There are plenty of people who dream of owning a restaurant franchise one day, but you need to have plenty of capital if you want to purchase and start a restaurant franchise. At the same time, some franchises are more expensive than others, and some have more stringent requirements than others.
What is most expensive franchise? Take a look at the list of the most expensive franchises to open, and be sure to keep these factors in mind if you are planning on trying to purchase or start your own restaurant franchise.
What Are the Requirements To Purchase or Start a Restaurant Franchise?
If you are interested in becoming a restaurant franchisee, there are a variety of requirements to keep in mind. Remember that the exact requirements are going to vary depending on the exact franchise you want to open.
Some of the most common requirements that brands will have include:
Credit Check
Running a restaurant franchise is like running a business, and that means that you will have to have exceptional money management skills. That is why a credit check will almost always be a part of the process of applying to start a restaurant franchise.
While the minimum credit score will vary depending on the type of restaurant you want to open, you should expect to have a minimum credit requirement of at least 680. Keep in mind that you are entitled to at least one free credit report per year from each of the three major credit bureaus, so be sure to ask for that report regularly. There might be some mistakes on the credit report that you need to correct.
Your Net Worth
Because becoming a restaurant franchisee will require a significant upfront investment, your net worth will probably play a role in whether you can become a restaurant franchisee. While the application process will probably not ask for your specific net worth, they are going to take a deep dive into your assets to make sure you have enough money to not only invest in a restaurant franchise but also support the franchise once it gets going.
Available Cash and Capital
You will also need to have plenty of liquid cash on hand. What this means is that you may need to sell some investment vehicles if you want to free up some capital to become a restaurant franchisee. You will need to cover the startup costs associated with opening a restaurant franchise, or you will need to have a sizable down payment if you would like to purchase an existing restaurant franchise from someone else.
You may also want to have an additional source of income to support yourself and the restaurant until you can generate enough cash flow to cover the cost of operations.
Prior Experience in the Industry
Most restaurant franchises probably will not require specific experience in the restaurant industry, but if you have experience working in the restaurant industry, it will be beneficial. This doesn't necessarily mean that you have to have experience on the front lines of a restaurant, but as long as you have some experience in the restaurant industry somewhere, even on the corporate side, it should make it easier for you to have your application accepted.
Management Experience of Some Sort
Management experience is also important if you want to run a restaurant. While it is beneficial if you have run a restaurant in the past, management experience in another industry will also work well.
You will need to manage a lot of moving parts in a restaurant, including the corporate side, your individual employees, and customers who expect fast, reliable service. A skilled manager will be expected to multitask, delegate, deflect praise, and accept responsibility. If you can highlight your management experience when you apply to open a restaurant, it could go a long way toward getting your application approved.
Ongoing Expenses To Consider
Once you open a restaurant, there will be numerous ongoing expenses to consider as well. Some of the expenses you should budget for include:
Labor
Even though your multitasking capabilities might be impressive, you will not be able to do everything on your own. You will have to spend a significant amount of money to hire employees to cook your food, run the register, and clean the restaurant. If you want to hire motivated and talented employees, you will also need to provide competitive benefits. These all factor into your labor expenses.
Food
You will also have to pay for the raw ingredients you use to provide your patrons with meals. The exact cost of your food will vary depending on a number of market conditions, including the cost of transporting the food to your restaurant. You will need to plan for supply chain issues to arise from time to time.
Marketing
If you want people to show up and eat at your restaurant, they need to know that you are there. You will have to have a sizable marketing budget to run multifaceted marketing and advertising campaigns. You might even need to hire a marketing manager who can clearly specify why your restaurant is better than your competitors to attract patrons to your business.
Rent or Mortgage
You will have to pay for the commercial space you use to run your restaurant. Either you will have a recurring monthly rental expense, or you might have a mortgage that you need to pay. If you own the property outright, that could be a significant advantage, but it would also require more capital.
Utilities
Do not forget about the cost of your utilities as well. You will almost certainly have water, electricity, and internet bills that recur on a monthly basis. If you have cable TV in your restaurant, you will have to pay for that as well. If your restaurant runs on natural gas, you may have a separate gas bill as well.
