This article is based on a video originally recorded on Vetted Biz Youtube Channel
Are you interested in the food franchise industry and want to run your own business? Slim Chickens, offers franchises that sell chicken tenders, wings, chicken & waffles, sandwiches, and more. Slim Chickens franchise is a fast-casual restaurant located across the United States. The franchise food industry is high in competition being rated a 3/4, 4 being very competitive but there isn’t a high amount of risk being rated a 2/4, 4 being high risk. If this interests you, keep reading about what Slim Chickens has to offer.
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History of Slim Chickens Franchise
Slim Chickens was founded by Greg Smart and Tom Gordon who started the restaurant in a garage test kitchen in 2002. The founders thought there was a need for great quality chicken in northwest Arkansas. They opened the first location in 2003 in Fayetteville, Arkansas and it grew from there.
The CEO of Slim Chickens is Thomas D. Gordon who also was the founder of this franchise. He has served as CEO since December 2002. The CFO of the company is Seth A. Jensen who has served in this role since June 2011.
Slim Chickens Litigation
Slim Chickens has dealt with two litigations that are both closed. One of the litigation was recently on September 29, 2020, called the “In the Matter of Slim Chickens’ Development Company”. This was with the Securities Division of the Department of Financial Institutions where it was alleged Slim Chickens sold two franchises without it being registered in the state of Washington. By terms of the Consent Order, Slim Chickens agreed to stop selling and offering franchises in the state of Washington and they paid the State of Washington an investigative cost of $1,000.
The second litigation was called “Hodson vs. Slim Chickens‘ Development Company” which happened in 2012. The plaintiff Hodson was an owner of Slim Chickens‘ prior affiliate which operated the franchise. Hodson sued them for breach of contract, fraud, misrepresentation, and more. They ended up settling where Slim Chickens agreed to purchase Hodson’s minority ownership which cost $420,000.
Slim Chickens Franchise Cost
The initial Slim Chickens franchise fee is $20,000 and is due once you sign the Franchise Agreement.
Estimated Initial Investment for a Single Slim Chickens Restaurant
| Type of Expediture | Amount | Method of Payment | When Due | To Whom Payment is to be Made |
|---|---|---|---|---|
| Initial Franchise Fee | $20,000 | As arranged | On Signing of The Franchise Agreement | Us |
| Real Property / Site Lease / Site Review Fees | $0 to $15,000 See Notes 2 and 3 | As arranged | As agreed | Third Parties |
| Construction / Site Work / Building Conversion | $350,000 to $1,200,000 | As arranged | As agreed | Third Parties |
| Furniture, Fixtures, and Equipment | $275,000 to $315,000 | As arranged | As agreed | Vendors |
| Smallwares | $12,000 to $14,000 | As arranged | As agreed | Vendors |
| Building Signage and Interior Graphics | $40,000 to $65,000 | As arranged | As agreed | Vendors |
| Soft Costs | $137,000 to $278,000 | As arranged | As agreed | Vendors |
| Insurance | $9,000 to $15,000 | As arranged | As agreed | Insurance Company |
| Opening Inventory | $6,000 to $10,000 | As arranged | As agreed | Vendors |
| Training Costs / Opening Assistance Reimbursement | $23,000 to $39,000 | As arranged | Before training | Vendors |
| POS System / Drive-Thru Components / Menu Boards | $64,000 to $84,000 | As arranged | As agreed | Vendors |
| Low voltage / Security / Network Installation | $32,000 to $38,000 | As arranged | As agreed | Vendors |
| Security and Utility Deposits | $2,500 to $12,000 | As arranged | As agreed | Vendors and Utility Companies |
| Business Licenses (excluding beer and wine license) | $400 to $2,000 | As arranged | As agreed | Licensing Authority |
| Grand Opening Ad Expenditure | $10,000 | As arranged | As agreed | Service Providers |
| Additional Funds — 3 months | $40,000 to $65,000 | |||
| TOTAL FOR a Single Franchise | $1,065,900 to $3,367,000 |
The Slim Chickens’ initial investment costs between $1.07 million to $3.37 million. This is quite expensive to open up a franchise but many costs take a large chunk out of the investment. The most expensive cost is construction/building the restaurant. This can cost between $350,000 to $1.2 million. Slim Chickens expects most franchisee owners to lease the restaurant because purchasing one is much more expensive.
Purchasing a restaurant is what represents the higher cost although it is a one-time purchase that could save you money in the long run.
Also, there is another option of building your restaurant. This can be costly depending on building it from scratch but in an already existing restaurant, it’s much more affordable.
Another high cost which you may not know about is soft costs. Soft costs between $137,00 to $278,000 which includes mandatory site work. This involves permits, occupancy certificates, architect fees, reports, legal services, tap fee which is the amount paid for the public sewer treatment, etc. There are some flexible costs such as deciding whether to build, buy or lease your restaurant but there are other costs that cannot budge such as the soft costs. This is something to consider when deciding to purchase a franchise on how much power you have in deciding on what to buy.
