Aspiring entrepreneurs looking for a business investment that can offer a solid return on their capital and is supported by a well-recognized brand have long considered a McDonald’s franchise as an attractive option. The iconic golden arches, the expansive menu, and long history of success may make this option appealing; however, the McDonald’s Corporation does not easily approve new franchisees. Approval is only granted to qualified potential franchisees who understand how this unique business model operates.
There are many questions to consider when researching investing in a McDonald’s franchise, including its full costs, the timeline involved, industry conditions, current and future opportunities for maximizing success, and more. To aid aspiring entrepreneurs in this research process, this article provides answers to the most frequently asked questions around a McDonald’s franchise.
FAQs on Investing in a McDonald’s Franchise
1. What will the cost be to open a McDonald’s franchise?
McDonald’s estimates that it will cost a franchisee between $1,008,000 and $2,214,000 to build and open a new restaurant. This cost does not include the franchisee’s fee, which is a “good faith deposit” of $45,000 that is credited against the franchisee’s initial franchise fee. Further, it should not include additional working capital that may be need to cover deposits, pre-opening expenses, accounting and legal costs, and more.
2. What are the terms of a McDonald’s franchise agreement?
The full terms of any McDonald’s franchise agreement will depend on a variety of circumstances, such as size and location of the store; however, most will have a 20-year initial term with two 10-year renewal options, resulting in a total of 40 years that the franchisee can operate the store. The franchise agreement also outlines McDonald’s requirements for its franchisees, such as the need for majority ownership and shareholding, approved food vendors, compliance with operational standards, and compliance with a clearly outlined code of ethics for franchisees.
3. How long does it take to get approved as a McDonald’s franchisee?
The approval process for a new McDonald’s franchisee can vary greatly; however, the timeline typically involves approximately seven months. During this time, you will need to submit a proposal that includes your goals and plans for the franchise, such a menu, a business and marketing plan, and more. The proposal will be reviewed and, if accepted, you will enter the training phase of the approval process. During this time, you will receive instruction on operating a McDonald’s franchise, goal-setting, and more, and then sign a franchise agreement.
4. What are the requirements of McDonald’s franchisees?
McDonald’s requires its franchisees to have a significant amount of capital available due to costs associated with building and operating the restaurant, as well as a real estate contribution. Franchisees are also required to maintain a personnel team capable of keeping the restaurant operational, including maintenance staff and food service staff. Further, they must have a comprehensive knowledge of their local market area and keep abreast with changes to local laws and regulations that may affect them.
5. How successful are McDonald’s franchisees?
Success as a McDonald’s franchisee will depend on a variety of factors, such as the franchisee’s abilities and resources; however, the brand does report that the average store in the United States earns approximately $2.7 million in sales each year. Further, McDonald’s repeatedly ranks as one of the top franchises on Entrepreneur’s “Franchise 500” list.
6. Are there any challenges to consider when opening a McDonald’s franchise?
McDonald’s is a highly competitive industry, and you may face stiff competition for location and customer preferences from other quick-serve restaurants in your area. Further, very few McDonald’s franchises that close do so due to financial performance – most close due to failure to have approved real estate or personal disputes between franchisees, emphasizing the importance of having a location that suits not only the needs of the brand but also meets additional criteria.
Investing in a McDonald’s franchise can offer an attractive return on investment for the right entrepreneurs. Individuals researching such a move should consider not only the costs associated with owning a franchise, but also the lengthy timeline that comes with opening a franchise. Additionally, they should understand the requirements outlined by the brand, as well as operational and the competitive challenges that may arise.