A Complete Guide to McDonald’s Restaurant Valuations

Summary: Whether you’re preparing to buy a store, negotiate a sale, or map out long-term succession, it’s important to understand the true value of your McDonald’s restaurant. Unlike general business valuations, McDonald’s valuations follow a unique set of industry-specific rules, assumptions, and constraints. In this article, Aprio explains how the process works and the critical factors that influence value.

As a McDonald’s owner/operator, valuation is one of the most important financial exercises you’ll ever perform for your business. But it’s also one of the most misunderstood.

Unlike traditional restaurant valuations, McDonald’s valuations follow a very specific methodology, one that is used by owners across the entire franchise system. You may be thinking to yourself: “I’m not ready to leave my business. Why do I need a valuation now?”

In this article, we’ll review the McDonald’s valuation process, identify the main drivers of store value, and outline key considerations to keep in mind when you start the planning process.

When Do McDonald’s Owners Need a Valuation?

Most McDonald’s owner/operators need to perform a business valuation when they’re confronted with one of two situations: when they’re planning to buy or sell a store, and when they’re planning for succession or next-generation ownership. While both valuation scenarios rely on similar foundational modeling, they come with their own unique assumptions and strategic planning considerations:

Buying or Selling Restaurants

If you’re considering an acquisition or a sale, then it’s essential for you to reach out to a professional McDonald’s valuator. Regardless of whether you’re the seller or the buyer, you need a clear, data-driven understanding of the restaurant’s fair market value before proceeding with a transaction.

Succession and Next-Generation Planning

If you’re preparing to transfer ownership within your family, then you also need to request a valuation, although you should note that the process can become more nuanced and complex when family members are involved. Even though intrafamily succession means you won’t be putting the business on the market, structure and timing still matter, particularly when you consider taxes.

Before we dive into the key differences between both valuation scenarios, let’s first discuss how the McDonald’s valuation approach differs from more conventional methods.

How McDonald’s Restaurant Valuations Work

Although McDonald’s organizations vary significantly by size, geography, and financial performance, most restaurants follow the same valuation methodologies. The most common method of valuing McDonald’s restaurants is the 20-year discounted cash flow (DCF) method.

Why 20 years? A McDonald’s franchise license runs for a 20-year term; therefore, the valuation model mirrors the lifecycle of the franchise agreement. As the industry-standard approach, the DCF model is used by owner/operators and valuators throughout the McDonald’s system, and provides a consistent financial framework for buyers, sellers and their advisors.

Key Inputs in the McDonald’s Valuation Model

Within the DCF model, there are seven key drivers that determine a McDonald’s restaurant’s value. Note that many of these inputs will come from your internal financial systems, while others may require you to dig deeper into your operational processes and even future business expectations.

1. Trailing 12-Month Performance: The DCF model begins with your restaurant’s trailing 12-month (or TTM) financial performance, which is the baseline for projecting your future cash flow.
2. Sales Growth Assumptions: Next, you will add projected sales growth to forecast your future revenue. Making even the smallest adjustments to your growth assumptions can meaningfully shift your restaurant’s valuation over a 20-year horizon.
3. Profit After Controllables (PAC): PAC is one of the most important valuation metrics for McDonald’s owner/operators to consider. Higher PAC percentages directly increase your restaurant’s value because they reflect stronger operating profitability.
4. Rent and Royalty Rates: McDonald’s restaurant rent costs and royalties significantly influence valuation. Royalties used to be 4% across all McDonald’s restaurants; however, some restaurants now have 5% royalties, which will impact their value. Furthermore, if you pay a lower rent, your restaurant will often have a higher valuation.
5. Reinvestment Requirements: A major remodel or reinvestments (such as lobby remodels, MRPs, or rebuilds) can significantly impact your restaurant’s valuation. As a rule of thumb, reinvestments due within three years are discounted dollar-for-dollar from your restaurant’s value; reinvestments beyond three years are also discounted but with adjustments based on timing. For example, if your McDonald’s restaurant is worth $1 million but needs a $400,000 reinvestment within two years, your valuation will total to $600,000.
6. Discount Rate: This driver reflects risk and market conditions. In the McDonald’s system, the discount rate typically ranges from 19%–20%, depending on the market. For example, in high-demand markets, a lower discount rate will likely translate to a higher restaurant valuation. In lower-demand markets, a higher discount rate will likely translate to a lower restaurant value. In general, you should know that your restaurant’s location will play a major role in your valuation outcomes.
7. Industry and Systemwide Trends: Larger McDonald’s initiatives — such as upcoming brand campaigns, market-wide shifts, and anticipated organizational changes — can all influence your projected cash flow and therefore your valuation.

