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Tony's Tip of the Month! - OCT '11


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COST TO BE THE BOSS

-PART 2-

It's good ol' McDonald's!

Did you guess correctly?

From McDonald’s website, here are some of the key issues you will have to face.

Most Owner/Operators enter the System by purchasing an existing restaurant, either from McDonald’s or from a McDonald's Owner/Operator. A small number of new operators enter the System by purchasing a new restaurant.

The financial requirements vary depending on the method of acquisition.

Financial Requirements/Down Payment:

An initial down payment is required when you purchase a new restaurant (40% of the total cost) or an existing restaurant (25% of the total cost). The down payment must come from non-borrowed personal resources, which include cash on hand; securities, bonds, and debentures; vested profit sharing (net of taxes); and business or real estate equity, exclusive of your personal residence.

Since the total cost varies from restaurant to restaurant, the minimum amount for a down payment will vary. Generally, we require a minimum of $500,000 of non-borrowed personal resources to consider you for a franchise. Individuals with additional funds may be better prepared for additional or multi-restaurant opportunities.

Financing:

We require that the buyer pay a minimum of 25% cash as a down payment toward the purchase of a restaurant. The remaining balance of the purchase price may be financed for a period of no more than seven years. While McDonald’s does not offer financing, McDonald’s Owner/Operators enjoy the benefits of our established relationships with many national lending institutions. We believe our Owner/Operators enjoy the lowest lending rates in the industry.

Ongoing Fees:

During the term of the franchise, you pay McDonald’s the following fees:

  • Service fee: a monthly fee based upon the restaurant’s sales performance (currently a service fee of 4.0% of monthly sales).
  • Rent: a monthly base rent or percentage rent that is a percentage of monthly sales.

If you’re still in the game after hearing all that, I’d like to discuss some of the pros and cons of having your own business.

PROS:

  • You have the chance to make A LOT more money than you can make working for someone else.
  • You'll be your own boss and make the decisions that are crucial to your business' success or failure.
  • You'll have job security — no one can fire you.
  • You'll have the chance to put your ideas into practice.
  • You may participate in every aspect of running a business.
  • You'll learn more about every aspect of a business and gain experience in a variety of disciplines.
  • You'll have the chance to work directly with your prospects.
  • You'll have the personal satisfaction of creating and running a successful business.
  • You'll be able to work in a field or area that you really enjoy.
  • You'll have the chance to build real retirement value (for example, by selling the business when you retire).
  • You'll have the chance to put down roots in a community and to provide a sense of belonging and stability for your family.

CONS:

  • You may have to take a large financial risk.
  • You will probably have to work long hours and may have fewer opportunities to take vacations.
  • You may end up spending a lot of your time attending to the details of running a business and less time on those things you really enjoy.
  • You may find that your income is not steady and that there are times when you don't have much income coming in at all.
  • You may have to learn many new disciplines, such as filing and bookkeeping, inventory control, production planning, advertising and promotion, market research, and general management.

Special pros and cons of the home-based business:

  • Your startup costs will be lower.
  • Your operating costs will be lower than they would if you were renting space and paying utilities.
  • Your commute will be shorter.
  • If your location is unimportant to your business, you can theoretically live anywhere and still operate your business.
  • You may be more flexible in your schedule if your business can be conducted at your convenience or outside "normal" weekday business hours.
  • On the other hand, you're much more vulnerable to interruptions from family members, neighbors, and door-to-door salespeople.
  • You may have an image problem, although with the growing popularity of home businesses, that's less common.
  • You may run out of space at home if your business grows.

With all these hoops to jump through, it’s no wonder that most of us can’t buy into a franchise and the majority of us are out of this game. With the pros and con s of starting your own home based business, I still believe it’s the only way to go.

You have choices. You can do what you’re doing, and if that works for you, and you’re satisfied, fine. But if you’re looking for a premier alternative to the daily grind, and you believe in yourself and your ability to produce, the positive aspects of “The Cost to be the Boss” may be within your grasp.

boss

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