Insurance
You will have a handful of restaurant insurance policies that you need to cover. For example, you will certainly need to have liability insurance that will protect your restaurant against a lawsuit. If you own your building, you will also have to have commercial property insurance. If you have expensive restaurant equipment, you may have additional insurance policies that cover them.
The Franchisee Fee
There are some brands that will charge a franchise fee. Sometimes, this fee is billed on a monthly basis. In other cases, it might be billed on an annual basis. Before signing up to become a restaurant franchisee, you need to know if there is a franchisee fee and, if so, how expensive the fee is.
When you want to open your own franchise, you need to plan for these expenses accordingly. That way, you can more accurately forecast your revenue and overhead expenses.
12 Most Expensive Restaurant Franchises
If you are interested in opening a restaurant, you might want to have a rough budget in mind before you apply to become a franchisee. Some of the most expensive restaurant franchises to open include:
1. KFC
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KFC is one of the most recognizable restaurant brands in the world, and that is why so many people are interested in becoming a franchisee. At the same time, opening your own KFC franchise is not a small endeavor.
You should expect your initial investment to be somewhere between $1.5 million and $3 million, which creates a significant barrier to entry. It is the second largest fast food chain in the world, behind only McDonald's, which makes it an attractive option for those looking to run their own fast food franchise.
2. Carl’s Jr.
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During the past few years, Carl's Jr has been consistently rated as one of the most stable entrepreneurial franchising options in the world. It serves a variety of milkshakes, sandwiches, chicken sandwiches, and hamburgers, making it a versatile restaurant chain.
Now, it has more than 3,100 locations scattered across the world, and there are many people who are interested in becoming a franchisee. To become a franchisee, applicants should expect to have approximately $1.5 million to $2 million available as an initial investment. The company itself generates approximately $523 million in annual revenue.
3. Denny’s
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Denny's is a popular sit-down restaurant that was founded in 1953. It is still headquartered in the small town of Spartanburg, South Carolina, but it has over 1700 locations scattered across the country.
This restaurant serves hamburgers, sandwiches, salads, and numerous breakfast favorites. While the restaurant menu prices might not be expensive, franchisees should expect to be asked for $1 million to $2 million to open their franchises. This cost can be prohibitive even for the most motivated managers.
4. Culver’s
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One of the most popular restaurant franchises is Culver’s. The restaurant chain was opened in 1984 in Wisconsin, and it has since spread across the entire country. It is consistently one of the highest-rated restaurants in terms of franchisee satisfaction, but it does require a significant investment.
Culver’s itself generates an annual revenue of approximately $3.2 billion dollars, but if you want to become a franchisee, you should expect a total investment of between $2 and $4 million, which is significant. The exact size of the initial investment can vary depending on your individual situation, but it is a significant financial commitment.
5. Dairy Queen
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Dairy Queen is a restaurant that is mostly known for its ice cream, but it serves a variety of other food items as well. The total startup cost to open your own branch is between $1.1 million dollars and $1.8 million; however, the franchise fee itself is about $45,000. Then, you will also have to cover royalty fees, which are 4 percent of gross sales, and a marketing fee, which can vary depending on the size of your restaurant.
6. Hardee’s
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Hardee's is one of the most popular fast-food restaurant chains in the South and Midwest, and it generates approximately $920 million annually. It was founded in 1960, but it is now owned by CKE Restaurant Holdings.
It has more than 5800 locations across the world, and those looking to open a franchise of their own should expect to be asked for an initial investment of between $1.5 million and $2 million.
7. Dunkin Donuts
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Dunkin' Donuts is easily one of the most recognizable donut shops in the world, but it does so much more than that. Dunkin Donuts coffee is also incredibly popular, and it is sold in grocery stores everywhere. Now, there are tens of thousands of Dunkin Donuts all over the world, and it generates hundreds of millions of dollars in revenue every year.
Dunkin Donuts franchisees should expect to invest between $400,000 and $1.5 million just to get the restaurant off the ground, depending on the menu items, equipment, and location of the restaurant. Then, with appropriate marketing, the store should generate plenty of customers.