Slim Chickens' ongoing costs and fees
Other Fees
| Name of Fee | Amount | Due Date | Remarks |
|---|---|---|---|
| Royalty Fee | 5% of Gross Sales | Payable weekly | See Explanatory Notes for definition of Gross Sales |
| Advertising Fund Contribution | 2% of Gross Sales | Payable weekly | You Pay the Advertising Fund Contribution directly to us |
The chart above shows the advertising fees such as the advertising fund contribution which is 2% of gross sales. Also, there is the local advertising cooperative contribution which is 1% of gross sales. Something to pay attention to is that these fees are paid every week so paying attention to how much you are making each week is crucial to determine the revenue you make at the end.
There are also transfer fees which means if you decide to sell the franchise you will be charged $10,000 plus the reimbursement of the actual costs in the development agreement. Also in the franchise agreement, the transfer fee is $5,000 plus the reimbursement of the actual cost. From this make sure you are 100% willing to follow through with this franchise because it is extremely costly to get out of it.
Franchise Royalty Fee
The Royalty Fee is 5% of gross sales which is paid weekly.
How much do Slim Chickens franchise owners make?
Slim Chickens Franchise Owners’ Earnings
| Group # | Average Gross Sales per Restaurant | Median Gross Sales per Restaurant | Total Number of Restaurants in Analysis | Number of Restaurant in Category Meeting or Exceeding the Average Amount | Number of Restaurants in Category Meeting or Exceeding the Median Amount |
|---|---|---|---|---|---|
| 1 (Gross Sales > $3,000,000) | $3,408,756 | $3,262,952 | 5 | 2 | 3 |
| 2 (Gross Sales $2,000,000 to $3,000,000) | $2,440,547 | $2,439,049 | 10 | 5 | 5 |
| 3 (Gross Sales $1,500,000 to $2,000,000) | $1,800,809 | $1,823,668 | 18 | 10 | 9 |
| 4 (Gross Sales < $1,500,000) | $1,255,142 | $1,267,326 | 23 | 14 | 13 |
The chart above it splits up the restaurants based on how much they make the highest being 1 and the lowest being 4. The average gross sales of all Slim Chickens restaurants is $1.8 million. The lowest gross sales are $901,510 and the highest is $4 million.
Many of the restaurants are in the lowest category which is meeting or making less than $1.5 million. This doesn’t look promising for future franchise owners especially if you are just getting started. It may take you a few years to earn back your investment and it might be quite difficult to earn a spot in the top tier.
Slim Chickens Units Opened and Closed
Systemwide Outlet Summary
| Outlet type | Year | Outlets at the Start of the Year | Outlets at the End of the Year | Net Change |
|---|---|---|---|---|
| Franchised | 2018 | 50 | 56 | +6 |
| 2019 | 56 | 59 | +3 | |
| 2020 | 59 | 78 | +19 | |
| Company-Owned | 2018 | 16 | 20 | +4 |
| 2019 | 20 | 23 | +3 | |
| 2020 | 23 | 11 | -12 | |
| Total Outlets | 2018 | 66 | 76 | +10 |
| 2019 | 76 | 82 | +6 | |
| 2020 | 82 | 89 | +7 |
The net change is positive for the franchised units and the company-owned net change is positive except for the year 2020. Also, there are many more franchised outlets than company-owned outlets. This is a good sign because Slim Chickens focuses more on the franchised outlets and growing them rather than the company-owned outlets.
How much do the owners of Slim Chickens make?
Slim Chickens LLC’s Income statement
Slim Chickens Development Company, LCC — Statement of Operation — For the Years Ended January 3, 2021, December 29, 2019 and December 30, 2018
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Revenues | |||
| Franchise development fees | $765,045 | $697,822 | $1,380,000 |
| Royalty fees | $5,594,368 | $3,7,95,159 | $3,206,642 |
| Advertising fund contributions | $2,331,290 | $1,720,991 | — |
| Other revenue | $274,184 | $354,194 | $395,383 |
| Total revenues | $8,964,887 | $6,568,169 | $4,982,025 |
| Operating expenses | |||
| Payroll and related expenses | $3,502,723 | $2,628,189 | $2,400,423 |
| Management fees | $1,513,357 | $1,196,080 | $999,891 |
| Professional fees | $343,864 | $186,447 | $247,312 |
| Travel | $432,076 | $722,196 | $526,835 |
| Marketing services and other fees | $567,462 | $580,883 | $562,632 |
| Office expenses | $179,356 | $178,845 | $155,338 |
| Advertising | $1,691,657 | $1,639,799 | $2,487 |
| Depreciation | $70,869 | $75,880 | $76,705 |
| Other | $263,462 | $221,926 | $249,970 |
| Total operation expenses | $8,564,826 | $7,430,245 | $5,221,593 |
| Income (loss) from operations | $400,061 | $(862,076) | $(239,568) |
| Other income (expense) | |||
| Interest income | $36,288 | $33,254 | — |
| (Interest) expense | $(63,091) | $(470,630) | $(699,012) |
| Total other expense | $(26,803) | $(437,376) | $(699,012) |
| Net Income (loss) | $373,258 | $(1,299,452) | $(938,580) |
The income statement above it shows they have a loss of net income until 2020. Their revenue costs are the same as their operating expenses as of 2020 and before their revenue was less. This is a red flag where they are barely making anything that could lead to closure. Their operating expenses are very expensive and it’s increasing as time goes on.
