How to Start a Fast Food Franchise: 8 Smart Tips

Starting a fast food franchise can be your assured ticket to entrepreneurial success, but only if you approach it with the right strategy and sufficient capital.

The franchise industry generates over $800 billion annually in the US, with fast food representing a significant chunk of that pie.

Whether you’re eyeing a McDonald’s, Subway, or an emerging brand like Raising Cane’s, here are some smart tips to help you navigate the exciting (and financially demanding) world of franchising, and start your own fast food or QSR franchise.

1. Understand the True Cost of Entry

Don’t let the advertised franchise fee fool you. A typical fast food franchise requires total investment ranging from $150,000 to $2.5 million, depending on the brand and location.

Here’s what you’re really looking at:

Initial franchise fee: $25,000 to $75,000
Equipment and signage: $200,000 to $500,000
Build-out costs: $150,000 to $750,000
Working capital: $50,000 to $200,000
Real estate/leasehold improvements: $100,000 to $800,000

Take McDonald’s, for example. While their franchise fee is $45,000, the total investment ranges from $1.3 million to $2.3 million. Subway’s franchise fee is lower at $15,000, but total costs still run $116,000 to $263,000.

Smart tip: Factor in 6-12 months of operating expenses as working capital. Many new franchisees underestimate this and find themselves cash-strapped before they hit profitability.

2. Explore Your Financing Options Early

Most franchisees need financing to get started, and the good news is that lenders often view established franchises as lower-risk investments compared to independent restaurants.

Your financing toolkit includes:

SBA loans: These government-backed loans offer competitive rates and longer repayment terms. The SBA 7(a) loan program is particularly popular for franchise purchases.
Equipment financing: Perfect for kitchen equipment, POS systems, and other necessary gear. Equipment serves as collateral, often resulting in better rates.
Commercial real estate loans: If you’re buying rather than leasing your location.
Working capital loans: Bridge the gap between opening day and profitability.

Many franchisors have relationships with preferred lenders who understand their business model. Subway, for instance, has partnerships with various lenders offering streamlined approval processes for qualified candidates.

Did you know there’s a dozen different types of loans available for small businesses?

EXPLORE YOUR OPTIONS

3. Choose Your Location Like a Real Estate Pro

The three rules of fast food success? Location, location, location. A study by the National Restaurant Association found that location accounts for up to 60% of a restaurant’s success.

Image source: Wikimedia Commons

Look for these golden criteria:

High traffic counts: Aim for at least 20,000 vehicles per day for drive-thru locations
Visibility: Your sign should be easily seen from the street
Accessibility: Easy entry and exit, adequate parking
Demographics: Match your target customer profile
Competition: Enough to create a food destination, but not so much that you’re oversaturated

Consider the success of Chick-fil-A locations near shopping centers and college campuses. They’ve mastered the art of demographic targeting. Their average unit volume exceeds $4 million annually, partly due to strategic location selection.

4. Master the Franchise Disclosure Document (FDD)

The FDD is your franchise bible—all 200+ pages of it. This legally required document reveals everything from the franchisor’s financial health to average franchisee earnings.

Pay special attention to:

Item 19: Financial performance representations (if provided)
Item 20: Outlet information and system statistics
Item 21: Audited financial statements of the franchisor
Item 22: Contracts and agreements

Don’t skip the franchise agreement buried in the FDD. This contract governs your relationship with the franchisor for the next 10-20 years. Consider having a franchise attorney review it—it’s worth the investment.

5. Calculate Your Break-Even Point Realistically

Understanding when you’ll become profitable is crucial for cash flow planning. Most fast food franchises break even within 12-24 months, but this varies significantly by brand and location. Here are some key metrics to track:

Average transaction value: Fast food typically ranges from $6-12
Daily transaction count: Successful locations often need 300-500 transactions daily
Food cost percentage: Should be 25-35% of sales
Labor cost percentage: Typically 25-30% of sales

Let’s say you’re opening a pizza franchise with an average ticket of $15. If your break-even point is $25,000 monthly, you need roughly 1,667 transactions per month, or about 56 per day. Factor in seasonal variations and local economic conditions.

6. Build Your Management Team Before You Need Them

The restaurant industry has a notoriously high turnover rate—around 75% annually. Having strong management in place from day one is essential. Your core team should include:

General Manager: Someone with restaurant experience and leadership skills
Assistant Managers: Cross-trained to cover all shifts
Kitchen Manager: Ensures food quality and safety compliance

Many successful franchisees hire their management team 2-4 weeks before opening to allow for proper training. Some franchisors, like Jimmy John’s, provide extensive management training programs to help you build this team.

Whatever you do, choose your managers very, very carefully. I can’t emphasize this enough.

7. Plan for the Ramp-Up Period

Don’t expect to hit full sales volume on day one. Most fast food franchises experience a gradual ramp-up period of 3-6 months as they build their customer base and refine operations.

Here’s a typical ramp-up pattern you can expect:

Month 1: 40-50% of projected sales
Month 2: 60-70% of projected sales
Month 3: 75-85% of projected sales
Months 4-6: Approaching full potential

This is why adequate working capital is crucial. You’ll need to cover operating expenses, loan payments, and franchise fees even while sales are building. Many franchisees secure a working capital line of credit to smooth out cash flow during this period.

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8. Understand Your Ongoing Financial Obligations

Your financial commitments don’t end after the initial investment. Ongoing costs typically include:

Royalty fees: Usually 4-8% of gross sales
Marketing fees: Typically 2-4% of gross sales
Insurance: $2,000-5,000 monthly
Rent: Often 6-10% of gross sales
Loan payments: Varies based on your financing structure

For example, if you’re generating $50,000 monthly in sales with a 6% royalty fee, you’ll pay $3,000 monthly to the franchisor. Add a 3% marketing fee ($1,500), and you’re looking at $4,500 in franchise-related fees alone.

Ready to Take the Plunge?

Starting a fast food franchise is both an exciting opportunity and a significant financial commitment. Success depends on thorough preparation, adequate financing, and realistic expectations about the challenges ahead.

The key is having your financing strategy locked down before you fall in love with a particular opportunity. Whether you need equipment financing for that $200,000 kitchen package or a comprehensive loan package covering everything from build-out to working capital, the right financial partner can make all the difference.

Remember, the most successful franchisees are those who treat their venture as a serious business investment, not just a way to “be their own boss.” With proper planning, adequate capital, and dedication to the franchisor’s proven system, your fast food franchise can become a profitable cornerstone of your financial future.

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