8. McDonald’s
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McDonald's is the largest fast-food restaurant chain in the world, and the golden arches are instantly recognizable just about everywhere. Because McDonald's is so large, information for potential franchisees is generally more available.
The initial start-up costs are between $1.2 million and $2.2 million, depending on the size of the restaurant, where it is located, the type of kitchen equipment selected, the landscaping required, and the signage in the restaurant itself. Keep in mind that if the restaurant has to be built from the ground up, the costs may be more significant.
It is recommended that potential franchisees have $500,000 in liquid assets available, and the franchise fee is approximately $45,000. The monthly service fee that franchisees will pay to McDonald's is four percent of gross sales, and the average McDonald's does about $2.8 million in sales per year.
9. Burger King
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If you were asked to name a competitor to McDonald’s, you would probably think of Burger King. The franchise fee is $50,000 to open a Burger King, but the brand itself charges an advertising fee, which is 4 percent of gross sales, and a royalty fee, which is 4.5 percent of gross sales. The total cost to get a Burger King off the ground ranges between $1.9 and $3.3 million, depending on where the restaurant is located the equipment used, and the size of the restaurant itself. The average Burger King does about $1.4 million in sales.
10. Wendy’s
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Wendy's is another recognizable fast food restaurant, which is known mostly for its Frosty. At the same time, Wendy's also provides a variety of burgers and chicken sandwiches. The exact startup cost can vary widely from restaurant to restaurant, but there is a franchise fee of approximately $50,000.
There is also a recurring franchise fee. The advertising fee is 4 percent of gross sales, and the royalties charged are 3.5 percent of gross sales.
11. Taco Bell
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Taco Bell is probably the most recognizable fast-food taco chain in the world. While this is a great way to get customers in the door, it can also be expensive to become a franchisee. The total startup cost ranges between $1.2 million and $2.9 million, with the cost being significantly higher if you want to open a new restaurant.
It is recommended that you have approximately $750,000 in liquid assets if you want to become a franchisee, but the franchise fee itself can vary depending on whether you want a new restaurant or an end-cap restaurant. Taco Bell also charges a royalty fee, which is 5.5 percent of gross sales, and a marketing fee, which is 4.25 percent of gross sales.
12. Sonic
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Sonic is a restaurant known for its drive-up orders and the food that its employees deliver on roller skates. The startup costs are significantly lower if you want a non-traditional restaurant, but if you want to provide the full experience for your customers, the cost is significantly higher.
The franchise fee for a traditional unit is approximately twice that of a non-traditional unit. If you need to develop the land, you need to spend more money to purchase the land and then pay an additional development fee.
Sonic charges royalty fees that vary depending on your restaurant, but can go as high as five percent. Then, you will have to pay advertising fees, which are 3.25 percent.
This is just a brief overview of what to expect if you want to open one of these franchises. It is normal to have questions, and remember that these fees can change from time to time. You may want to reach out to the brand itself for more information.
Frequently Asked Questions
There are a variety of questions that people ask when they are interested in purchasing or starting a restaurant franchise. Some of the most common questions include:
1. How much does it cost to become a franchisee of a restaurant?
The exact cost of becoming a franchisee of a restaurant can vary depending on the type of restaurant you want to open and whether you want to purchase an existing restaurant or open a new branch. Some restaurants might only cost $100,000 to open, while others could cost more than a million dollars.
2. Is owning a restaurant profitable?
Opening a restaurant is like running your own business, so there is always a chance that the business itself could fail. If you decide to open a new franchise of a profitable restaurant brand, and you have managing experience, there is a significant chance of it becoming a profitable venture. On the other hand, there are a lot of unpredictable factors involved, such as economic changes and new competition.
3. What is the franchise fee and why do I have to pay one?
One of the major advantages you will have if you decide to become a franchisee of a large restaurant brand is that much of the marketing is already done for you. Because you don't have to do the work of acquiring a bunch of new customers, the brands will expect you to pay a franchise fee to become a member.
