Buying a McDonald’s Franchise
Investment Cost, Annual Sales and Financial Rresults
Getting the McDonald’s FDD
By: Kevin B. Murphy, Franchise Attorney, MBA - Mr. Franchise

Part 2   

Buying An Existing McDonalds Franchise

What about the most frequently used method of buying a McDonalds franchise - purchasing an existing restaurant from a current McDonalds franchise owner or one that's company-owned by McDonalds and sold as a "turnkey franchise"? Unfortunately, details about how much this type of McDonald’s franchise costs are not specified, other than the following statement: "The purchase price of an existing restaurant varies and is dependent upon a number of factors including sales volume, profitability, occupancy costs, reinvestment or improvement needs, competition and location."   

To get a better handle on this statement, when existing, "turnkey franchises" are sold in any industry (McDonalds franchises included) the purchase price reflects the value of the business as a going concern, generating (in the case of McDonalds) $X million in sales and $Y in profits. A typical McDonald’s restaurant that's been operating for at least one year produces over $2,000,000 in annual sales, with profits in the low six-figure range.

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 $5 million range, plus or minus. Twenty-five percent (25%) of the purchase price must come from liquid, personal assets and the balance can be financed from traditional lending sources.  

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

The McDonalds Franchise
Item 19 Financial Performance Representations

According to the McDonalds FDD Item 19, the average annual sales volume of traditional restaurants in the U.S. open at least one year as of 12-31-08 was $2,311,000 in 2008. The highest sales volume for a U.S. McDonalds in 2008 was $9,552,000 (the "star" performer). The lowest performing McDonalds clocked in at $491,000. Item 19 of the McDonalds 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. Unlike other franchise companies with similar investment levels, McDonalds steps up to the plate and provides franchise earnings information in Item 19 of its FDD.   

Getting the McDonalds FDD

If you would like a copy of the entire 375-page McDonalds FDD for 2009 (or just particular sections of the FDD, like Item 19 Financial Performance Representations or Item 7 Estimated Initial Investment) to review and get further information,  go to the  McDonalds Franchise page of the Franchise Foundations website.  

For an informative franchise article about the rise of the McDonalds franchise chain, go to our franchising articles page of the Franchise Foundations website. It includes details about the original owners, the McDonald brothers, and how they applied Henry Ford's assembly line production techniques to the burger business. Just by chance, they happened to meet Ray Kroc, who had the strategic vision to grow the business via franchising, something the McDonald brothers were not interested in pursuing. Kroc went on to build the McDonalds franchise empire. There's also information about McDonalds McCafe concept, started overseas and now storming the U.S. market. McDonalds is slugging it out with Starbucks and capturing critical market share.  

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For more information, visit the Franchise Foundations Website:
http://www.franchisefoundations.com/franchiseattorney.html  

© 1990-2008, Kevin B. Murphy, B.S., M.B.A., J.D. - all rights reserved

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