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What to include in a franchise business plan Back

What to include in a franchise business plan

Writing a business plan is one of the most important processes to complete in the startup of a business, a process which equally applies to franchises as well as traditional startups.  The entire process of formulating and articulating a business plan requires the new business owner to think long and hard about the challenges they can expect to deal with and the (realistic) expectations they have in the short, medium and long term. Any new business plan should address the issue of financing: will they require a loan or will they finance the startup from savings?

One of the major benefits of buying a franchise is that when it comes to preparing a business plan you will not be alone.  Most franchisors will provide a great deal of advice and help to prospective franchisees: indeed, they will have assisted numerous other small business owners within their franchise and will know exactly what you need to include in a business plan for their business in your area. The entire startup process, including writing a business plan, is part of the fee structure of a franchise. You have the benefit of expert advice when you most need it and a good franchisor will continue the support throughout the term of the agreement.

There are a number of things new franchise business owners should include in their business plan. The following main sections should be included:

1. Introduction/Executive Summary. The executive summary is an overview for the entire plan - we suggest that you write this section last, as completing the following steps will have give you a greater understanding of your business. Writing the Executive Summary first will result in something more akin to a 'wish list'. This section should a complete description of the business, including an identification of the product or service involved, the size and competitive nature of the market for the business, a description of the operational approach used to take the business to market, and the challenges and risks associated with the business startup.

2. Marketing Analysis.   This section will prove to a potential lender that you are serious about your business and have conducted extensive research - don't forget that many business banking managers will have seen countless business plans so if you want to borrow money you will need to impress them. The business plan is one of the ways you can give them confidence in you and your plan. Concentrate on the specific area (market) in which the franchised business will be located. The territory description in the FDD (Item 12) will help you to a point. Give a brief discussion of the following;

  • Market size
  • What kind of people (demographically and financially) make up this market?
  • Is there space in the market for another business or do you haver a unique, in-demand product/service?
  • If there is competition, who are your competitors and do you have anything to distinguish your business over theirs (competitive advantage)? 
  • Discuss what experts are forecasting for the service/product in terms of trends and growth possibilities for your specific market (can include demographic, legislative or environmental factors).

3. Marketing.  Explanation of how you're going to attract customers for the new business. This includes an explanation of the competitive advantages the new business would enjoy, an examination of the value equation related to the product or service as it relates to potential customers and, of course, detailed marketing and advertising plans for the business.

4. Financial Projections.  Income statements, cash flow statements and balance sheets that project the anticipated financial performance of the business when it begins operation. The statements should include extensive notes concerning all material assumptions used to prepare the projections. These projections should always be prepared on a very conservative basis, since it's not possible to project the unexpected delays or challenges that always seem to happen on any new business startup.

5. Financing Needs.  Regardless of the source of funding for the new business (even if all funding is coming from your savings), you should always prepare a section of the business plan related to financing needs. This section involves a complete analysis of all startup costs related to the new business, including sufficient working capital to cover initial marketing plans and operating losses until the projected breakeven point for the business. The process of carefully detailing this information, even if you're not borrowing anything from an outside source, will better prepare you for whatever might happen as you get the business set up and operating.

Again, one of the advantages of a franchise business, in relation to creating a business plan, is that most of this information is readily available from the franchise company. You'll usually find that the franchise company's brochure or website contains sufficient information to complete much of the narrative called for in sections 1,3 and 4 above. 
Often, franchise companies require prospective franchisees to begin work or even complete their business plans prior to being approved as new franchisees. This may seem like an unnecessary step at such an early stage, but the process of actually creating a business plan will force you to consider all the (other, maybe even non-franchise) options. Completing a business plan will give you the opportunity to ask questions of the franchisor and allow you to feel completely comfortable with you final decision.  

Remember that your business plan is not a fixed document - you should plan to review your progress at regular intervals and even adjust your business plan as you progress. Regardless of how much research you undertake prior to purchasing a franchise, following your initial training you will have a far greater understanding of the business and of how other franchisees operate within the company.  At this point it would be wise to review your own business plan and adjust anything you feel necessary. 

Formulating, reviewing and adjusting a business plan is key to improving your chances of success in business and your franchisor will be able to help and guide you through every step.