Entrepreneurs who have decided to franchise their business owing to its past success and ability to replicate the business idea will need to write a business plan for a franchise. In many cases, this business plan will share many similarities with business plans for start-ups. However, a fundamental difference is that a franchise business plan must cover two types of target audiences: prospective franchisees as well as their customers.
In a sense, this is what sets a franchise business plan apart from other business plans that may apply to sole proprietors, limited liability companies, partnerships and others. In this article, we explore what a franchise business plan is, why it is important for your franchise business and how to write a business plan for a franchise.
Table of contents:
What is a franchise business plan?
A franchise business plan is a document that is prepared by the entrepreneur in question when they wish to franchise a business. This document is extensive and plays an essential role in the business’ future development.
A franchise business plan is a living document that will require input from management and team members and which will be adjusted over time to meet the goals and aspirations of the business owner.
However, in short, a franchise business plan is a “roadmap” which methodically sets out how business objectives will be achieved. It can be used both internally and externally.
Internally, it can be used by management teams to check whether the business is on track with its predetermined objectives.
Externally, it is presented to lenders for financial assistance. Such lenders will then evaluate the depth, complexity and potential for profitability and returns of the business in question. They will then decide whether or not to award a prospective franchisor the necessary capital to proceed with the next step towards franchising their business and the likelihood and time frame for such capital to be repaid.
Why you need to create a business plan
As a “roadmap” to a franchise business’ future structure, operations, organisational team, marketing strategy, financial projections and more, the importance of a business plan cannot be overstated.
There are several crucial reasons that you should consider when it comes to the question: why write a business plan in the first place?
Here are some of them:
- Clarify and evaluate your franchise business idea from multiple angles for more certainty and higher chances of success.
- Helps with goal setting and expansion/growth plans including sales, marketing and business operations.
- Enables you to identify potential problems that could arise and how you can circumvent them.
- It acts as a way of tracking your progress.
- Gives you more clarity about your financial needs and the projected financial returns you can expect.
- Assists with strategic planning over the short, medium and long term as it involves detailed research into a wide number of stakeholders.
- Communicates your vision to prospective employees and investors, giving them more confidence in your franchise venture.
- Attract funding from investors, banks and lenders.
Why franchisors are looking for business plans from their franchisees
When a franchisee expresses interest in a franchise opportunity, franchisors may require that these franchisees prepare a business plan.
This business plan is presented to lenders to enable them to assess whether the prospective franchisee is as thoroughly prepared for the business journey ahead to make it as successful as possible.
The primary purpose of determining this is through a detailed business plan that sets out the franchisee’s organisational structure, operations, market research, marketing plans, financial projections and more.
Whereas a franchisor can often offer help to a franchisee in developing their business plan, financial projections are typically not included by the franchisor because this could have important legal ramifications.
A further reason why a franchisor requires a business plan from their franchisees is to determine whether the franchisee is able to handle and abide by the franchise business model whilst serving the franchisor’s customers in a manner that ensures consistency across the brand.
Important elements you need to include in your franchise business plan
Your franchise business plan should contain several important elements. Although these may differ from one franchisor to the next, some of the sections are standard and uniform across the board.
These may include:
- An executive summary: this is the first page of the franchise business plan and contains a concise summary of everything that is contained in the remainder of the document. As such, it is usually written last. It can be divided into three sections: a business summary, business aims and a financial summary.
- Company description: the company description contains information about the type of business in question, who it is led by, the background, education and previous experience of the owner and what value they bring to the business.
- Mission and vision statement: the mission statement is generally expressed as a sentiment that is about one sentence long. It indicates what purpose the business seeks to achieve. The vision statement on the other hand is what the business’ meaning and purpose is for each of your stakeholders.
- Business structure: since your focus is on creating a franchise business, the business structure to be clarified here is a franchise business.
- Products and services: other aspects that need to be clarified are what products and/or services your business will be providing to its customers. If you are offering a variety of these, consider grouping similar ones together and describing them briefly. If you are only going to offer one product/service or a handful, you can spend more time describing each one in detail.
- Industry analysis: studying the industry in which your franchise business will operate is also important to show lenders that your business idea is viable and replicable. Industry analysis will start with what other companies (i.e. your competitors) are offering the market, what prices they are asking for their products/services, where they are located and how you plan to strategically position your franchise business so that you outperform them.
- Market analysis: as part of the market analysis, you will need to conduct customer segmentation. This will necessarily involve identifying your target market and their needs as well as determining strategies of reaching them and winning them over to your franchise product or service offering.
- Logistics and operations: logistics and operations refer to the actual production or service delivery activities that you will be carrying out, how you will do so, at what cost, where and when, as well as how frequently these logistical aspects will need to be employed.
