In 2016, Michael Keaton portrayed Ray Croc in a movie titled, “The Founder.”
McDonald’s is a household name. And the inspiration fueling many franchise owners.
After all, who doesn’t want to obtain that level of success?
But starting off, the ideal first step is to be realistic. Learn how much franchise owners make.
Then start down the path of your own McDonald’s story!
Factors Influencing Franchise Profitability and Salary Range
Every entrepreneur wants a profitable business. Or else they’d probably still be an employee somewhere.
But basing your hope off the top food franchises for example, isn’t the wisest course. Because they represent the 20% of leading performers.
And starting out, you’ll be in the other 80%.
Don’t get me wrong. Many food franchises do well and deliver a nice return. And even slightly higher profitability above the average is great.
However, a more realistic approach is advised.
Then, if you join the ranks of profitable franchises later, all the better! Call it a bonus.
Whether you operate one of America’s food franchises or small coffee chains, there are general influences on your success.
Effects Upon Your Initial Investment
Factors that affect your potential profitability:
- Franchisor quality
- Customer churn
- Inventory management
- Employee turnover
- Location of your store(s)
Even with a solid reputation, your food franchise should strengthen customer loyalty. Think about getting involved in local community events, sponsoring a team, etc.
Minimize costs by turning over your inventory at a realistic rate. You could learn from trial and error. Or simply talk to other franchisees about their strategies.
In-N-Out is a good example of hiring staff that will stick around and increase customer retention. Happy employees lead to happy buyers.
Finally, your location selection contributes to a profitable franchise. Look for a highly trafficked area. Such as a lot directly off the freeway.
Don’t worry, we’ll get to the fun stuff soon. But we want you to have all the facts first.
Challenges of Franchise Investment
I want to quickly highlight a few issues prospective franchisees consistently talk about:
- Confusing franchise disclosure document (FDD)
- Major time investment with this business model
- Trouble sustaining the brand
The franchise disclosure document does have a section that will reveal past financial performance. Don’t breeze past it.
A better idea is to carefully review so you can make more accurate business projections. It won’t provide enough to make long-term financial projections. But it’s a start.
Having reviewed countless franchise disclosure documents at my firm, I’m happy to assist as well.
Being your own boss is a nice perk. The tradeoff is required time investment opportunities.
Even as a new business with a single location, expect late nights and weekends.
Lastly, buying a franchise gives you instant brand recognition. And most franchisors turn out to be great mentors.
But some franchisees experience a less involved owner. If so, establish solid relationships with current franchisees.
Now we can look at the real reason you’ve read this far. Cash.
How Does a Franchise Owner Get Paid?
Time to answer the million-dollar question you’ve been waiting for.
As a franchise owner, you can start paying yourself a salary:
- After startup costs are taken care of
- Once your business generates profits
Please note that most business owners won’t collect a paycheck until year two or three. When they have a positive cash flow.
Reach your financial goals sooner by choosing franchise opportunities with high top-line revenue and low overhead costs.
How Much Can You Make a Year Owning a Franchise?
A new franchisee must first recover their initial investment.
Your net income is calculated after deducting:
- Business taxes
- Food costs
- And other expenses
Food franchise owners earn between $40,000 and $70,000. Less established brands may offer less. More in the $10,000 – $30,000 range.
As many franchisees learn, no two owners will have the same revenue or same expenses. But this is a good estimate.
Average Salaries and Potential Earnings
A survey from Franchise Business Review found the average salary franchise owners earn is $80,000.
This financial performance can be a bit misleading until we remove the top 20% of franchisees. Equaling the average annual income of less than $50,000.
I’d like to share another interesting statistic. 21% of your opportunities are in the quick-service restaurant industry.
- McDonald’s franchises
- Burger King
- Dunkin Donuts
On the high end, the average franchise owner at a McDonald’s location can have a startup cost of one million dollars. But they see an average income of $82,000 a year.
Where can you find average revenue in your FDD?
Item 19 will notate past financial performance. This should help guide your forecasting.
Before we wrap up, I’d like to answer one more question.
Can You Make a Living Owning a Franchise?
Multi-unit owners are models for most potential franchisees. That’s the level they aspire to reach.
However, there are a few other ways to make a good living as a business owner:
- Vending or ATM franchise
- Working out of your home
Lower startup costs and overhead allow ATM owners to increase their annual income faster. Because they don’t have employees, more revenue stays in their bank accounts.
If you’re a potential franchisee in carpet cleaning for example, a home office is perfect.
Your utility bill will go up. But you can deduct a percentage as a business expense during tax season.
The alternative? A 250-square-foot office space would cost you an average of $2,500 per month. Reinvesting that in technology or advertising should help your bottom line.
To conclude, hard work can lead to a comfortable living down the road. And there’s another human variable to increase those odds.
Reidel Law Firm Safeguarding Franchise Owners
How much do franchise owners make?
There are some factors outside of your control. But the ones that are within your power are determination and wise decision-making.
Speaking of making good decisions.
As experts in franchise law, we can help you handle the legal aspects of any issues as a new franchisee.
In addition, our legal team can advise you on ways to shore up gaps in the following areas:
- Review personal guaranty and real estate control docs
- Franchisee formation, guidance, and asset protection
- Franchise operating compliance audit and coaching
By effectively managing risk and maximizing opportunities for businesses we answer the needs of our clients wherever and whenever they arise.