Franchise Model Business Plan-Sparkleminds
The good news is that a lot of the legwork
will have already been done for you by the franchisor versus developing a
business plan for a startup from scratch. Most of the financial information you
will need can be found in the franchisor’s Franchise Disclosure Document (FDD).
But there is still work to be done.
There are a variety of templates available
for developing a business plan, but here we outline the top six sections that
should be included:
1. Executive Summary
The Executive Summary portion of your
franchise business plan should describe your business’s purpose and goals.
Begin with a short description of your product or service and list your
objectives. How are you fulfilling a hole within the marketplace? What is the
growth potential? Outline how your business will succeed and achieve its goals
given the market and competition.
2.
Business Description
The next part of your business plan will
be a thorough description of the franchise business. Item 1 of the FDD provides
an overview and history of the franchise. A rundown of the products and/or
services offered, an overview of the market and competition, an explanation of
the operations process for delivering goods to the consumer, and a summary of
the risks and challenges should also be included in this section.
3.
Management Summary
The next part of your franchise business
plan should include a listing of the key members of your management team who
will be an integral part of the day-to-day operations. Include as much
background information and prior experience as possible for each member
focusing on items most relevant to the franchise business.
4.
Sales and Marketing
In franchising, sales and marketing
tactics are largely dictated by the franchisor. You will need to research their
process for targeting new customers and include an explanation of the marketing
and advertising support offered to you by the franchisor.
How will they get the word out about your
new location? What types of ongoing advertising campaigns do they provide? Talk
to the franchisor about how much leeway individual franchisees have in local
marketing and advertising and include a plan for your specific unit to show how
you will drive customers to your business.
5.
Financial Projections
Item 19 of the FDD outlines the financial
performance of both franchised and franchisor-owned units but keep in mind that
profitability can vary from unit to unit.
Many variables go into predicting profits for
an individual franchise location including geography, sales volume, and
management. Look to the franchisor to help guide you based on similar units and
talk to other franchisees. Remember, it’s better to err on the conservative
side when making financial projections.
6.
Financial Needs
Your financial plan should include three
key items: a profit and loss statement (P&L), a balance sheet, and a cash
flow statement. A lot of the information you need for this section can also be
found in the FDD including Items 5-7 which lists startup costs and estimated
initial investment.
It's important to research any ongoing
fees and royalties that may be required of you as well and ask the franchisor
about any other costs that could arise during your first year of operation.
There is no exact formula for developing
your franchise business plan but these key elements are fundamental. Remember
that your business plan is essentially a sales document and should demonstrate
how and why your business will be successful.
Creating a Business Plan for Your Franchise:
Creating a business plan doesn't have to
be complicated.
There is no standardized length for a
business plan, but no lender wants to read a novel-length presentation. The
main thing is that the plan is thorough enough to cover all aspects of your franchise.
You want to give the lender confidence that you are prepared to take on the
managing of a business that will turn a profit in a reasonable amount of time.
The Franchise Disclosure Document (FDD)
provided by the franchisor of the system you are investing in contains a great
deal of the information needed to complete a business plan.
This information includes the company’s
corporate background, a description of the target market, the competitive
advantage of the product/service, marketing initiatives, plus the start-up and
ongoing costs. Some franchisors even offer assistance to franchisees in the
preparation of the plan.
Common parts of a business plan include
the following; according to the Small Business Administration (a sample
business plan is located at the end of this article):
Company description: A good place to look
for the information for this section is Item 1 of the FDD. Provide an overview
of the franchise and its history to the lender. You will also provide a brief
outline of the franchise’s service/product (more detailed information will be
given in the next section).
Service/product description: Describe in
detail the service and/or product your franchise will provide to customers.
This section can be combined with the company description. Again, Item 1 of the
FDD is where you will find much of the information you need for this section.
Item 16 will also help discuss what you will and will not be able to sell as a
franchisee of a particular franchise system.
Market analysis: Use this section to prove to the potential lender that you are not jumping into a business venture on a whim. Concentrate on the specific area (market) in which the franchised business will be located. The territory described in the FDD will help you to a point.
Franchise Business Plan
Management structure: This section
provides a look at the people who will be responsible for the day-to-day
operation of the franchise, particularly you as the owner.
Is
this venture going to be a sole proprietorship or will there be multiple
owners? Explain if you will be involved day-to-day with business operations, or
will be acting as an absentee owner.
For yourself and all of the others with an ownership stake, if applicable, detail all business qualifications.
Marketing plan: 'How are you going to get
customers?' is the main question you’re answering in this section. Use FDD Item
11 to your advantage here. It provides an overview of the franchisor’s an advertising
and marketing efforts. Also, it describes the training you will complete before
opening. Often marketing and sales courses are part of required training.
Financials: This is the meat of your
business plan. In this section, don’t only ask for the money you need. Give the
lender the big picture of your financial situation as well. Detail how you are
going to obtain the entire initial investment. Oftentimes, a lender will not be
financing all of the franchise investment. Are you using a mix of personal
savings, loans, credit, etc.?
In addition to the funding request, you
will be doing some financial projections. Give a reasonable time frame when the
lender can expect full repayment of the loan, and back up that claim with
figures. Include graphs and charts detailing the start-up costs, projected
profit and loss, and projected sales forecast for the franchise.
The franchisor can be of significant help
to you in completing this section (via Items 5 and 19 of the FDD, and in direct
conversation). However, keep in mind the franchisor is restricted legally about
making certain claims about projected earnings.
Be conservative with the projections as unexpected
delays and unforeseen circumstances do happen.
Appendix: The appendix technically isn’t a
part of the business plan, but an additional section to present items that
would enhance your presentation.
Include items you feel would be necessary
to giving the lender a complete picture of you and the franchise you are
seeking financing for. Examples include the resumes of management figures, tax
returns, media clippings, etc.
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