Should I open or buy a McDonald's franchise in 2027?

The buyer who almost pulled the trigger

Picture a candidate who looks perfect on paper. Forty-two years old, twelve years running a six-store Panera franchise organization as Director of Operations, $1.1 million in liquid assets after selling a rental portfolio, clean credit, no litigation, a spouse who has already agreed to the two-year grind. He finds an existing McDonald's for sale in a second-ring suburb doing $3.0 million in annual sales. The selling operator wants six times trailing EBITDA.

Run the math the way a lender runs it. At a 12% EBITDA margin, that restaurant produces about $360,000 in cash flow before debt. Six times that is a $2.16 million asking price. McDonald's USA structures existing-restaurant acquisitions at roughly 40% cash down with the balance bank-financed on a term generally capped around seven years — so he writes a check for about $864,000 and borrows $1.296 million. At 9% over seven years, debt service lands near $208,000 annually. That leaves about $152,000 in pre-tax cash flow for a buyer who just deployed nearly nine hundred thousand dollars of his own money and committed to a personal guarantee.

Now stress it. Same-store sales drop 3% the year after the transfer — a common post-transfer pattern when the departing operator's long-tenured general manager leaves with them. Sales fall to $2.91 million, EBITDA falls to roughly $349,000 at a flat margin, but margins rarely stay flat during a management transition, so call it 11% and $320,000. Debt service is fixed at $208,000. He is now at $112,000 in cash flow, and if the restaurant is due for a mandated remodel he is writing capital checks out of that same $112,000.

The version of this deal that works is the same restaurant purchased at 4.5 to 5 times trailing EBITDA. At five times, the price is $1.8 million, cash down is roughly $720,000, the loan is $1.08 million, debt service falls to about $173,000, and Year 1 cash flow sits near $187,000 with a materially thicker cushion under a bad quarter. The entire difference between a good McDonald's deal and a bad one frequently comes down to one turn of EBITDA on the purchase multiple. That is the frame for everything below: this is not a question of whether McDonald's is a good brand. It is a question of entry price, capital structure, trade-area labor law, and whether you intend to stop at one.

Most people asking whether to open or buy a McDonald's franchise in 2027 are actually asking two separate questions bundled together — can I get approved, and will the unit economics support the debt I need to get in. The approval question has a hard, published answer. The economics question depends almost entirely on decisions you make before you sign anything.

How the McDonald's franchise structure actually works

McDonald's is not a conventional franchise where you pay a fee, follow a playbook, and keep what is left. It is fundamentally a real-estate business layered on top of a restaurant business, and understanding that changes how you read the P&L.

Corporate owns or controls the underlying real estate at the overwhelming majority of US locations. You do not buy the land or the building. You lease the site from McDonald's, and the rent is structured as a percentage of gross sales rather than a flat monthly figure. The Franchise Disclosure Document discloses that percentage rent as a wide band, and the site-specific rate is set per location based on what corporate paid for the property and what the site is worth. This single line is usually the largest fixed-cost item on a McDonald's P&L — larger than royalty and advertising combined — and it is the item most new candidates fail to model correctly, because they anchor on the royalty rate they have seen in franchise comparison articles.

The fee stack works like this. The initial franchise fee is $45,000, which is nearly irrelevant against a seven-figure entry. The service fee (royalty) runs 5.0% of gross sales on agreements written since the 2024 increase — the first change to that rate in roughly three decades. The advertising contribution runs about 4.0% of gross sales across national and local co-op spend. Then percentage rent sits on top. Add those together and a meaningful share of every dollar that crosses the counter leaves before you touch food or labor.

The approval path is the second structural feature people underestimate. You submit as a registered applicant, pass a background and financial screen validated by a CPA letter confirming your liquid assets, and then enter an extended in-store training program that runs well over a year in most cases and is unpaid. You are working shifts. You are learning the operating system from the fry station up, regardless of how many restaurants you have run elsewhere. Only after that do you receive an approval letter that makes you eligible to be matched with a restaurant — either an existing store coming available for transfer or a new-build site the field office has approved.

McDonald's holds a right of first refusal on resales, disclosed in Item 17 of the FDD. That matters more than it sounds. It means the market for existing restaurants is not open — you cannot simply outbid everyone for the store you want. Corporate has a say in who gets it and at what price, and it frequently steers restaurants toward operators it wants to grow.

Read the diagram as a filter, not a funnel. Each gate removes candidates for a different reason — the financial screen removes the under-capitalized, the training program removes people who cannot leave their current income for a year-plus, and the matching step removes people who are not geographically flexible. McDonald's expects owner-operators to live close enough to their restaurants to be in them regularly, which structurally excludes passive investors. If your plan is to buy a McDonald's and hire someone to run it while you keep your day job, stop reading. That is not a permitted structure.

