It’s not so much a question of “if” as it is “when” to embark on a major remodel program at your business.
With its Vision 2020 well underway, McDonald’s is aiming to have 85 percent of all restaurants modernized and updated with the latest look and latest technology by the end of 2018 to fulfill its Experience of the Future.
The major remodel program, or MRP, is a significant financial undertaking that requires the purchase of new equipment and renovation of the interior and exterior of restaurants. As a result, McDonald’s is offering a number of options for owner/operators.
Deciding which option is best is dependent on a number of variables, including the stores’ sales volume, the owner’s ability to handle debt, and the tax implications that come with each option.
Renovations in the MRP 2.0 include a modernized look and feel with digital menuboards, Dual Point systems, All Day Breakfast and other updated features. McDonald’s offers the following options for owner/operators in the new Major Remodel Program 2.0:
- 100 percent option with rent percentage reduction – Under this option, owner/operators pay for the total cost of the MRP leasehold improvement work, and in exchange, McDonald’s will reduce the rent percentage over a number of years.
- 40 + 10 percent option – Under this option, McDonald’s pays 40 percent of the estimated cost of the MRP leasehold improvement work with the option of McDonald’s offering an additional 10 percent rebate if 85 percent of the restaurants in a particular co-op agree to do the MRP and the MRP is completed within the co-op deployment period.
- 2/3 option with rent percentage increase – Under this option, McDonald’s will cover 2/3 of the cost of the MRP leasehold improvement work in exchange for an increase in the rent percentage over a number of years.
As part of the implementation of the new MRP 2.0 partnering program, restaurants that completed an MRP or or after June 1, 2015, under the old program should be receiving notification from McDonald’s of any “additional contribution” by McDonald’s.
Operators have two options for receiving this additional contribution: A rebate check can either be sent directly to the owner/operator or it can be applied as a credit toward future projects. There are tax consequences associated with this rebate, so please let us know as soon as possible so that we can advise how best to accept this refund.
We also advise that you consult with us to determine the best time to take on this project. Those owner/operators who are projecting higher incomes this year – and therefore a higher tax burden – may decide to embark on MRP 2.0 sooner rather than later to take an accelerated depreciation deduction.
For others, it may be in their best interest to wait another year until they are in a more advantageous financial position.
Another point to consider is the depreciation of new equipment. For the next several years, the IRS has re-instated bonus depreciation which will allow you to write off in the first year a large percentage of the cost of new assets placed in service in a tax year. In addition, IRS code Section 179 allows a company to write off up to $500,000 of equipment purchased and certain leasehold improvements and placed into service in a given tax year. This deduction is subject to phase-out limits and business income limits, so please contact us so we can help you navigate the best course for you.