Owning a McDonald’s Franchise: Purchase Cost vs. Annual Profit

mcfranchise_logoDespite their negative media attention, the McDonald’s franchise that I drive past every day is packed all the time. I rarely eat there (especially since my diet bet), but I used to think to myself that if I were going to buy a franchise, I’d buy a McDonald’s. My impression was always that McDonald’s were always pretty clean with consistent food (even if you consider it consistently unhealthy), while Burger King’s were often dirty with inconsistent food.

A common knock against purchasing a franchise is that you are “buying a job”. A recent Businessweek article broke down the gross sales, gross profits, and net profits of the average McDonald’s franchise in the US. I found the numbers very interesting:


Average annual profit per franchise: $150,000 a year, roughly. Okay, but how much does this franchise cost? From the official McDonald’s franchise website:

Initial Costs
$45,000 Initial Fee paid to McDonald’s

Equipment and Pre-Opening Costs
Typically these costs range from $944,352 to $2,172,045. The size of the restaurant facility, area of the country, pre-opening expenses, inventory, selection of kitchen equipment, signage, and style of decor and landscaping will affect new restaurant costs. These costs are paid to suppliers.

Average cost of new franchise: At least $1 million roughly, with a minimum of $500,000 in cash and non-borrowed resources. Other sources state $750,000 minimum in liquid assets. You must be able to cover 40% of the costs of a new franchise location. You must be able to pay cash for at least 25% of the cost of an existing franchise, with the rest financed over at most 7 years.

Average hours of work per week as an owner/operator? I could not find reliable statistics, but here is an excerpt from a Reddit AMA from a businessperson from New Zealand who has owned a total of three McDonald’s franchises and recently sold the last one.

How much work was required of you per week on average? If my goal were to own one McDonalds and do the minimum amount of work possible, while also running it well, how low do you think I could get that weekly number of hours? And what would I be doing in that time?

I would work 9am – 5pm, 6 days a week. Mostly I’m at my office sorting problems remotely from there. I liked to pop down to my couple stores at least a couple times a day and check on them – make sure they’re clean, and to check on the Restaurant Manager about any issues. Typically I used to work hard for 4-6 hours a day, with the rest out in the stores just checking on them.

Exit / Selling price? One would imagine that if your franchise is doing well and churning out good numbers, someone else would readily buy it. If your business is struggling, then both your annual income and total business value will drop. The same Reddit user above reported selling for “just above” NZ $1.4 million, or US $916,000. I’m a bit confused by the purchase price, but it appears that he paid NZ $550,000 via business loan, 12 years ago.

In the end, owning a McDonald’s franchise is still a business which means you take on risk for potentially significant gains or losses. But if you spend 40 hours a week and only keep tabs on one location, it might really feel like you bought a job. These statistics help explain why most franchisees own multiple locations; Businessweek says the average is six.

Annual Income by College Major Ranked by Quartile and Percentile

Here’s another article about the relationship between college majors and future earnings. But this WSJ article at least looks beyond just providing the median wage and helps you visualize the spread between the 25th and 75th percentiles for each major:


There is also an interactive chart embedded in the WSJ article. For example, I could sort to find the top 10 majors according to their 25th percentile wage, imagining more of a worst-case scenario that just assuming I’ll get the median income or higher. Here are a few more nuggets that may surprise you:

Graduates of architecture programs may have higher salaries than teachers, as the latest paper shows, but the February report noted that they’re also likely to see unemployment rates twice those of education majors.

[…] just choosing a major in science, technology, engineering or mathematics, known as the STEM fields, doesn’t secure a hefty paycheck. Mr. Carnevale’s team found that biology majors have median annual wages of $56,000 over their careers from age 25 to 59, or about one-third less than physicists.

Yet once biologists finish graduate programs—and more than half of them do—their median annual earnings jump to $96,000, roughly on par with physicists who have advanced degrees.

There are also wide ranges in salaries for specific majors. The top 25% of earners who majored in finance can expect annual earnings of more than $100,000, while the bottom quartile may bring in just about $50,000 a year.

[…] lifetime earnings for economics majors at the 90th percentile are nearly triple those at the 10th, reflecting the range of destinations for such experts in government and the private sector.

I support the notion that prospective income shouldn’t be the only consideration in choosing a career, as I’ve tried working in decent-paying fields that don’t interest me and it just didn’t work out. However, money remains a factor and I like to have an idea of what the stats are.

