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McDonald’s Next Gen Candidates: How to Budget for Growth

Posted by Concannon Miller on Wed, Nov 16, 2016

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magnifying glass-red - no background.pngFor any business to be successful – McDonald’s or other  – a business plan and budget should be developed and then executed.

This is especially true for McDonald’s Next Gen candidates. Knowing how much restaurant you can afford and how much cash you will need to live on is critical.

When business owners live beyond their means, it can limit the opportunities they have to create wealth and pass on a legacy to their children. You must take the time to understand your needs, both personally and professionally as you dive into business ownership.

Our firm has developed a personal budget especially for new McDonald’s Owner/Operators (you can find it here). This budget will assist with estimating annual G&A expenses and also personal living expenses.

You probably see how successful your parents are now and think that you can afford the same lifestyle. What you do not see is how they lived when they were first starting out. They had to pinch pennies. They lived a very modest lifestyle when they were starting out – which is why they had the cash to buy more restaurants.

Concannon Miller's Next Gen Academy for Finance & Leadership It is crucial to plan every year and to develop a budget that is reasonable and realistic. You should plan to live on about $75,000 a year for the next seven years or so, while debt is being paid down.

Take the time to complete a budget plan and you will see that $75,000 gets spent quickly. You most likely cannot afford to buy a large house or fancy cars at this time. We have seen people take on too much personal debt to acquire these “things,” then their monthly draws are too high and after a few months, they no longer meet Cash Flow Coverage Ratio. We hate to see that happen to anyone. 

It is so important to live within your means. We’d love to be able to tell franchisees to take more – we’re on your side, after all. But you have to be smart about it – you can only take more if the cash flow supports it.

If your goal is to own more than one restaurant, that needs to be part of your plan, too. You need to set aside cash for a down payment on a new restaurant, either from your parents’ organization or from an outside organization. By buying from outside, the family’s organization is expanding.

READ MORE: The Next Gen Transition: How McDonald’s Franchisees Can Save Taxes and Maintain Cash Flow

Here’s another thing every Next Gen should think about – what will happen when you are supporting yourself and no longer receiving a paycheck from your parents’ organization?

In other words, at some point McDonald’s will view you as standing separate from your parents’ organization. What happens to your organization when your one – or more – restaurant must fully support your salary?

We advise using your cash flow coverage ratio as your guide. Is your trailing 12-month CFCR at the recommended guideline? Do you met your financial viability standard?

If not, you may need to cut expenses inside the restaurant or may need to reduce your G&A costs and/or draws. You may need to work longer hours. You may need to be the manager in your restaurant. We even know of one Owner/Operator who cut his own grass to improve his PAC.

There are difficult decisions to make. Are you willing to do what it takes to be financially viable and build your business?

Looking for more Next Gen advice? We're holding our second annual Next Gen Academy for Finance and Leadership in February. Email me at abuss@concannonmiller.com for more information or sign up here.

Topics: McDonald's management

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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