Business Plan definition

The business plan is a key document for all business owners, especially those in the franchising sector. However, there's a great deal of jargon and niche terminology used when talking about business plans. Here, we take a look at some of the main terms you're likely to encounter when looking into franchising and researching business plans in particular.

Business plan

The methodology that you’ll employ to ensure your business is successful. Like all business owners, franchisees need to draft a plan that outlines what their goals are and details how they’ll be achieved. As well as providing a clear route to follow, the business plan is also used to convince lenders of the financial feasibility of your venture. Without a carefully considered franchise business plan, there is no borrowing and there is no business.

Business plan writer

A professional who drafts coherent and convincing business plans. Business plan writers have a great deal of experience working with entrepreneurs, franchisees, and lenders. They know what is required in order to write a successful funding application and can help advise applicants on what the best way to present their case is. While some individuals draft their own business plans, a large percentage employ a professional to help tidy up and improve their plan.

Brand awareness

The extent to which your business and its brand identity are known or recognised by customers and the general public. Improving your brand awareness is an important step in the growth process. An effective business plan will detail how the owner plans to increase brand visibility once the franchise unit is up and running. Successful franchises understand that consumers need to identify with a business’ brand if they’re to form a strong connection with it. Consequently, they’ll often dedicate large amounts of resources to improving awareness.

Cash flow projection

Details all the money that will enter and exit your business over a certain period of time. Typically, a business owner will generate a cash flow projection for a period of 12 months and then extrapolate that out to cover longer periods of time. However, cash flow projections can be calculated over shorter periods of time, too. This type of projection is useful for working out whether your business has sufficient income or cash reserves to cover all of your necessary expenditures.

Customer base

The group of consumers who regularly purchase a business' services or goods. The customer base could also be considered the group of consumers at which you target your products or services. A strong business plan will detail exactly who the customer base is and how you hope to appeal to this market.

Due diligence

A thorough and detailed assessment of a business or business proposition. It will identify all of the assets within the business’ possession, as well as calculate all of the liabilities it is exposed to. All franchisees should perform due diligence before entering into a franchise agreement or submitting a business plan to lenders.

Franchise fee

The payment made to the franchisor by the franchisee in exchange for access and use of their business model. Generally, this a one-off, flat fee that covers the franchisor’s costs when helping to set-up a new franchise unit.

Read more: Franchise Costs and Fees Explained.

Financial forecast

A projection of future business events based upon historical data, trends, and theories. A financial forecast aims to predict where a business will be at any given point in the future by applying past events to the future.

Lender

An individual, organisation, or business that loans money or extends credit. Lenders can include high street banks, specialist franchise financing companies, payday loan businesses, or family and friends. In the vast majority of cases, funds will be borrowed with interest. This interest represents the profit on the lending agreement for the lender.

Management structure

The way in which an organisation establishes hierarchy. The management structure establishes who is responsible for the different sections of the business. Generally, businesses adopt a pyramid structure in which ultimate responsibility for the organisation is invested in a single individual. In franchising, this is the franchisee.

Marketing plan

Details how a business intends to engage with customers in an effort to convince them to purchase their products or services. A marketing plan communicates how a business is going to present itself and its product. It forms an intrinsic part of the business plan, as it shows that the owner has considered what actions the business can take to ensure growth. Lenders will want to see a thorough marketing plan if they’re to agree to a finance application.

Royalty fee

A regular payment made by the franchisee to the franchisor. It is usually calculated as a percentage of sales, though it can also be a flat fee. It forms the basis of the franchise model, as it represents the franchisor’s profit. If there were no royalty fees there would be little incentive in franchising for the franchisor.

Set-up costs

The expenditure associated with preparing, launching, and sustaining a business through its first few months. It can cover assets like equipment, property, staff and stock, as well as the various fees associated with the franchising system. It's important to recognise that there is a difference between the ‘minimum initial investment' and total start-up costs.

Working capital

The funds immediately available to a business on a day to day basis. Working capital is required to keep the business operating over a long period of time and ensures that business can continue on days where no profit is made. It's also used to support businesses early on in their development when they're not yet profitable. Both franchisors and lenders will want to know that you have sufficient working capital to ensure the success of the business.

Conclusion

As you can see, there’s a large amount of technical vocabulary to get to grips with when talking about business plans. Much of the language used is relevant to other areas of business and finance, too. This makes it particularly useful to those hoping to set up a franchise and manage their own business.

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