When you think of popular franchises you most likely think of fast food restaurants. Some of the most profitable and longest standing franchises in the United States are fast food restaurants such as McDonalds, Burger King, Wendy’s, Taco Bell and KFC. While these restaurants sell relatively cheap food, becoming a franchisee of these restaurants is a large financial undertaking.
How much does it Cost to Open a Franchise?
For example, McDonalds, the world’s largest franchise network, requires a significant investment from its franchisees. According to its website, McDonalds requires an initial down payment of 40% of the total cost of a new restaurant or 25% of the total cost of an existing restaurant. This down payment must come from non-borrowed, personal resources such as cash, bonds, or business equity. While the exact amount varies from restaurant to restaurant, McDonald’s estimates that the average minimum liquidity that a franchisee must have is $500,000. In addition to this down payment, franchisees are required to pay a monthly base rent and a monthly fee based upon the restaurants sales.
Another popular franchise has an even higher barrier to entry. Wendy’s, which was recently awarded top fast food restaurant, requires it franchisees to have a substantial amount of capital. To be considered for a Wendy’s franchise location you must have a minimum net worth of at least $5,000,000 and minimum liquid assets of at least $2,000,000. This does not even begin to include the additional fee requirements such as a $40,000 franchise fee. Overall, Wendy’s estimates that the total investment required to begin operation of a new restaurant ranges from $2,000,000 to $3,500,000. While this is a huge financial undertaking, Wendy’s, as well as other fast food franchises, provide a great deal of support to its franchisees such as training, marking, quality assurance, and advisory councils.
What are the Best Franchises to Buy?
There are many factors that go into deciding what franchise to purchase, including cost, royalties, fees, and standards. Accordingly, the “best” franchise will be a personal decision. However, looking to only the growth rate, Forbes assembled a list of the “best” franchises for 2019.[1] These franchises included high investment options, such as Freddy’s Frozen Custard & Steakburgers, medium investment options, such as Nothing Bundt Cakes or Jimmy John’s, and low investment options, such as MaidPro.
When you are deciding which franchise to purchase look not only to the potential profit, but to a variety of components such as the assistance the franchisor will provide. Being a franchisee can be a very lucrative endeavor but always ensure you consult an experienced attorney to review your franchise documents and tell you exactly what you are buying.
[1] https://www.forbes.com/sites/karstenstrauss/2019/06/19/best-worst-franchises-buy-own/#29b804fb7d79
