Is McDonald’s a good franchise to buy? How much does a McDonald’s franchise cost,
and how much money can you make – all these questions will be answered in today’s video. Taken from their 2017 franchise disclosure
documents the total investment required to buy a McDonald’s franchise is $1,008.000 to
$2,214,080. A lot of people see that the franchise fee
for a McDonald’s is only $45,000 and assume that is all you need but that is absolutely
not the case. You will need a minimum of $750,000 in liquid
capital, that’s cash, in order to qualify. You are also required to have a very strong
background in business, preferably in a managerial or supervisory capacity as you typically will
be managing 50-125 employees. If you think McDonald’s is a “sit back while
your franchise makes money” type of business think again – taken from their website McDonald’s
requires you to actively participate in the business and will not sell to investors, investor
groups or corporations. After buying your store your ongoing fees
for your McDonald’s will include a Service fee equal to 4% of Gross sales due on the
10th day of each month. Advertising and promotion is not less than
4% and will vary depending if you are involved in local co-ops. There are other small fees such as licensing
and software, and of course your major expenses of rent and staffing. Your monthly base rent will vary depending
on the total amount invested by McDonald’s in the acquisition and development of the
building and land. So how much does a McDonald’s store earn? That amount will vary but this chart taken
from Bloomberg, sourced from Janney capital markets gives a nice snapshot of a McDonald’s
financial scenario. Now these figures are from a few years ago,
we know that today from looking at the QSR50 the revenues have actually dropped by about
$150,000 since this chart was made, so they are likely even lower today than back in 2012. lets take a look. We have net sales of 2.7 million in 2012 which
appear to have dropped to 2.55 million in 2017. Still pretty decent money right? Subtract your food and paper costs leaves
you with about $1.7 million. Pretty solid so far! But hold on there are many more expenses related
to running your McDonald’s. Once you back out payroll, taxes, advertising,
maintenance, utilities and operating supplies you get down to $761,000. Still not bad right! But hold on you forgot rent, insurance, and
other expenses which bring you down to just over $150,000. Now given the fact most executives can earn
$150,000 at a job, not having to invest 1.5 million or worry about running a business
with dozens of employees, this begs the question of how great of an investment owning a McDonald’s
actually is. Now don’t get me wrong investors that got
in early and have prime locations will do far in excess of those numbers. But it’s tough to find a great location anymore
with so many stores. Always remember the emerging brands of today
are the McDonald’s of tomorrow. As we always say it is critical to get in
at the right part of the growth curve not at the tail end, which is where most investors
do get in because they see all these locations and think that must mean success. Not the case. McDonald’s has also had it’s share of challenges
financially as a corporation and you can see here taken from their franchise disclosure
documents they have closed hundreds of US based stores and hundreds more in other countries
over the past 3 years. Additionally recent surveys of McDonald’s
franchisees indicate many are unhappy with how the company is being run. “The system is broken,” one franchisee said
in the survey comments collected by analyst Mark Kalinowski. “There is no leadership, no plan, no respect
for operators or their investment bottom line.” Another said, “Relations between McDonald’s
corporation and operators are the worst I have even seen.” Not one franchisee surveyed said the six-month
outlook was “excellent.” This Business Insider article reads: Furious
franchisees slam McDonald’s for costly demands and ‘wasteful’ changes. This Bloomberg article entitled “McRevolt:
The Frustrating Life of a McDonald’s Franchisee” is a good read Ill put the link to it in the
description box. If you do a quick Google for McDonald’s and
unhappy franchisees there is no shortage of content to look at, so it appears the culture
at McDonald’s franchising is also on the decline. So is a McDonald’s franchise a good investment? The trends would indicate that the opportunity
is nowhere near their peak in the 80’s and 90’s and it would be prudent to look at several
other franchise options before buying a McDonald’s just for sake of comparison. Little bit of McDonald’s history, McDonald’s
was started in 1940 by Richard and Maurice McDonald who opened their store in San Bernadino
CA. At the time no bank would lend them money,
until Bank of America finally extended a loan of $5,000 which started the empire you see
today. It wasn’t until 1962 the Golden Arches as
we know them today came into use, prior to that the McDonald’s mascot was a hat wearing
hamburger called Speedee! Don’t forget to like and subscribe and if
you need help researching or finding a franchise visit us at franchise.city, and feel free
to browse our franchise directory with over 600 franchises that link is at the top right
of the screen. Thanks for watching. https://www.mcdonalds.com/ca/en-ca/about-us/franchising/purchase-franchise.html https://www.bloomberg.com/features/2015-mcdonalds-franchises/ http://www.Franchise.city https://www.qsrmagazine.com/content/qsr50-2017-top-50-chart