Buying vs. Selling: How Strategy Impacts Valuation

Although the DCF methodology is consistent across all McDonald’s restaurants, your mindset and approach to the valuation process will differ based on whether you are buying or selling your business.

If You’re the Seller…

You willtypically aim for the highest justified valuation, using more optimistic assumptions (within reason) to support your asking price.

If You’re the Buyer…

You will need to request an objective valuation to determine whether your seller’s price will match market value. Keep in mind that most sellers will often start by offering a price that is higher than the true market value of the business. Many buyers use valuations as a negotiation tool. For example, if your seller asks for $2 million but the DCF model indicates the business is worth $1.8 million, then you may negotiate a price around $1.9 million. Essentially, you can use the valuation as a frame of reference when negotiating to a solid middle-ground.

Succession Planning Valuations: A Different (and More Complex) Process

Compared to the two scenarios we outlined above, succession valuations differ fundamentally because they involve related-party rules, entity-level valuation, and their own unique tax implications.

Why Asset Sales Don’t Work in Family Transitions

Consider this example: If a parent sells their McDonald’s store assets directly to their child, related-party tax rules will kick in, which means that gains will be taxed at ordinary income rates (up to 37%) rather than at capital gains rates (typically 20%). This 17-point difference can translate into millions of dollars in a real succession scenario.

Instead, you may consider structuring your succession transfer as an entity interest sale, which allows you to:

• Sell LLC or corporate stock, not the restaurant asset itself.
• Avoid unfavorable tax treatment.
• Engage in more flexible, phased-in ownership transitions with your successors.

Succession Valuations Step-by-Step

In most McDonald’s businesses, succession valuations require a two-step approach:

1. Value the Restaurant Using the Standard DCF Model: This establishes the fair market value of the operating business.
2. Value the Entity Itself: This is an equation that involves adding all entity-level assets (e.g., cash, inventory, receivables, prepaids) and subtracting liabilities (e.g., payables, accrued expenses, long-term debt), while adjusting for McDonald’s-specific restrictions.

Additionally, there are two types of discounts you should consider if you plan to calculate a succession valuation. The first type is the discount for lack of marketability (DLOM).Since you can’t sell McDonald’s restaurants on the open market, your entity values will receive a marketability discount of approximately 20%.

The second type is the discount for minority interest. If the interest is below 51%, you can apply a minority interest discount, which will range depending on the interest percentage.Both these discounts significantly reduce the taxable value of your McDonald’s business while still reflecting fair, defensible pricing.

How Far in Advance Should McDonald’s Owner/Operators Plan for Valuations?

Your time horizon for compiling a valuation depends on the purpose of your transaction. If you are buying or selling your McDonald’s business, then you may request a valuation as needed, since transactions can arise unexpectedly based on market demand.

Conversely, if you’re succession planning, then you will need to start the valuation process sooner rather than later to make sure your plans and the next generation’s plans are aligned. Larger organizations should perform succession planning in phases, since most next-generation owner/operators can’t afford to buy a McDonald’s store all at once. Therefore, a phased succession plan gives your successors more time to build equity, leverage tax-efficient transfer strategies, and make annual adjustments for new information or market changes.

At Aprio, we meet with most of our McDonald’s owner/operators on an annual basis either virtually or in-person to measure progress and refine their long-term succession plans.

Final thoughts

Every McDonald’s store is unique, and as such, your own restaurant performance, reinvestment cycles, entity structure, debt levels, and long-term goals can drastically change your valuation outcomes. Whether you’re preparing for a sale, expanding your organization, or mapping out generational transition, it’s essential to understand your restaurant’s value to make informed, strategic decisions.

Aprio is here to help lead the way. With decades of specialized McDonald’s experience, we help owners navigate every stage of the valuation process with clarity and confidence. Our team of McDonald’s-focused valuators works closely with owners to:

• Perform fair and accurate McDonald’s-specific valuations.
• Model buying, selling, and refinancing scenarios.
• Develop multi-year succession and next-gen transition plans.
• Structure transactions to minimize tax burden.
• Provide ongoing guidance as circumstances evolve.