Here’s another thing to consider: early retirement in under 20 years requires a 50% savings rate. Such a savings ratio is much more likely if you make twice the overall median salary with median spending (make $120k household income, spend $60k) as opposed to a median salary and half-of-median spending (make $60k household, spend $30k). Someone could start working at 21, retire by 40, and spend the rest of their life doing whatever job or activity they wanted to. Semi-retirement is another option.

Big List of Free Consumer Reports (2/2): See Your Confidential Housing, Insurance, & Employment Data

magUpdated for 2015! As these are available only every 12 months, it is a good idea to check them the same time each year.

Here is the second part of my big list of free consumer reports from over 50 different reporting agencies. The first part included your credit, banking, and subprime lending-related information. This part includes your housing, insurance, and employment history. Request your free copy of what these databases have stored about you and are telling prospective landlords, insurers, or employers.

Again, you may not need to check all of these, and many may not even have a file on you anyway. But for example if you are a renter then you’d want to make sure your rental history is clean and correct, because if I was a landlord I’d avoid anyone with previous blemishes on their record.

Rental History

Realpage Consumer Report. Provides tenant screening through their LeasingDesk product, including “the industry’s largest rental payment history database.”

CoreLogic SafeRent. SafeRent provides both tenant and employment screening data, including information regarding landlord tenant and criminal public court records. One free report every 12 months.

Experian RentBureau Rental History Report. “Every 24 hours, Experian RentBureau receives updated rental payment history data from property owners/managers, electronic rent payment services and collection companies and makes that information available immediately to the multifamily industry through our resident screening partners.”

First Advantage Resident History Report. Tenant and employment background checks. One free report every 12 months.

Contemporary Information Corp. CIC provides background checks on prospective tenants and/or employees and contractors for landlords and management companies. Keep records of any rental evictions.

Tenant Data. Provides tenant history reports, including any reported damages, unpaid balances, evictions, lease violations, noise complaints, or unauthorized pets.

Auto and Property Insurance

C.L.U.E. Personal Property Report. A division of LexisNexis, CLUE stands for Comprehensive Loss Underwriting Exchange, which collects information that is used to calculate your insurance premiums. This report provides a seven year history of losses associated with an individual and his/her personal property. Includes date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name. This also means you can find out about previous claims on the house you are currently renting or recently bought, even if they weren’t made by you.

C.L.U.E. Auto Report. This report provides a seven year history of automobile insurance losses associated with an individual. Includes date of loss, loss type, and amount paid along with general information such as policy number, claim number and insurance company name.

Verisk Analytics aka ISO aka A-PLUS Loss History Reports. ISO stands for Insurance Services Office, A-PLUS stands for Automated Property Loss Underwriting System. Auto and property loss claim history.

Insurance Information Exchange. Provide reports including your motor vehicle records and driver history, including any traffic violations or related criminal history. May require proof of adverse action to obtain free report.

  • IIX.com report request page
  • 866-560-7015


National Consumer Telecom and Utilities Exchange. NCTUE is a “membership of companies that provide services (telecommunication, pay TV, and utilities) […] to aid in risk mitigation.” Basically they track when people don’t pay their phone, cable, or utility bills. One free report every 12 months.

Medical History

MIB (previously known as Medical Information Bureau). Run by 470 insurance companies with a “primary mission of detecting and deterring fraud that may occur in the course of obtaining life, health, disability income, critical illness, and long-term care insurance.” They record information of “underwriting significance” like medical conditions or hazardous activities. If you have not applied for individually underwritten life, health, or disability income insurance during the preceding seven year period, then you probably don’t have a record.

Milliman IntelliScript. Tracks your prescription drug purchase history. “Milliman IntelliScript will have prescription information about you only if you authorized the release of your medical records to an insurance company and that company requested that we gather a report on you.”

OptumRX / MedPoint Health Report. Tracks your prescription drug purchase history. Now called OptumRX, formerly Ingenix.

Employment History

The following companies all offer background screening services for employers. Most will not have any information about you unless you authorized a potential employer to run a background check on you (probably during the application process). Some will not provide you information unless there was adverse action. Otherwise, you can get one free copy every 12 months.

The Work Number. (division of Equifax) They also keep historical income records.

Accurate Background, Inc.

American Databank, LLC.


General Information Services.

  • GenInfo.com report request page
  • 866-265-4917


Info Cubic.



Professional Screening & Information, Inc.

  • PSIBackgroundCheck.com report request page
  • 877-235-7574

SterlingBackcheck (formerly Sterling Infosystems)

Trak-1 Technology.

