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I’m rather obsessive in terms of following latest news in the wonderful world of franchising. Among the stories that I am focused on lately may be the McDonald’s one. If you are thinking of becoming who owns any franchise someday, there’s a significant lesson within what’s currently going on with this fast-food giant.
You can say for certain what’s happening with McDonald’s franchisees, right?
McDonald’s Franchisees Are McFuming Franchisees of the second-largest fast-food chain on earth say McDonald’s corporate is targeted a significant amount of on pleasing Wall Street and it’s really causing their profits to suffer. The franchisees feel the business is charging them a significant amount of to use their restaurants, citing rising charges for rent, remodeling, training and software.
Now, before you begin feeling sorry for McDonald’s franchisees, there’s a thing that I need to explain. It revolves around money. A lot of money.
Super-Sized Capital Requirements Not only anyone may become an owner of a McDonald’s restaurant. There are particular "qualifications."
I’ll focus on one of these as it pertains to this article: You should be a millionaire.
That fact alone disqualifies the majority of today’s prospective franchise owners. Put simply, you must have access to capital; plenty of capital. You will need it before and once you open your franchise.
If you wish to buy a whole new McDonald’s franchise on the market, you’ll need to develop 40% of the full total cost-upfront. However your money can’t result from just anywhere. For instance, you can’t utilize your home equity credit line or use any other type of borrowed resources to cover your franchise business. Startup funds have to come from your money readily available, stocks or bonds – things of this nature. Basically, you will need around $750,000 of non-borrowed resources to even be looked at by the McDonald’s franchise development department.
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As well as the super-sized upfront investment, McDonald’s franchisees pay what exactly are called "ongoing fees" on rent, remodeling and other expenses connected with maintaining their business. Those fees can easily add up, particularly when it involves rent. That’s because rent is founded on sales. Previously, McDonald’s franchisees have paid around 8.5% of their store sales in rent.
If an individual McDonald’s franchise does $2 million a year in sales that could imply that the franchisee will be paying corporate $170,000, or $14,166 per month, in rent predicated on the 8.5 % rate. Then McDonald’s adds on a "service fee." That’s another 4% of sales – or $80,000 a year – that the franchisee pays out. So, approximately $250,000 is paid (to corporate) annually by one franchisee doing $2 million a year in sales.
What’s the Beef? Some franchisees are paying a lot more than 8.5% of annual store sales in rent, according for some of the reporting that I’ve seen. Not merely are higher rents hurting their bottom lines, they’re also forcing some franchisees to carry through to expensive remodeling programs.
Adding salt to the wound is a thing that every small business operator in America is wanting the wrap their arms around: the Affordable Care Act. Small-business owners, including McDonald’s franchisees, are scrambling to find methods to pay for the brand new mandates help with by the National government. Most likely, franchisees will have to spend more for his or her employees’ healthcare costs.
Related: The Fastest-Growing Global Food Franchises
On a positive note, the NATIONAL GOVERNMENT announced that it’ll delay collecting fines on the employer mandate for businesses with 50 or even more full-time or full-time equivalent employees until 2015. Small-business owners will have a little more time to determine the easiest method to implement Obamacare.
There’s a significant Lesson Here Franchisees aren’t in charge of the big stuff.
While it’s true that running a franchise offers a whole lot of freedom, particularly when compared to doing work for someone else, you will find a rule book – and it’s really compiled by the franchisor.
Observe that I didn’t write that the rule book is compiled by the "evil" franchisor. The guidelines that are put set up aren’t designed to upset you. The guidelines, which are organized in the 300 page operations manual, and in the 20+ page franchise agreement, are what make the business enterprise a franchise business. They’re designed to keep everything consistent through the entire franchise system. They help fortify the brand. And, they’re designed to help your business succeed.
McDonald’s franchisees are allowing it to be known that they are not happy with a number of the rules. Maybe are going to able to get some good concessions. Keep tuned in.
In the event that you end up being the owner of a franchise, prepare yourself to follow the guidelines. Get ready never to like many of them. Incomparable the ups and downs. Prepare yourself to be an owner.
Remember that you’re not altogether control.
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