The McDonald’s Franchise System
McDonald’s has been a franchising company since 1955 and has relied on its franchisees to play a major role in the system’s success. McDonald’s remains committed to franchising as a predominant way of doing business, and it’s the leading global foodservice retailer with more than 35,000 restaurants located in more than 100 countries.
There are nearly 13,000 McDonald’s franchises within the United States, over 6,000 company-owned McDonald’s locations, and over 17,000 franchises outside the U.S.
If you are considering buying a McDonald’s franchise, you will most likely buy an existing franchise restaurant. In the United States, most new franchisees enter the system by purchasing an existing restaurant either directly from McDonald’s, or from an existing franchisee.. A very small number of new operators enter the system by purchasing a new restaurant.
McDonald’s field support to its franchisees is extensive, as is the level of contact and communication, including through some special leadership councils.
Financial Requirements and Start-Up Costs to Open a McDonald’s
An initial down payment is required when you purchase a new restaurant (40 percent of the total cost) or an existing restaurant (25 percent of the total cost). The down payment must come from non-borrowed personal resources, which include cash on hand; securities, bonds, and debentures; vested profit sharing (net of taxes); and business or real estate equity, exclusive of your residence.
Since the total cost varies from restaurant to restaurant, the minimum amount for a down payment will vary. Generally, you need a minimum of $500,000 of non-borrowed personal resources to be considered to open a McDonald’s franchise. Individuals with additional funds may be better prepared for additional or multi-restaurant opportunities, which McDonald’s encourages.
As of 2016, the initial investment varied from $1,003,000 to $2,228,000, with a liquid cash requirement of $500,000. There is also an initial franchise fee of $45,000.
In most Franchise System, for the opening of a new franchise location, it is the responsibility of the franchisee to locate a site that meets the franchisor’s standards. It is then approved by the franchisor for the franchisee to develop. McDonald’s is different; it acquires the real estate and constructs the location for you.
Other Requirements to Open a McDonald’s
- Significant Business Experience: Individuals who have demonstrated successful ownership or management of multiple business units or have managed multiple departments.
- Rapid Growth: Individuals who possess the capability to grow rapidly with McDonald’s.
- Business Plan: The ability to develop and execute a business plan.
- Manage Finances Well: Ability to manage finances including a thorough understanding of business financial statements.
- Good Management Skills: Commitment to personally manage the day-to-day operations of the restaurant business.
- Training: Willingness to complete an extensive, comprehensive, world-class training program at Hamburger University, and to spend 9-18 months working at a restaurant near your home, to become proficient in all aspects of operating a McDonald’s restaurant business.
- Exceptional Customer Experience: The capability to effectively manage an organization that recruits, trains, and motivates restaurant employees who deliver exceptional customer experience.
- Good Credit History: You must have an acceptable credit history.
Ongoing Fees to McDonald’s
During the term of the franchise, the franchisee pays McDonald’s the following fees:
- Service Fee: A monthly fee based on the restaurant’s sales performance (a service fee of 4.0% of monthly sales)
- Rent: A monthly base rent or percentage rent that is a percentage of monthly sales. McDonald’s usually owns the property, and also acts as the landlord.