Verifications, Inc.

Reminder: Also see Part 1: Big List of Free Consumer Reports with Your Credit, Banking, and Payday Lending Data.

Sources: ConsumerFinance.gov, FTC.gov, AnnualMedicalReport.com, Wikipedia

Top 1% of Income at Age 30 = $135,000 a Year

I’ve never been into the whole 1% politicized debate, but Derek Thompson at The Atlantic has put out another chart that just begs for a glance.

The richest percentile of Americans makes many hundreds of thousands of dollars a year. So how could a $135,000 salary make you a one-percenter? If you’re 31 or younger, that figure puts you ahead of 99 percent of your age group.

Here’s what salary it takes to be in the top 1% (red) and 0.1% (blue) of wage and salary income, separated by age bracket.


Okay, so some people I know apparently were in the top 1%e at age 30. But as the author points out, the really rich don’t make their money from earned income, they make it from investment income. In other words, their money is doing the working, not them. However, that all likely started with someone (perhaps them, but perhaps a father or grandmother) deciding not to spend their salary on consumer goods and instead putting it towards an income-producing asset.

Remember kids, it’s not what you make that matters, it’s what you save! 😉

Math Skills + Social Skills = Higher Earnings $$$

Here’s one for the tiger moms and overachiever parents. From a recent post on the Harvard Business Review blog:

A recent paper from UCSB found that the return on being good at math has gone up over the last few decades, as has the return on having high social skills (some combination of leadership, communication, and other interpersonal skills). But, the paper argues, the return on the two skills together has risen even faster. […]

The analysis found that while math scores, sports, leadership roles, and college education were all associated with higher earnings over the 1979-1999 period, the trend over time in the earnings premium was strongest among those who were both good at math and engaged in high school sports or leadership activities. In other words, it pays to be a sociable math whiz, more so today than thirty years ago.


I suppose it’s interesting to see this supported by data, but my guess is that most STEM professionals would agree that interpersonal skills are just as important as technical skills today. Lots of people are strong technically. To really make the bucks you have to become a manager of people, and you can’t do that if you don’t have good interpersonal skills. I’m sure there are exceptions for start-up geniuses, but again those are exceptions and not the rule.

Math club and team sports it is for my girls!

Anthony Bourdain Quality of Life Quote

Good background and interview with writer/chef/professional traveler Anthony Bourdain in this Fast Company article. His TV show Parts Unknown is one of the few that I watch and the new season starts again soon. I especially enjoyed and am aligned with this quote about his lifestyle:

The one thing these projects all have in common? Bourdain enjoys them. “I’m not looking to rule the world,” he says. “I’m not looking to create a permanent brand. It’s a quality-of-life issue with me. Am I having fun? Am I surrounded by people I like? Are we proud of what we’re doing? Do we have anything to regret when we look in the mirror tomorrow? Those things are huge to me.”

His style is not for everyone’s tastes, but at least he keeps it his style.

Why Didn’t Technology Create a 4-Hour Workday?

Technology is supposed to make our lives easier over time, but what is the reality? We may not spend all day hunting and gathering anymore, but we still work similar hours to our great-grandparents. From the paper A Century of Work and Leisure [pdf] published in the American Economic Journal:

We find that hours of work for prime age individuals are essentially unchanged, with the rise in women’s hours fully compensating for the decline in men’s hours. […] Overall, per capita leisure and average annual lifetime leisure increased by only four or five hours per week during the last 100 years.

The following video by CGP Grey called Humans Need Not Apply methodically describes how robotic automation will soon make an additional chunk of people unemployable.

Horses aren’t unemployed now because they got lazy as a species, they’re unemployable. There’s little work a horse can do that do that pays for its housing and hay. And many bright, perfectly capable humans will find themselves the new horse: unemployable through no fault of their own.

If robots are doing all the work, shouldn’t that mean that the workers should be able to get by working less? Some people thought so. The famous economist John Maynard Keynes wrote in 1930 that “by 2030 he expected a system of almost total “technological unemployment” in which we’d need to work as few as 15 hours a week, and that mostly just to avoid losing our minds from all the leisure.”

