How To Finance a Chick-fil-A Franchise
There are more than 2,000 Chick-fil-A restaurants across the U.S selling fast-food chicken, from grilled sandwiches to nuggets and breakfast biscuits. In 2019, it became the country’s third-largest restaurant chain, growing 16.7% from the previous fiscal year, with sales totaling more than $10 billion. Starbucks is No. 2, and McDonald’s dominates in the No. 1 spot.
What began as a Southern invention has national name recognition and the potential for more growth, which may appeal to some entrepreneurs. But it’s important to keep in mind that Chick-fil-A franchisees, called operators, lease and never own property or equipment. So while the franchise fee is relatively low and potential payoffs are high, you’ll always pay these costs to the company.
Keep reading if you’re thinking about opening your own Chick-fil-A franchise. We’ll tell you what it costs, how you can become a franchisee, the pros and cons of working with large organizations and how to finance a Chick-fil-A location.
- Costs of buying a Chick-fil-A franchise
- Costs of operating a Chick-fil-A franchise
- Becoming a Chick-fil-A franchisee
- Is a Chick-fil-A franchise right for you?
- How to finance a Chick-fil-A franchise
Costs of buying a Chick-fil-A franchise
- Franchise fee: $10,000
- Initial investment: As low as $342,990
Chick-fil-A reported more than $10 billion in sales in 2018, its 51st consecutive year of growth. One of the greatest appeals of opening a Chick-fil-A restaurant over another franchise location is the relatively lower cost of entry. Chick-fil-A requires an initial $10,000 fee, a relatively low figure compared with other franchises. 7-Eleven, for example, requires at least a $50,000 franchise fee and a $29,000 down payment on store inventory and other costs.
But there may be other costs involved with opening a Chick-fil-A, between $342,990 and nearly $2 million, according to Franchise Direct, an online resource for entrepreneurs interested in franchise opportunities. Chick-fil-A declined to release initial investment figures. The chain does say that the franchisee, or operator, must be hands-on in the restaurant and free of any other active business endeavors.
Costs of operating a Chick-fil-A franchise
- Lease, equipment rental and other costs: 15% of sales, plus 50% of pretax profit
The barrier of entry to open a Chick-fil-A may be low, but it comes in exchange for comparatively high ongoing fees.
Operators may run a stand-alone Chick-fil-A location or choose to license a location in such areas as airports, college campuses or business complexes. Whether you’re starting from the ground up or taking on an airport location, Chick-fil-A has specific branding guidelines that are imperative to keep in mind.
All Chick-fil-A locations are required to be closed on Sundays. This dates back to the founding of the restaurant in 1967, when owner Truett Cathy chose to close the restaurant on Sundays for all employees to have off on a day when they could “worship if they choose,” and that rule stands today.
Becoming a Chick-fil-A franchisee
While the barrier of entry is low for a franchise, the selection process is tough. Each year, more than 60,000 people apply to become franchise operators, and just 80-100 of them are selected. There are about 2,000 Chick-fil-A units, a relatively low number compared with 35,085 worldwide for McDonald’s.
Restaurant owners must show a proven track record of business success — though not necessarily restaurant experience — and the ability to manage their own personal finances and show they are ready to dedicate themselves to their Chick-fil-A location as an active, full-time operator.
Franchisees are required to complete a multi-week training course to prepare them for owning and operating their own franchise. Chick-fil-A also offers ongoing education opportunities and support to help franchise operators continue to grow their businesses.
Those interested in opening a franchise location can apply online.
Is a Chick-fil-A franchise right for you?
When deciding on franchise options, you should take several factors into account, including brand strength, application process and costs, among other elements. The biggest differences between franchising a Chick-fil-A or one of its competitors are relatively low barriers to entry. McDonald’s franchisees, for example, are expected to have a minimum of $500,000 in personal resources to be considered to open a location, and will be required to invest with a 25% cash down payment.
If you don’t have much in the way of liquid assets upfront, opening a Chick-fil-A location may be a better option than attempting to take part in a far more expensive endeavor like opening a McDonald’s. However, while initial costs of operating a Chick-fil-A are low, ongoing costs can be high.
There has been controversy over the Chick-fil-A brand, too. In 2012, CEO Dan Cathy, son of founder Truett Cathy, made remarks to the Baptist Press that he believes in the “biblical definition of the family unit.” There was swift backlash from the LGBTQ community, calling for boycotts of the chain. While individual franchisees are allowed to do what they would like with their share of the profits, as some have by making donations to victims of the Pulse nightclub shooting, part of owning any franchise will be ties to company leaders.
One of the best ways to get an idea of whether any franchise is a good fit for you is by reading its Franchise Disclosure Document (FDD), a legal document required by the Federal Trade Commission. The FDD describes the franchiser’s financial health, franchisee turnover rate and provides contact information for former and current franchisees.
How to finance a Chick-fil-A franchise
While costs to starting a Chick-fil-A are relatively now, you’ll need to have some funding available upfront and, in the case of Chick-fil-A, you will be leasing equipment, which means you’ll need to continue paying the larger organization for its services through the duration of your ownership. There are a few ways you can secure financing to open your own franchise location.
SBA loans. Franchisees often use loans backed by the U.S. Small Business Administration to help open a franchise location. SBA loans are offered through approved banks, and are guaranteed up to a certain amount even if you default, which is how banks are able to offer these loans at competitive rates and terms. SBA 7(a) loan terms range from five to 25 years, and businesses may borrow up to $5 million.
Bank loans. Franchisees can find success in securing bank loans more easily than they would if starting their own restaurant from scratch. That’s because opening a franchise location is of far lower risk than starting a restaurant without name recognition or a steady customer base already in place. Franchisees may also have higher levels of success in accessing business lines of credit through banks.
The bottom line
There are some pros and cons to owning a franchise location. For example, you’ll have the flexibility of owning your own restaurant while still having the support of an overarching organization. You’ll also be working with a household name restaurant, which can help drive business from day one. However, you’ll also be tied to that overarching organization, which means you’ll have to play by their rules for menus, branding and other business decisions.
You’ll also have to consider initial costs, upfront fees, ongoing lease terms, location and more. With a franchise fee of just $10,000, Chick-fil-A is a much lower financial investment than other franchises. This low cost of entry may also be why more than 60,000 people apply to open a Chick-fil-A each year, and just 80-100 are eventually approved. However, payoffs may be relatively low, too, due to the cost of ongoing fees, so those prepared to make a larger upfront investment may want to consider other types of franchises.
Before you dive into any business endeavor, make sure to do your research, ask the right questions and look into financing options to determine what might be your best bet.
The information in this article is accurate as of the date of publishing.