McDonald’s is a global fast food icon, with locations in over 100 countries – and more than 170 around New Zealand. So it makes sense that the popular golden arches attract people interested in franchise options, as well as hungry customers.
If you want to open a new McDonald’s location in New Zealand, you need to meet the company’s strict set of requirements to become a franchisee and have finances to fund the business costs. So, let’s take a look at how the process works.
How does a McDonald’s franchise work?
If you want to own a McDonald’s restaurant, you will need to apply to become a franchisee. A franchisee effectively purchases a licence from McDonald’s to use their branding, products and operational structure, and then runs the restaurant as their own business. While you do not have the autonomy you would get from starting your own fast food business, you receive comprehensive training, as well as ongoing marketing and business support, in return for ongoing franchise fees.
You have the choice of purchasing an existing McDonald’s franchise restaurant, or starting your own location, provided you are approved as a franchisee. McDonald’s franchise agreements are usually set for 20 years, and you will need to be fully committed to your restaurant during this time.
What do I need to become a McDonald’s franchisee?
McDonald’s has strict requirements when it comes to approving franchisees, and there are a number of criteria that you will need to meet to be considered as a McDonald’s franchisee. These include:
- Not having any other businesses or employment
- Being able to commit to a 12-month, full-time unpaid training programme (some of which is in Australia)
- Able to make a significant financial commitment (around $1.5 million in unencumbered cash funds)
- Willing to run a restaurant in any location in New Zealand
- Looking to make a 20-year commitment
- Previous business experience or a successful career.
How much does it cost?
Purchasing a McDonald’s franchise, either from an existing franchisee or by opening a new restaurant, requires a large investment.
The initial franchise fee is $75,000 plus GST; however, if the restaurant is purchased from another franchisee there is no franchise fee. There is also a $25,000 deposit, which is refunded when you leave the McDonald’s system (provided you have no outstanding debts).
You’ll also have to consider the cost of recruiting and training the crew and fitting out the restaurant.
Your initial costs will vary depending on if you are purchasing an existing franchise or starting a new restaurant, as well as the location of your franchise. However, you will need to cover the following costs as part of your investment:
- $75,000 + GST licence fee.
- $25,000 security deposit.
- $1,500,000 minimum of unencumbered funds.
Your initial costs will be provided in more detail in your disclosure agreement once you have found a suitable restaurant location.
McDonald’s charges a 4% monthly royalty fee on your restaurant’s gross sales, and you must also pay monthly rent and advertising fees, which are calculated as a percentage of your gross sales.
You will also need to cover rates and utilities, as well as operational costs such as payroll and stock.
Other things to keep in mind
McDonald’s requires all franchisees to maintain a debt to notional restaurant value ratio of 75% throughout their franchise term. This means you can only have outstanding finance up to 75% of your franchise’s value while you own it.
If you opt to purchase an existing restaurant from another franchisee, you cannot borrow more than 70% of McDonald’s valuation of the restaurant.
How do I finance a McDonald’s franchise?
Funding a McDonald’s restaurant requires a large upfront investment, and McDonald’s has specific criteria around how you can finance your restaurant. If you need access to funds, you can consider the following options:
|Secured business loan||A secured business loan requires that you use an asset, generally a commercial or residential property, as security against the loan. You will generally receive a lower rate with a secured loan, and are more likely to be approved than if you had no asset to use as security.|
|Unsecured business loan||If you don’t have access to an asset such as property, you could consider an unsecured business loan. Many online and alternative lenders may be willing to let you borrow up to $500,000 on an unsecured loan.|
|Business line of credit||Unlike a regular loan, a line of credit gives your business ongoing access to an agreed credit limit, which can be used as and when it is needed.|
How do I apply to become a McDonald’s franchisee?
McDonald’s has a six-stage selection process for choosing potential franchisees. These stages are:
- Phone interview
- Face to face interview
- Due diligence checks
- On the job evaluation
- Meeting with franchisees
- Interview with finance department
- Interview with senior leadership representative
- Panel interview with review board
- Registered applicant training programme
- Formal review after three months and ongoing reviews until completion
How do I apply for finance?
Once you’ve calculated how much you need to borrow to fund your McDonald’s franchise, you can compare business loans to find the right loan for you. You may also want to consider a franchise loan.
You will need to provide certain financial and personal information as part of your application. It’s important to make sure you meet all the lending criteria of a specific lender before applying. Make sure you provide all the necessary information to give yourself the best chance of being approved.