The franchise business plan is an essential document in the franchise set-up process. Below, we’re going to walk you through the building blocks of the plan and explain the importance of each section.
A franchise business plan is a document that you draft when applying for finance for your new franchise unit. It is used to argue your case and should aim to convince lenders that you’re a safe investment and capable of making the business work. Get it wrong and your dream of managing a business will suffer a terrible blow. Get it right and you’ll be on your way to becoming the owner of a brand-new profitable franchise unit. Here, we outline the key elements of a successful franchise business plan so you’ve got the best possible chance of long term success.
1. Executive summary
Essentially, this is the introduction to your franchise business plan. It will provide an overview of the business and offer a brief insight into what your aspirations are for the franchise unit and how you want to achieve them.
You need to demonstrate an awareness of your competition – who are they and how will you differentiate yourself from them? Explain how you plan to run your business and mention the risks and issues that you believe you could encounter when starting up the franchise.
Most executive summaries start with a description of your business’ goals. It will then go on to talk about how you hope to achieve these goals and how long it will take you. You need to be sure it includes information that enhances your standing with lenders and demonstrates that you have a firm understanding of business essentials.
2. Business description
Here, you need to provide a more detailed description of the franchise and some of its history. This section is used to inform and convince lenders that the franchise has a history of financial success and can be trusted to deliver on its promises.
Consequently, it’s a good idea to write about historical events that support this perception of the franchise, followed by a brief overview of the products or services the franchise supplies (these will be covered in greater depth later, though), the market in which the franchise operates, and your competition.
You must be able to show how you will give customers a reason to choose your business and keep coming back for more. How will you build brand awareness once your business is up and running? What is your unique selling point and how will you advertise and promote your products and services?
The effects of the COVID-19 crisis have taught us that businesses need to be better prepared for unprecedented events in the future that can turn operations on their head. So, instead of only planning for these in the contingency plan, you should plan for how you can pivot your business in a virtual way in your wider operating plan. Lenders will want to feel confident that they are investing into a business that is going to be successful in the long term and won’t flop when difficult situations arise.
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3. Product description
This section goes into greater detail about the products and services the franchise offers. In some business plans, this will be included in the business description section. However, if you feel that your product or service demands greater attention, it can easily be expanded into its own section.
In this part of the plan, you may also want to discuss what you can and can’t sell as part of the franchise system. Often, there are restrictions on what products a franchise can offer and what it’s unable to supply. If your franchise has a monopoly on a particularly popular product, this is where you explain just how big a selling point this is.
4. Management summary
The management summary deals with your business’ general organisational structure and, more specifically, your management team. It will establish how you want to organise the business, who will occupy key posts and what makes them qualified for the role.
It’s wise to include as much background and employment history as possible for each of your management staff, as lenders will want to know that you’ve got a capable team around you. However, it's vital to ensure that all the information you include is in some way relevant to their role at the franchise – don’t bother including unnecessary background information.
5. Market analysis
This is where you examine the current market conditions and who your competitors are to help demonstrate how future-proof your business is. You need to include lots of relevant facts and statistics in this section.
Here, you detail the resources you will use to operate your franchise, including your sources of supply and materials. You should cover what you already have and need to acquire, as well as your health and safety polices.
7. Sales and marketing
The sales and marketing section is where you talk about the sales and marketing methods you’ll be using as a franchisee. Most owners of profitable franchises ensure that they retain control over their marketing campaigns and resources. This allows them to carefully nurture the business’ branding and ensure all franchisees are putting out a unified, coherent message. Because of this, you’ll need to do your research and request information from your franchisor to ensure that your business plan is accurate.
Most of this section will be dedicated to explaining the techniques you’ll use and detailing where you’ll advertise, how you’ll attract new customers and how you’ll launch your new business.
8. Business premises
Here you can talk about the proposed franchise premises: its location, running costs, insurance, planning consent and how it’s the best premises for your business needs.
9. Financial projections
This section will form the main body of your business plan. Here, you’ll need to predict how your business is going to perform and detail any costs and fees. Developing accurate financial figures is integral to the success of the business. This is where franchisees can benefit. As there are likely numerous franchise units already in operation, franchisors tend to have a good idea of the amount of profit franchisees can expect to make. Your franchisor will also be able to help you prepare any cash flow projections.
There are a lot of things to consider when you’re preparing financial projections – and they’re notoriously inaccurate – but always remember to take a cautious approach and not make wildly ambitious predictions. A lender is just as likely to frown on unrealistic expectations, as they may indicate a business that’s barely profitable.
10. Financial needs
Finally, the financial needs section of the business plan deals with your outgoings and the amount of capital you’ll require to run the business. It’s where you’ll talk about the issues of royalty fees, marketing fees and other regular expenditures. Most franchise business plans will also require a cash flow statement, profit and loss statement, and balance statement to be included in this section.
Spend time and effort to make this section as accurate as possible – even if you don’t need to borrow any money.
Include these important elements in your franchise business plan
These are the key elements that you need to include, but there is flexibility to organise information in a way that works best for your particular business model.
Your franchisor’s help will make creating your business plan easier than it would be for someone setting up an independent business. A lot of the hard work will already have been done for you, as you’ll most likely have access to business plan templates from your franchisor. You can then alter these to suit your requirements. Your franchisor will also give you a copy of the company’s Franchise Disclosure Document (FDD), which will give you all the financial information you’ll need to finalise your plan.
If you’ve found this helpful, you may also be interested in taking an in depth look at why a business plan is important. In another one of our articles, you can also find out more about why taking the time to create a business plan is so crucial and top tips for writing a fantastic one.
Becky Martin, Point Franchise ©