That is taken from the Vice.com article Who Stole the 4-Hour Workday? (warning: other parts of this site may be considered NSFW), which discusses how the dream of a shortened workweek fell apart:

A new American dream has gradually replaced the old one. Instead of leisure, or thrift, consumption has become a patriotic duty. Corporations can justify anything—from environmental destruction to prison construction—for the sake of inventing more work to do. A liberal arts education, originally meant to prepare people to use their free time wisely, has been repackaged as an expensive and inefficient job-training program. We have stopped imagining, as Keynes thought it so reasonable to do, that our grandchildren might have it easier than ourselves. We hope that they’ll have jobs, maybe even jobs that they like.

The new dream of overwork has taken hold with remarkable tenacity. Hardly anyone talks about expecting or even deserving shorter workdays anymore; the best we can hope for is the perfect job, one that also happens to be our passion. In the dogged, lonely pursuit of it, we don’t bother organizing with our co-workers. We’re made to think so badly of ourselves as to assume that if we had more free time, we’d squander it.

The Vice.com article focuses on the idea that workers should organize and fight for their share of the benefits.

Instead, we see that the benefits of any technological advancement or increase in productivity has predominantly gone to the owning class (business owners, content owners, and corporate executives) as opposed to the working class. A thick, NYT bestselling economics book posits that when the rate of return on capital is greater than the rate of economic growth, the result is wealth inequality.

I certainly don’t know how this will play out. Will robots cause mass unemployment? Will we all have 20-hour workweeks with no pay cut? In the meantime, as an individual its seems wise to keep converting my excess work energy into ownership of assets. If all you do is work, get paid, and spend it all, then you may be stuck in the rat race indefinitely. A way out is to save a portion and buy some assets. Businesses, real estate, shares of common stocks. Or start your own business and/or create some assets.

Three Questions That Will Guide You Towards The Right Job

Even though your goal may be financial freedom, the journey to get there is going to involve some sort of work career. Find the right job, mix with frugality, avoid big mistakes, and you’ll be golden. But how do you find that right job?

I’ve previously shared this Venn diagram by Bud Caddell:


I also just ran across essentially the same concept but explained eloquently with words by author Jim Collins (via Farnam Street):

1) What are you deeply passionate about?
2) What are you are genetically encoded for — what activities do you feel just “made to do”?
3) What makes economic sense — what can you make a living at?

Those fortunate enough to find or create a practical intersection of the three circles have the basis for a great work life.

Think of the three circles as a personal guidance mechanism. As you navigate the twists and turns of a chaotic world, it acts like a compass. Am I on target? Do I need to adjust left, up, down, right? If you make an inventory of your activities today, what percentage of your time falls outside the three circles?

It can be very hard to find the intersection of all three, and no job will feel like that every day. But they aren’t yes or no questions. Instead, use these three factors as a guide to see if and how you are drifting away from your ideal job.

You might be doing something that you are good at, but you don’t really like. But is it simply unchallenging or does it eat away at your soul?

You might be doing something that makes good money, but you dread going to work every day. But can you change any of the offending aspects? (Switch managers, switch cities, switch departments?)

You may be doing something you’re passionate about, but nobody will pay you enough money to do it. Some people are okay with working forever and just getting by, given the right job. Others (like me) need the financial freedom as well.

If are too far from center, you are spending your days wasting your limited time and energy. Stop. Make a change. Live consciously. These days jumping from job to job no longer assumed to be negative. It may take a while, but repeatedly asking yourself these questions will hopefully keep your career moves in the right direction.

Infographic: Income for Maximum Happiness For All 50 States

You may have read that a Princeton University study by Deaton and Kahneman found that people were more satisfied with their life as their income rose, but only until about $75,000 a year. After that, higher income did not result in greater happiness. Doug Short of DShort.com extended this $75,000 number and adjusted it by the cost-of-living for all 50 states. The Huffington Post in turn converted that table into a nice pretty infographic map. I’ve mentioned this finding before and readers pointed out that $75k goes farther in some places compared to others, so it is shared below.


Money can only buy happiness up to a point. But just how much you need to get to that threshold really depends on where you live, according to a new analysis by Doug Short, vice president of research at investment group Advisor Perspectives.

Short’s analysis found that if you live in a place like Hawaii, where the cost of living is relatively high, a household needs to make $122,175 per year before some extra cash doesn’t really translate into more happiness. In Mississippi, by comparison, the threshold at which more money stops making you happier is a lot lower: $65,850 per year.