The numbers you should be modeling

Start with revenue. Median average unit volume for a US traditional McDonald's sits around $3.625 million based on 2024 industry reporting. That is a median, which means half of all restaurants are below it. Do not model the median for a specific store — model the actual trailing twelve months of the actual restaurant, and then pull the prior thirty-six months to see the trend. A store at $3.6 million and rising is a fundamentally different asset from a store at $3.6 million and falling 4% a year.

The FDD's Item 19 discloses financial performance in tiers rather than as a single average. The disclosure has shown a top tier producing operating income before occupancy costs above $879,000 per restaurant, with a substantial share of the system landing above that figure. The phrase "before occupancy" is doing enormous work in that sentence — occupancy is the percentage rent line, and it is what converts a healthy-looking operating income into a modest net.

Here is a clean cost stack to model for a $3.6 million restaurant in a moderate-wage market:

• Food and paper: 32% to 35% of sales. This has moved up meaningfully from the 29% to 31% range that prevailed before the 2024 commodity run. Beef is the driver, with cheese and packaging contributing.
• Crew labor: 24% to 28% of sales in the Southeast and Texas. In markets with QSR-specific wage floors, budget 28% to 34%. California's fast-food minimum under AB 1228 set the template at $20/hour and several other states have moved toward sector-specific minimums.
• Service fee: 5.0% of gross sales on any new or transferred agreement.
• Advertising: approximately 4.0% of gross sales.
• Percentage rent: site-specific, disclosed in the FDD as a wide range, and often the single largest remaining line.
• Controllables — utilities, maintenance, insurance, supplies,管理 salaries: typically 8% to 12%.

Stabilized EBITDA margins commonly land between 12% and 16% of sales before the rent line, and single digits after it in higher-rent sites. On $3.6 million, a 12% margin is $432,000 and a 16% margin is $576,000. That is the number a purchase multiple gets applied to, and it is the number your debt service comes out of.

Debt structure. McDonald's expects roughly 40% cash down on an existing restaurant acquisition, with the remainder financed on a term generally capped near seven years. Seven years is short for this asset class — an SBA 7(a) on a comparable business often stretches to ten — and the short amortization is what makes McDonald's debt service so heavy relative to cash flow. On a $1.3 million loan at 9% over seven years, you are paying roughly $208,000 a year. Over ten years the same loan would run about $198,000 — wait, that is not right; over ten years at 9% it is roughly $164,000 a year. The three-year difference in term is worth about $44,000 of annual cash flow. Ask every lender whether any portion can be termed longer.

New-build economics differ. The FDD's Item 7 total initial investment for a new restaurant has been disclosed in the range of roughly $1.47 million to $2.73 million. That number does not include land, because you are not buying land. It covers equipment, signage, seating, décor, opening inventory, and the initial fee. New builds run on a construction timeline commonly in the 24-to-30-month range from site approval, during which your capital is committed and producing nothing.

Then there is ongoing capital expenditure, which is the line most first-time franchise buyers omit entirely. McDonald's mandates periodic reimaging and technology investment on a corporate-determined schedule. Remodel programs have run in the $500,000 to $1.5 million range per restaurant depending on scope and site. Digital and automation deployments — kiosk hardware, drive-thru technology, labor-forecasting systems — have run in the $40,000 to $120,000 range per restaurant, with payback typically measured in a couple of years through reduced labor hours. When you buy an existing store, ask exactly where it sits in the remodel cycle. Buying a restaurant one year ahead of a $900,000 mandated remodel is buying a $900,000 liability you did not price.

Payback on cash equity commonly runs five to seven years for a single unit. That is the honest headline. You are putting in $700,000 to $900,000 and getting it back over most of a decade while working the hours of two jobs.

Trade-offs, alternatives, and what you are actually buying

The trade-off at the center of this decision is brand-strength-for-margin. McDonald's delivers traffic that no independent operator can replicate — a $3.6 million median AUV is extraordinary for a quick-service box, and it comes from decades of brand equity, national advertising, and site selection you did not have to do. In exchange, you surrender the real estate upside, accept a percentage-rent structure that scales your largest cost with your success, and operate inside a system that dictates your remodel schedule, your technology stack, and your menu.

An independent quick-service concept flips every one of those. All-in cost for a freestanding burger or chicken concept can run in the $400,000 to $900,000 range. You pay no royalty, no advertising contribution, and if you negotiate a flat commercial lease, your occupancy cost does not rise with sales. But your AUV is a fraction of McDonald's, your traffic depends entirely on your own marketing, and your exit multiple is typically lower because a buyer is purchasing your operating skill rather than a brand.

