outlet Type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2017 | 220 | 263 | +43 |
| 2018 | 263 | 305 | +42 | |
| 2019 | 305 | 335 | +30 | |
| Company-Owned | 2017 | 16 | 19 | +3 |
| 2018 | 19 | 25 | +6 | |
| 2019 | 25 | 29 | +4 | |
| Total Outlets | 2017 | 236 | 282 | +46 |
| 2018 | 282 | 330 | +48 | |
| 2019 | 330 | 364 | +34 |
In this chart, the net change is all positive and even quite high. Freddy’s has a lot more franchised restaurants than company-owned restaurants which is good for you since it shows they put more effort and money into their franchisees.
Freddy’s also seems to focus on increasing the number of franchise restaurants every year. Freddy opens around 30-40 new franchise restaurants every year which means they are growing and they are looking for potential franchise owners. Also, none of the franchised restaurants have closed down meaning the restaurants must be doing well. These are all great signs to consider opening up a franchise.
How Much Do the Owners of Freddy's Franchise Make?
Statements of Cash Flows
| 2019 | 2018 | 2017 | |
|---|---|---|---|
| Net income | $ 11,559,579 | $ 9,995,693 | $ 8,713,059 |
| Adjustments to reconcile net income to net cash provided by operating activities: | |||
| Depreciation and amortization | $ 62,426 | $ 58,019 | $ 81,135 |
| Franchise Fees | $ (441,769) | $ (420,667) | $ (354,000) |
| Gain on disposal of property and equipment | $ (4,945) | – | $ (61,669) |
| Changes in operating assets and liabilities: | |||
| Accounts receivable | $ (136,084) | $ (116,482) | $ (194,310) |
| Accounts receivable – related party | – | $ 48,972 | $ (48,972) |
| Accrued interest receivable – related party | $ 897,720 | $ (202,872) | $ (270,497) |
| Other receivables and prepaid rent | $ 44,998 | $ 42,118 | $ (134,948) |
| Accounts payable | $ (96,717) | $ (305,338) | $ 638,030 |
| Accounts payable – related party | $ 195,782 | $ 68,700 | $ (33,697) |
| Accrued expenses | $ 60,160 | $ 18,170 | $ 80,788 |
| Contract liabilities (deferred revenue) | $ 735,000 | $ 260,667 | $ 474,000 |
| Deferred compensation | $ 13,000 | $ 13,000 | $ 13,000 |
| Net cash flow from operating activities | $ 12,889,150 | $ 9,459,980 | $ 8,901,919 |
| Cash flows from investing activities: | |||
| Net change in notes receivable from related parties | $ 32,000 | $ 12,000 | $ (44,000) |
| Purchase of property and equipment | $ (37,959) | $ (83,602) | $ (82,688) |
| Proceeds from sale of property and equipment | $ 24,700 | – | $ 76,297 |
| Net cash flow from investing activities | $ 18,741 | $ (71,602) | $ (50,391) |
| Cash flows from financing activities: | |||
| Proceeds from note payable | – | – | $ 37,657 |
| Payments on note payable | $ (21,182) | $ (9.414) | $ (7,061) |
| Payment of distributions | $ (9.672,167) | $ (8,802,501) | $ (7,093,840) |
| Net cash flow from financing activities | $ (9,693,349) | $ (8,811,915) | $ (7,063,244) |
| Change in cash and cash equivalents | $ 3,214,542 | $ 576,463 | $ 1,788,284 |
| Cash and cash equivalents: | |||
| Beginning of year | $ 5,553,815 | $ 4,977,352 | $ 3,189,068 |
| End of year | $ 8,768,357 | $ 5,553,815 | $ 4,977,352 |
In this statement, the net income is increasing every year and it ranges from 8.7 million to 11.5 million from 2017 to 2019. This is a great sign since Freddys is a profitable business and their profits are increasing every year. Freddy’s has 8.7 million in cash in 2019 and this is due to operating expenses, investing, and financing activities. Freddy’s has cash on hand so they do have the finances to cushion themselves if their business goes south. As well as be able to expand their business with the money they have.
Freddy's LLC Income Statement
Statements of Income
| 2019 | 2018 | 2017 | |
|---|---|---|---|
| Revenues: | |||
| Continuing royalty fees | $ 20,170,868 | $ 17,832,037 | $ 15,424,270 |
| Marketing fees | $ 906,769 | $ 1,347,500 | $ 1,262,500 |
| Interest and other income | $ 2,020,073 | $ 1,780,851 | $ 1,145,404 |
| $ 23,514,365 | $ 21,315,109 | $ 18,230,305 | |
| Operating expenses: | |||
| Selling, general, and administrative | $ 11,954,786 | $ 11,319,416 | $ 9,517,246 |
| Net Income | $ 11,954,786 | $ 11,319,416 | $ 9,517,246 |
Freddy’s made around $23.5 million in revenue in 2019, mostly through royalty fees. The operating expenses are around half of the cost which is 11.6 million which shows they are gaining a significant amount of profit. The Freddy’s franchise is continuously increasing their profit each year making them prosperous.
Conclusion
From the financials to the number of restaurants they have it does look like a promising venture for new business owners. There is an almost guarantee from the graphs that you will profit from the restaurant and that it will stay open. The fast-casual restaurant industry is competitive but when there is already an established restaurant that is succeeding it’s harder to fail.
Also, the price of the franchise seems flexible and it all depends on how much money you want to invest in it. The costs vary and Freddys does seem reasonable and will offer loans to help out the price. If this seems like an interest to you contact the business and learn more about Freddy’s.
Are you thinking about investing in Freddy’s Frozen Custards and Steakburgers, or interested in exploring more options? Make sure to check out Vetted Biz’s website for listings of other similar franchises in the Food and Beverage industry.