Of course, the next link on HuffPo was… More Money Always Leads To More Happiness: Study

Money is Independence.

flagAs we celebrate the anniversary of our nation’s Declaration of Independence, I wanted to quickly share this excerpt from an article The Millennial Definition of Success by Adam Nash, CEO of Wealthfront:

Increasingly, as I talk to Millennials, some of whom who have found early success in their careers, and others who are just starting out, I hear the same things. This generation overwhelmingly associates success with control over who they work with, and what they work on. […]

Wealthfront now has over 12,000 clients, and most of them are under 35. What I find striking is that, overwhelmingly, with every success in their financial lives, these young people seem to immediately focus on using their success to gain control over their careers. They don’t seek to optimize for title, or financial reward. Instead, they increasingly use their success to effectively fund the ability to work on a product they believe in, an organization they want to be part of, and a leader they want to follow.

I’m not even a Millenial and these attributes are not restricted to those born after 1980, but I think it is a good observation. Wealthfront is one of many automated portfolio management sites competing with each other, but I think their relative success is mostly due to the fact that they “get” young, smart, tech-savvy workers. (Not by accident they are often the ones with lots of money to invest.)

Perhaps money is better viewed as a tool than can help you now rather than a way to avoid being broke at some point far off in the future. Being wise with money gives you options. Money is freedom. Money is control. Money is independence.

Lessons from the First Jobs of Financial Gurus

Help Wanted SignChris Taylor of Reuters has been writing some mini-interviews about the first jobs of well-known finance gurus like Warren Buffett and Jack Bogle. They include newspaper delivery boys, retail stockboy, gofer, shoeshine boy, USPS mail sorter, bowling alley pinsetter, and soda pop vendor at baseball games.

The initial takeaway is that these are humble beginnings for people who ended up as rich and powerful. It made me think of my own first jobs as a restaurant worker and parking lot attendant. Does this mean we all have hope?

However, while working my minimum-wage jobs I also remember a lot of teenagers and adults being really bad at those entry-level jobs. Based on the short descriptions given in the Reuters articles, the people interviewed all displayed certain successful traits at their first job. Perhaps doing well at your first job requires most of the same basic skills that you need to succeed at future high-level jobs. I think these critical skills would include:

  • Reliability. I remember many people not showing up on time repeatedly, or even at all for their shifts. Charlie Munger lists reliability as one of the most essential traits for success. He explains that while something like quantum mechanics may be unlearnable by many, reliability can be learned by anyone. If you can master the ability to always be reliable, that alone can overcome many other disadvantages.
  • Persistence at trying to do your job well. You may not be very good at first, but if you keep trying and learning chances are you’ll get there. I recently heard an interview about chef Geoffrey Zakarian landed his first job with limited skills at the famous restaurant Le Cirque. How? He walked, asked, got denied, offered to work for free (!), got the job, and learned his way up starting with peeling potatoes.
  • Good (basic?) social skills. The other way that I’ve seen people mess up minimum-wage jobs is that they just can’t get along with people or control their emotions. They get into heated arguments with customers and/or coworkers, and either get fired or are just never seen again (disturbingly common). The current chairman and vice-chairman of Ariel Investments both started out working together as baseball stadium food vendors. Look at Warren Buffett and Charlie Munger, who met through common friends. Take advantage of any opportunities to partner with good people when you come across them.

How Spending Changes Throughout Working Life and Retirement

Common retirement planning advice tells you to plan on replacing 70-80% of your pre-retirement income. However, this Financial Post article argues that number may be closer to 35%. Article found via k66 of Bogleheads.

Essentially, the author segregates your income to “regular” spending and temporary “investment” spending that won’t continue into retirement. Regular consumption includes food, transportation, home and car maintenance, and insurance. Temporary spending include a mortgage, child-related costs, work-related costs, and retirement savings. The idea is that in retirement your house will be paid off and your kids will be financially self-sufficient, so those “investment” expenses will go away and you’ll need less money than you may think.

Here’s an illustration of how this would break down for a theoretical couple that bought a house at 30, had kids at 35, and retires at 65.

(click to enlarge)

Now, it’s easy to get hung up on how this chart doesn’t accurately reflect your life. It’s not supposed to! Instead, imagine for yourself what this chart might look like for your situation. For example, my parents definitely kicked up their savings rate post-kids and pre-retirement. For us, we had our highest savings rate pre-kids. You may need 20% of your current income, or you may need 80%. This is one place where a rule-of-thumb just isn’t useful.

I would note that the article doesn’t really mention health insurance or other health-related costs, possibly because it is a Canadian newspaper. Also, young people in the US probably spend at least a few years paying down college loans. Finally, some folks will need to account for new post-retirement spending that might pop up like travel and other costly recreational activities.