Between those poles sit the other franchised brands. Culver's has been disclosed in the roughly $2.0 million to $5.6 million total investment range with a franchise fee near $55,000 and a royalty near 4%, and its AUV has been reported near $2.9 million. That is a meaningfully lower royalty than McDonald's 5%, a faster path from approval to opening, and a culture many operators describe as more collaborative — against a lower AUV and less brand density outside its core Midwest footprint.

Chick-fil-A is not a comparable path despite superficially similar numbers. The $10,000 fee is real, but Chick-fil-A retains the real estate, the equipment, and a large share of profits, and operators are generally limited to a single restaurant. Reported per-restaurant operator income can be strong on very high AUVs, but the acceptance rate is far more selective than McDonald's and the model builds no transferable equity — you cannot sell a Chick-fil-A operator agreement to anyone.

Raising Cane's is company-operated and not franchised to outside investors at all. If someone offers you a Raising Cane's franchise, you are being defrauded.

The consolidation play deserves consideration. Several legacy quick-service brands — Wendy's, Burger King, Jack in the Box among them — have seen franchisee-level distress and consolidation, and distressed franchisee acquisitions in those systems have traded at lower EBITDA multiples than McDonald's. AUVs are lower, typically in the $1.6 million to $2.4 million range, but so is entry cost, often $600,000 to $1.5 million all-in. If your thesis is "I am an excellent operator and I can fix a broken store," that thesis pays far better on a cheap multiple than on a McDonald's premium.

One structural note on the multi-unit path, because the arithmetic gets misquoted constantly. A three-to-seven-restaurant organization does not simply multiply the single-unit figure. You add a Director of Operations salary, you add above-store administrative cost, and you carry debt on multiple acquisitions simultaneously. What multi-unit buys you is not linear scaling but leverage over fixed costs and a bookkeeping, purchasing, and management layer that a single store cannot support. Owner take-home across a mature multi-unit organization has been reported in the $500,000 to $2 million-plus range, and getting there takes most of a decade of sequential acquisitions, each one requiring fresh cash down.

Where these deals go wrong

Overpaying on the multiple is the number one killer, and it is the one entirely within your control. The gap between 5x and 6x on a $400,000-EBITDA restaurant is $400,000 of purchase price, which is roughly $160,000 of additional cash down and about $38,000 a year in additional debt service. Sellers anchor high because they know approved buyers are scarce and impatient after spending a year in unpaid training. Do not let sunk training time price your acquisition. Demand thirty-six months of P&Ls, not twelve, and normalize the seller's owner compensation and any related-party expenses before you compute EBITDA.

Missing the remodel cycle is the second. Ask the field office directly where the restaurant sits in the reimaging schedule and get it in writing. If a major remodel is due within twenty-four months, that cost belongs in your purchase price negotiation, not in your Year 2 surprise column.

Misjudging the labor market is the third, and it is increasingly the difference between markets rather than between operators. A restaurant in a state with a QSR-specific wage floor near $20/hour carries a labor line several points of sales higher than an identical restaurant in a low-wage state. On $3.6 million in sales, a four-point labor difference is $144,000 a year — more than most single-unit operators' entire take-home. Two restaurants with identical AUV and identical operators can differ by six figures in annual cash flow purely on trade-area wage law and rent rate. Model the specific state, not a national average.

Underestimating the transition is fourth. When you buy an existing restaurant, you are buying a crew and a general manager who worked for someone else. The GM often leaves within six months of a transfer. Speed of service degrades, guest satisfaction scores dip, and the field consultant notices. Budget for a sales dip in the first two quarters and have a named successor GM identified before closing, not after.

Ignoring competitive encroachment is fifth. A new high-performing quick-service competitor opening within a mile and a half of your restaurant can take a meaningful share of your volume in its first year. Before you buy, pull the local planning and zoning docket for the trade area and find out what has been approved but not yet built. That is public information and almost nobody checks it.

Finally, over-leveraging. The 40% cash requirement exists because McDonald's has watched thin-equity operators fail for decades. When financial covenants break, the system's remedy is a transfer of the business back, and the departing operator typically recovers a fraction of their equity. There is no corporate rescue facility. If your model only works at a 5% sales growth assumption, you do not have a model — you have a hope.

The disciplined version of this decision looks like a ninety-day process. Weeks one and two: validate liquidity against an SBA Form 413 personal financial statement and pull a tri-merge credit report. Weeks two through four: cold-call eight to twelve current operators through the National Owners Association directory and ask three specific questions — what is your EBITDA per restaurant, what did your last remodel cost, and how did your labor line move when your state changed its wage floor. Eight conversations give you the real spread. Weeks four through six: submit the registered applicant form and read the FDD cover to cover, with particular attention to Items 5, 6, 7, 11, 17, and 19. Weeks six through nine: get term sheets from three franchise-experienced lenders before you look at a single restaurant. Weeks nine through eleven: map trade areas against foot-traffic and demographic data. Weeks eleven through thirteen: decide among existing, new-build, and waiting. Waiting is a legitimate outcome. Capital that stays in your account is capital you still control.

