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Freddy’s Franchise Cost And Owners Profits

Written by: Anna Marchesseault
Last Updated: November 29, 2021
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Enjoy eating a burger and frozen custard and want to make a living off of it? 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.  


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 Freddys Franchise

Freddys 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.

Freddys 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 ExpenditureIn-Line No Drive-thruEnd Cap With Drive-thruStandalone 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 Freddys 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.

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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 Freddys.

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.

Freddys Franchise

Freddys 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 Attornets’ 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.

Freddys Franchise

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 RestaurantStand Alone 
Drive-thru

End Cap

Drive-thru

No Drive-thruAll Restaurants
Average Weekly Gross Receipts$28,386$25,976$15,122$28,058
No. and % of Restaurants that Met or Exceeded the Average722 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.

Freddys Units Opened and Closed

Systemwide Outlet Summary for Years 2017 to 2019

Outlet TypeYearOutlets at the Start of the YearOutlets at the End of the YearNet Change
Franchised2017220263+43
 2018263305+42
 2019305335+30
Company-Owned20171619+3
 20181925+6
 20192529+4
Total Outlets2017236282+46
 2018282330+48
 2019330364+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 Freddys Franchise make?

Statements of Cash Flows

 201920182017
    
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. Freddys has 8.7 million in cash in 2019 and this is due to operating expenses, investing, and financing activities. Freddys 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.

Freddys LLC Income Statement

Statements of Income

 201920182017
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

Freddys 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 Freddys 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 Freddys.

Are you thinking about investing in Freddys 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.

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