- Marketing plan: a detailed marketing plan is created after conducting market research and analysis. The plan will contain the strategy through which customers will be marketed to in terms of new promotions/discounts, special offers, company news, raising brand awareness, boosting sales, measuring key performance indicators (KPIs), refining the strategy and measuring its success.
- Business management and organisational structure: this section will contain details of the leadership and management of your franchise business as well as a brief outline of what skills, knowledge and experience each person brings to the table.
- Financing projections/financial plan: this is possibly the hardest but most important section to prepare because it will undertake number crunching, forecasting and analysis.
- Appendix: use the appendix to attach any relevant documents to support any preceding section of your franchise business plan.
How to create a franchise business plan
Knowing more about the various elements that go into a franchise business plan, you can now proceed. Below are some steps to follow in the process of how to write a business plan for a franchise.
Step 1: Present your business and your business idea
Since you already have a successful business behind you and you are seeking to branch out into franchising, you need to indicate why your idea can be replicated successfully in different territories.
Talk about the history of the business, the ownership structure, when it started trading and its progress to date.
Discuss your products and/or services mentioning what sets them apart and what benefits they offer. Are you planning on introducing an entirely new concept to the industry? Are there any disadvantages that you foresee and how will you deal with these?
Step 2: Highlight the key features of the industry
Mention any industry regulations that must be abided by, what types of companies dominate the industry and who the major players are, what key features of the industry need to be known, etc.
Step 3: Specify your target market and competitors
Your target market and competitors should be clearly identified as should the market in which you will be operating.
Target markets and ideal customer personas should be identified including their key demographic information and what influences their purchasing decisions.
Clarify what size of market share you aim to acquire and the steps for doing so.
Outline your primary competitors. Pay special attention to emphasising what their advantages and disadvantages are compared to your franchise business offering.
It’s important to never openly criticise your competition. Instead, approach any references to them with due respect.
Step 4: Outline your marketing and sales strategy
What price will you charge for your products or services – low, mid-range or high? What is the unique selling point that you will seek to emphasise? Do your products or services have unique features and how will these be set apart from competitors? Which marketing channels or combinations thereof will you use? What are your monthly, quarterly and annual sales KPIs and how will your marketing strategy help you reach these?
What will your marketing budget be? What measures will you put in place to test, refine and measure the success of your marketing and sales efforts? How will sales be conducted – online, over the phone, or over the counter at a retail outlet? What is your anticipated cost per acquisition? How will you seek to reduce this? How will you differentiate between marketing for franchisees and marketing for your customers?
Step 5: Note your organisational structure and staffing needs
Who will sit on your management team and what skill set do they bring to the table? Who will be responsible for what department in your franchise business?
How many staff members will you start out with? What will their key roles and responsibilities be? How much will it cost you to retain your staff on a monthly basis?
Also important is the recruitment of franchisees. Will you have a dedicated team to train and support these and what kind of support will you offer? What will be the defining characteristics of your franchise offering and unique selling points?
Step 6: Clarify the intricacies of your business operations
Where will the franchise business headquarters be located? In which territories will future franchisees operate? How will the division of territories be undertaken (if any)?
Do you make use of production facilities? If so, how will you streamline your logistics processes to ensure that your franchisees benefit from these operations?
Will you need to make new investments in equipment? How is your existing infrastructure able to support future growth and further expansion?
What are the relationships with your suppliers like and who are they? What sort of pricing structure can they offer your future franchisees to enable them to optimise their investment?
Step 7: Prepare your financial forecasts
Start out by presenting your sales, income, turnover, profit and other historical figures to provide proof of your current business’ success before you turn to franchising. Going back between three to five years should be sufficient.
What is the gross margin on each product? How does capital flow in your business in terms of stock, debtors, creditors, etc.
What major financial investments have you made and what have been the results of these? Offer an updated balance sheet including a profit and loss account. Provide comparisons with industry norms.
Once the historical aspect has been taken care of, it’s also advisable to create forecasts for the next few years. If you make any assumptions for any of your forecasts, each of these should be explained and supported in full.
How realistic are your forecasts? Never try to inflate projected income, sales, profit, turnover or other amounts. Be as realistic as possible. Factor into account that payment delays may occur. How do you plan on dealing with these?
Specify the type and amount of financing you are looking for. Is it a medium- or long-term loan or an increased overdraft facility? What interest rates and instalment amounts can you afford to pay over the loan period?
Concluding remarks
Franchising your business will require a franchise business plan to put your goals into perspective and to help lenders back your business idea. And although it can be quite a detailed process, there are several key steps you can take to prepare a thorough and detailed business plan to convince lenders to support your franchise business.
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