One closing note for readers who found this through the operations side of the business: everything above is a RevOps problem wearing an apron. Purchase multiple, cost-of-capital, unit economics, cohort trends in same-store sales, and the fixed-versus-variable split of your cost stack are the same analytical primitives you would apply to any recurring-revenue business. The restaurant just settles in cash daily instead of monthly.

Related questions

How much liquid cash do I actually need before applying?

$750,000 in non-borrowed liquid assets, verified by a CPA letter. Retirement accounts and home equity generally do not count. Practical total cash down for an existing restaurant lands between roughly $700,000 and $1.2 million depending on purchase price.

Can I buy a McDonald's as a passive investment?

No. Owner-operators are expected to live near and work in their restaurants. Absentee ownership is not a permitted structure, which is precisely why the system's operator quality stays high and why passive capital has to look elsewhere.

Is a new build or an existing restaurant the better entry?

Existing, in most cases. You get trailing financials to underwrite, immediate cash flow, and a trained crew. New builds carry a 24-to-30-month timeline with capital committed and no revenue, though they start with fresh equipment and no deferred remodel liability.

What multiple should I pay for an existing restaurant?

Target 4.5 to 5 times normalized trailing twelve-month EBITDA. At 6x or above, debt service consumes the cushion that protects you from a single bad year. Normalize out the seller's compensation and any related-party expenses first.

Does the 2024 royalty increase apply to a restaurant I buy in 2027?

Assume yes. The service fee moved from 4% to 5% on new agreements, and transfers generally land on current terms. Model 5% even when a seller's historical P&L shows 4% — roughly $36,000 a year on a $3.6 million restaurant.

FAQ

How long does McDonald's franchise approval take from application to owning a restaurant?

Plan on nine to twenty-four months, and often the longer end. The sequence is a financial and background screen, then an extended in-store training program that runs well over a year and is unpaid, then an approval letter, then a match to an available restaurant. The training requirement is the piece candidates most consistently underestimate, because it means walking away from your current income for a year or more while your capital sits idle.

What does a single McDonald's actually pay the owner in the first year?

Cash flow after debt service commonly runs $150,000 to $300,000 per restaurant, with the spread driven by purchase multiple, state labor costs, and the site's percentage-rent rate. That is a real income, but it is earned across sixty-plus-hour weeks with a personal guarantee attached, and payback on your cash equity typically takes five to seven years.

Can I get approved without restaurant experience?

It is very unlikely. The system looks for roughly a decade of multi-unit quick-service operations responsibility or an equivalent leadership background with real P&L ownership. Candidates with capital but no operations resume are routinely screened out early. The realistic path for a strong balance sheet with no operating history is to take a multi-unit operations role first and reapply.

Why is the rent line so much bigger than the royalty?

Because McDonald's controls the real estate at the great majority of US sites and leases it to franchisees at a percentage of gross sales rather than a flat rate. The FDD discloses that percentage as a wide band, and the site-specific rate reflects what the property is worth. On many restaurants it exceeds the 5% service fee and 4% advertising contribution combined.

What are the mandatory capital expenditures after I buy?

Remodel and reimaging programs on a corporate-determined schedule, historically running $500,000 to $1.5 million per restaurant depending on scope, plus technology and automation deployments in the $40,000 to $120,000 range. Before closing on any existing store, confirm in writing where it sits in the remodel cycle and negotiate that cost into the purchase price.

If I fail the McDonald's gate, what is the closest alternative?

Culver's is the nearest franchised comparable — lower royalty, a faster path from approval to opening, lower AUV, and a smaller footprint outside the Midwest. Below that, an independent quick-service concept at $400,000 to $900,000 all-in eliminates royalty and percentage rent entirely, at the cost of brand traffic and a lower exit multiple.

Sources

• https://www.mcdonalds.com/us/en-us/franchising.html
• https://corporate.mcdonalds.com/corpmcd/investors.html
• https://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000063908&type=10-K
• https://www.qsrmagazine.com/reports/qsr-50/
• https://www.franchise.org/
• https://www.dir.ca.gov/dlse/Fast-Food-Minimum-Wage.htm
• https://www.ers.usda.gov/data-products/food-price-outlook/
• https://www.sba.gov/funding-programs/loans/7a-loans
• https://www.ftc.gov/business-guidance/resources/consumers-guide-buying-franchise
• https://www.bls.gov/oes/current/naics4_722500.htm

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