Slim Chickens Cash flow
Slim Chickens’ Development Company, LLC — Statement of Cash Flows — For the Years Ended January 3, 2021, December 29, 2019 and December 30, 2018
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Cash flows from operating activities | |||
| Net income (loss) | $ 373,258 | $ (1,299,452) | $ (938,580) |
| Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities | |||
| Depreciation | $ 70,869 | $ 75,880 | $ 76,705 |
| Amortization of deferred financing costs | — | $ 10,100 | $ 2,525 |
| (Gain) loss on disposal of property, plant and equipment | $ (1,012) | — | $ 3,110 |
| Changes in operating assets and liabilities | |||
| Receivables | $ (564,265) | $ (135,603) | $ (52,429) |
| Receivables- related parties (including advertising fund) | $ (720,372) | $ (2,681,379) | $ 178,987 |
| Prepaid expenses | $ (3,186) | $ (5,323) | $ 4,805 |
| Accounts payable | $ (13,609) | $ 116,134 | $ 40,351 |
| Accounts payable- related parties | $ 322,689 | $ 51,005 | $ (47,434) |
| Accrued expenses | $ 507,730 | $ 270,874 | $ (193,471) |
| Accrued interest payable | $ 738 | $ (14,469) | — |
| Deferred franchise development fees | $ 1,442,589 | $ 790,478 | $ {525,000) |
| Net cash provided (used) by operating activities | $ 1,415,429 | $ (2,821,755) | $ (1,450,431) |
| Cash flows from investing activities | |||
| Net change in restricted receivables | $ (21,941) | $ (7,417) | $ 30,248 |
| Net change in due to affiliates | $ 50,000 | $ 733,874 | $ (733,874) |
| Net change in advertising fund payable | — | $ (206,300) | $ 168,294 |
| Purchase of property, plant and equipment | $ (3,459) | — | — |
| Purchase of certificate of deposit | — | $ (3,000,000) | — |
| Redemption of certificate of deposit | $ 3,000,000 | — | — |
| Proceeds from sale of property, plant and equipment | $ 8,000 | — | $ 18,868 |
| Net cash provided (used) by investing activities | $ 3,032,600 | $ (2,479,843) | $ (516,464) |
| Cash flows from financing activities | |||
| Contribution from parent | — | $ 12,880,198 | — |
| Decrease in bank overdraft | — | $ (133,653) | $ (9,147) |
| Net proceeds from (payments on) line of credit | — | $(5,677,475) | $ 2,252,420 |
| Proceeds from issuance oflong-terrn debt | — | $1,500,000 | — |
| Payments on notes payable | $ (48,733) | $ (1,582,529) | $ (120,607) |
| Payments on other debt | — | $(750,000) | — |
| Net cash provided (used) by financing activities | $ (48,733) | $ 6,236,541 | $ 2,122,666 |
| Net increase in cash and cash equivalents and restricted cash | $ 4,399,296 | $ 934,943 | $ 155,771 |
| Beginning of year – Cash and cash equivalents and restricted cash | $ 1,090,714 | $ 155,771 | — |
| End of year – Cash and cash equivalents and restricted cash | $ 5,490,010 | $ 1,090,714 | $ 155,771 |
| Supplementary disclosure of cash flow information | |||
| Cash paid during the year for interest | $ 62,353 | $ 485,099 | $ 155,771 |
| Supplementary disclosure of noncash transaction | |||
| Conversion of promissory notes | — | $ 3,975,000 | — |
The chart above shows the net income of Slims Chickens which was negative in 2018 and 2019 and then became positive in 2020. Since 2020 Slim Chickens has had $5.49 million in cash. The majority of the cash they have is from investing which increased significantly in 2020 which before was negative. In 2019 they were able to have cash at the end because of a parent contribution in which the parent donated $12.88 million. This is not a great indicator to buy a franchise from Slim Chickens since they just recently started making money and although they do have a lot of cash most of it comes from investments, not themselves.
Are you thinking about investing in Slim Chickens, or interested in exploring more options? Make sure to check out Vetted Biz’s website for listings of other similar franchises in the restaurant industry.
