4Thought Blog

Whether you’re looking to buy a McDonald’s restaurant, sell a restaurant, gift some ownership to a Next Gen, or are just plain curious, the question of value is of primary concern. Ask any valuator worth their salt and he or she will tell you, valuation is an art, not a science.

There is no black and white formula for determining what a McDonald’s franchise is worth. However, there are time tested and generally accepted methods within which one can work to derive a fair value.

The City of Philadelphia’s Sugar Sweetened Beverage Tax became effective January 1, 2017. This is the first “soda” tax passed by a major city. The City passed the tax, estimated to generate over $90 million annually, in an effort to provide additional funding to schools, parks, recreation centers, and libraries.

The new law defines two groups that will be impacted from the tax. Specifically Distributors and Dealers. A Distributor is any person who supplies sugar-sweetened beverage to a dealer. A Dealer is any person engaged in the business of selling sugar-sweetened beverage for retail sale in the City, including but not limited to restaurants, retail stores, street vendors, owners and operators of vending machines, and distributors who engage in retail sales.

The term risk management is one that can be found with increasing frequency these days, both on television and in print. It’s not necessarily fodder for lively dinner conversation, but the timing of when you get to enjoy that next expensive steak could very well depend on how well versed you are on the topic of risk.

Put simply, risk management is the process of identification, analysis, and acceptance of uncertainty in business decisions. The primary objective of risk management is to provide the assurance that uncertainty does not interfere or prevent one from achieving their business goals. Risks can come from various sources including uncertainty in financial markets, threats from operational failures, legal liabilities, credit risk, accidents, natural causes and disasters, ever increasing competition, or other uncertain or unpredictable events.

For 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.

When McDonald’s Owner/Operators consider retirement – especially if there is a Next Gen involved – it is advantageous to begin the process as early as possible.

The longer the time frame, the more options you have. Selling or gifting the entire business all in one year can result in unnecessary tax implications. If you have the ability to transfer over the course of time, you are provided with many more options.

We’ve been advising McDonald’s Owner/Operators on Next Gen transitions for decades, and have well-tested strategies to make the transition as easy – and as profitable – as possible.

The concept of having to pay taxes is often times more than enough to make one go cross-eyed. “I’ve worked really hard all year and I have to give how much to Uncle Sam!?!”

Add to that the potential of being charged interest and penalties for not giving enough to the government periodically throughout the year and you start to wonder why it is you’re even working at all.

While that is clearly hyperbole, the exercise of calculating the amount of estimated tax one is required to pay on an annual basis is confusing and requires an in-depth knowledge of the rules of the game.

The cyclical pattern of business is just that, cyclical. Booms and busts, highs and lows, expansions and recessions, good times and bad times, or more simply put, you’re either making money or you’re not.

When your business is enduring one of the low points of the cycle, taxes are not often top of mind. Generally speaking, when you’re not making money, you typically don’t have to worry about paying a lot in taxes.

Cash flow is the life-blood of any business, be it quick-service restaurants, retail, professional services, construction – it’s what keeps the lights on and ultimately separates success from failure.

While positive cash flow is always the goal, there are myriad degrees of positive cash flow. Clearly, working to maximize the level of positive cash flow coming from your business’s normal operations is key, but almost as important is how you deploy (or accumulate) this cash flow.

We’ve all seen the commercials for investment advisors with the memorable disclaimer “past performance does not guarantee future results.” While this may seem intuitively true, this statement underestimates just how incredibly instructive past performance can be.

The IRS recently extended Work Opportunity Tax Credit transition relief, allowing for more time for McDonald’s Owner/Operators to use this advantageous tax benefit.

Employers now have until Sept. 28, 2016 to certify WOTC-qualifying employees all the way back to Jan. 1, 2015. The deadline was originally going to be June 29, 2016.  

This is great news for McDonald’s Owner/Operators. This transition extension allows you to still seek Work Opportunity Tax Credits for all your 2015 and 2016 qualifying employees.