Academic journal article ASBBS E - Journal

Franchisor Fees & Expense Requirements Base Lined to Mcdonald's Corporation

Academic journal article ASBBS E - Journal

Franchisor Fees & Expense Requirements Base Lined to Mcdonald's Corporation

Article excerpt

ABSTRACT

As individuals decide to open or pursue a small business, an important option available to most entrepreneurs involves whether or not to purchase a franchise. An increasing number of small businesses started during the last 30 years have involved some form of franchising. One major reason small business owners choose to become franchisees is these small business franchisees are able to operate as if they were much larger enterprises. As one analyzes franchises and franchise fees it appears there is a variety of similar fees and monthly expenses related to all franchised businesses. It appears, however, a large majority of potential franchisees are confused over what fees are actually required and what the various fees entail. It also appears a large number of franchise fees and monthly expenses are based on the McDonald's Corporation fee structure. Important franchising insights can be gained by analyzing the concepts employed by McDonald's with regard to fees and expenses as we accomplished in an earlier paper and presentation at the ASBBS Annual Conference in February 2011 (Volume 18, Number 1). Franchise fees, security fees, base rent fees, percent rent fees, service fees, and royalty fees, not to mention the various purchase cost options, all come into play when analyzing any potential franchise. Base lining any other food franchise to McDonald's can help potential franchisees identify potential issues. Hopefully, based on the earlier research of McDonald's fee structures, future conclusions can be made and comparisons of associated fee structures of other franchised companies can be analyzed and compared in a more enlightened manner. In this paper, we will be comparing fees of Burger King, Subway, KFC, and Chick-fil-A to McDonald's for base-line comparisons and discussions.

INTRODUCTION

Having limited funds available, combined with a lack of a complete understanding of franchise fees, can be a significant barrier to someone attempting to become a franchisee. Historically, financial resources for the individual entrepreneur have been obtained from various sources, such as immediate family members, relatives, or banks. Franchising serves as a financial resource multiplier, effectively allowing the entrepreneur to operate a small business with many attributes more often associated with much larger corporate entities. A thriving large franchisor corporation is able to offer its franchisees an extremely large reservoir of resources. A franchisor such as McDonald's serves as an excellent base line for comparisons of various other franchises with regard to fees and expenses. (Gerhardt, et. al., 2012) The retail service sector, especially the restaurant sector, has become one of the more recognized industries associated with the franchising form of business structure. Many such fast food franchising ventures have proven extremely successful. McDonald's has become the pinnacle of the fast food franchising industry sector and hence serves as an excellent base line for franchise fees and expenses. In this paper comparisons will be made of fees and expenses of Burger King, Subway, KFC, and Chick-Fil-A to McDonald's in order to look for significant deviations from the established base line and to make comparisons of franchise costs and expenses to determine actual bottom-line profits that may be realized. (Gerhardt, et. al., 2012)

THE MCDONALD'S FRANCHISING MODEL

When base lining a McDonald's franchise, there are a variety of terms and conditions that come into play with regard to individual store franchise fees. For each McDonald's restaurant, there is an operator's lease agreement with an assortment of stated fees and conditions "appropriate" to that specific restaurant. A portion of the table of contents from an Operator's Lease with various articles is shown as Table I. The Operator's Lease is a "legal" document signed by the franchisee that specifically states the rents and fees for that specific McDonald's restaurant. …

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