BUYING A 

FRANCHISE

This incident is not disclosed in the McDonalds Franchise Disclosure Document FDD (nor is it required to be disclosed):

In early 2009, authorities reported a 27-year old woman in the State of Florida called 9-1-1 not once, not twice, but three times after McDonalds' employees told her they ran out of Chicken McNuggets. Although the woman was cited for abusing the 911 emergency network, the incident shows just how deeply ingrained the Mighty Mac is in our national psyche. With over 30,000 locations and fifty-plus years in the burger business, the McDonalds brand continues as the most recognized and successful franchise in the world.

As with most things in life, a little information is a dangerous thing. While it's true McDonalds charges a $45,000 franchise fee, this is only the initial fee for licensing rights - the upfront fee charged to join the network and access the McDonalds System. There's a LOT more financial commitment and cost involved to buy a McDonalds franchise after that. All of this is disclosed in precise detail in the McDonalds FDD Franchise Disclosure Document (which can be ordered at the PayPal link below). On top of the investment, there are other franchise qualifications to being a McDonalds franchise owner besides just having the money. Things like community involvement, education, background, business sense, common sense, etc.

The first, and most frequently used method to buy a McDonalds franchise for sale is by buying an existing restaurant. Even here there are different ways. First way is to buy a McDonalds restaurant that's operated directly by McDonalds corporate and is up for sale - a company-owned restaurant sold as a turnkey franchise. As mentioned below, McDonalds announced plans to sell twenty-one percent (21%) of its 7,000 company-owned restaurants as franchises over a three-year period. So that's a lot of McDonalds franchises for sale - 1,470 to choose from - all with an established customer base, track record, etc.

Still under the most frequenly used method to buy a McDonalds franchise (an existing restaurant) the second path is to buy an existing McDonalds for sale that's being sold by a McDonalds franchise owner/operator. Perhaps the owner is retiring, downsizing the number of McDonalds franchises he or she owns, or just wants to cash out and go on a permanent vacation. A list of the McDonalds franchise owners is an exhibit to the FDD. You can buy the entire McDonalds FDD or just the list of franchise owners (sold separately). See below for PayPal details.

Besides buying an existing restaurant, the other, (and according to McDonalds) infrequently used method is by obtaining licensing rights for a brand new McDonalds restaurant. This is an infrequently used way because: (a) most of the prime and secondary locations are already developed; and (b) with a new restaurant, McDonalds usually buys the land, builds the restaurant shell and leases the property to the franchise owner-operator over the twenty-year term of the McDonalds franchise agreement. Given this sizable investment, and the fact that McDonalds is investing in more lucrative, international markets, like Russian and China, getting a new U.S. McDonalds franchise doesn't seem very likely.

Let's consider these options in reverse order, since McDonalds provides few financial details on the first, most frequently used method of buying an existing McDonalds restaurant.

Per McDonalds, the factors impacting new restaurant costs are: size of the McDonalds restaurant facility, area of the country, pre-opening expenses, inventory, selection of kitchen equipment, signage, style of decor and landscaping. A detailed breakdown of the initial investment costs into discrete categories, including a working capital component, is provided in Item 7 of the 375-Page McDonalds FDD Franchise Disclosure Document.

Of the total investment for a new McDonalds franchise, an owner/operators must pay forty percent (40%) of the entire cost from liquid, personal assets and may finance the remainder from traditional lending sources. So, even if you are lucky enough to hit the low end on everything, you need at least $400,000 in liquid, personal assets and the ability to raise another $600,000 from lending sources.

"The purchase price of an existing restaurant varies and is dependent upon a number of factors including sales volume, profitablity, occupancy costs, reinvestment or improvement needs, competition and location."

To get a better handle on this statement, when "turnkey"(existing, for sale) franchises are sold in any industry (McDonalds included) most of the purchase price reflects the value of the business as a going concern with goodwill, a business generating (in the case of McDonalds) $X Million in sales and $Y six-figures in profits.

A typical McDonalds restaurant that's been operating for at least one year generated $2.3 million in annual sales in 2008, with profits in the low six-figure range. Based on my experience, I estimate the sales price of an existing McDonalds franchise (or company-owned restaurants sold as turnkey franchises) to be in the $2 million to $6 million range, plus or minus, depending on their sales, profit margins, historical trend, etc.

For existing turnkey franchises, twenty-five percent (25%) of the purchase price must come from liquid, personal assets and the balance can be financed from traditional lending sources. So, if you are buying an existing McDonalds restaurant for $4 million, for example, you will need $1 million in liquid personal assets and the ability to raise another $3 million to cover the total purchase price.

According to the McDonalds FDD Item 19, the average sales volume of traditional restaurants in the U.S. open at least one year was $2.3 million in 2008. The highest sales volume for a U.S. McDonalds in 2008 was $9.5 million (the "star" performer). The lowest performing restaurant clocked in at $491,000. Item 19 of the FDD goes on to list proforma financial results for restaurants that hit three different sales levels - $2 million, $2.2 million and $2.4 million, showing cost of sales, gross profit and operating profit at each level. Operating profits are in the mid six figures at each sales level.

Unlike other franchise companies with similar investment levels, McDonalds steps up to the plate and provides detailed franchise earnings information in Item 19 of its FDD. Other franchise companies, in comparison, "elect" to say nothing in Item 19, reminding one of the famous line in "The Treasure of the Sierra Madre," John Huston's 1948 classic movie: "Where are our badges? We don't need no badges. . . We don't have to show you no stinking badges.".

A word to the wise: insist on seeing their stinking badges. Jumping into a big, black financial hole never makes any sense, except to unscrupulous companies that are not as forthcoming as McDonalds when it comes to providing franchise earnings information.

Ready to get out your checkbook? Even if you are, there's a lot more franchise qualifications for obtaining a McDonalds franchise than just having the investment capital.

Step One - learn as much about the franchise program as you possibly can. The way to do this is by a careful review of the 375-page McDonalds FDD Franchise Disclosure Document, which you can obtain at best pricing on the net through our firm (see below).

Step Two - using what you have learned from the McDonalds FDD, print out (but don't send to McDonalds yet) the McDonalds Franchise Application form. Important: just download the McDonalds Franchise Application PDF file , then fill it in manually. Don't file the online application form with McDonalds. If you do, you'll be missing an important opportunity (see step 3). Next, proceed to step three, below.

Step Three - before submitting your franchise application, send your draft to me by email so I can review your application and help you fine-tune the information and narratives, based on my three decades of franchise industry experience with companies including McDonalds. That way, your franchise application will be submitted in the best possible way. This strategy will give you the best chance of standing out and competing against the many thousands of other franchise applications McDonalds receives.

You only get one chance to make a good first impression. A little fine-tuning of your McDonalds franchise application can go a long way towards making the best possible first impression.

The 375-page McDonalds FDD is a treasure trove of information about the the franchise program, relationship, the McDonalds investment, working capital, the intensive franchise training program, cost of sales, gross profit and operating profit of McDonalds franchises, etc. The FDD also contains 3 years of audited financial statements on the franchise entity offering McDonalds franchises and a 158-page list of McDonalds franchise owners - their names, store addresses and phone numbers. Also attached as an exhibit to the FDD is the actual 15-page McDonalds franchise agreement. The McDonalds franchise contract, which can be purchased separately, is a true work of art, significantly smaller (and fairer) than most other franchise agreements used in the franchise industry.

Our $180 price for the entire 375-page McDonalds FDD is also fair - less than fifty-cents a page and currently $40 to $50 less than what you will pay for the FDD using anyone else, including other FDD providers.

If you want to order just particular sections of the FDD, like Item 19 Financial Performance Representations or Item 7 Estimated Initial Investment or one of the exhibits to the FDD - like the actual 15-page McDonalds franchise agreement (makes one wonder why other franchise companies require 50-page or 100-page franchise agreements when McDonalds gets by with only a 15-page franchise agreement), the list of McDonalds franchise owners (name, address and phone numbers), the little-known McDonalds Franchise Rewrite Policy (what happens after your 20-year term is over? There is no automatic renewal option), email us for best on the net pricing information or visit the end of our Franchise Services Links page for individual PayPal options for particular sections of the McDonalds FDD.

The Rev. Joe Ratliff, Brentwood's Pastor, came up with the idea for the McDonalds at Brentwood. He took his brainstorm to Ernest Redmond, a Deacon at the church and owner of four McDonalds restaurants.

The two developed a business plan showing the closest McDonalds was three to five miles from the church, the traffic patterns in the community as well as the foot traffic at church. Every Sunday thousands of people flock to the church's three services. During the week, 700 to 1,000 people are present each night for Bible study, Boy Scout meetings, choir rehearsals, and other church functions. There is also a high school and an elementary school elementary school just two blocks from the church.

The business plan was presented to McDonalds corporate, and in May 1999, the church was given the go-ahead to build the franchise. The new restaurant and drive-through window was then allotted 3,000 square feet on the Church’s Learning Center's grounds.

A limited partnership between Redmond and the church was created. Redmond eased the approval process by using his existing McDonalds franchise license, and agreed to oversee management of the business. Men of the cloth and McDonalds – the Lord does provide.

The first McDonalds restaurant opened in Shenzhen, China in 1990. With it, China became the 53rd country to have a McDonalds outlet within its borders. Buoyed by the success of its Shenzhen restaurant, the second - a Mega-McDonalds with 28,000 square feet - opened in Beijing in April, 1992. It attracted 40,000 customers on opening day. McDonalds growth in China continued steadily and pervasively. In 2004, the Mighty Mac launched McKids in China, selling clothes, toys, games, DVD's and books throughout it's chain that had grown to 600 restaurants serving loyal Chinese residents. As of 2008 that number mushroomed to 960 McDonalds restaurants and over 60,000 employees, making China the largest growth market for McDonalds. The McDonalds strategic vision in China continues to focus on core menu extensions, convenience and value.

Check back for moe franchise updates and other details about a McDonalds franchise investment.

Locating A McDonalds Franchise
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The McDonalds Franchise Training Program
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Managing A McDonalds Franchise
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