How to Create a Franchise Business Plan
Thinking of buying a franchise?
If so, you’ll need to know how to create a franchise business plan. Sometimes franchisors require that entrepreneurs complete a business plan before they’ll approve a new franchise. Writing a business plan forces you to think through the challenges you’ll face when you get your new franchise off the ground.
If you’re planning to seek financing from third-party sources, this is one of the first documents they’ll ask for. In this article, we’ll go over these points:
How writing a business plan helps your franchise to succeed
The most important parts of a business plan
How buying a franchise makes it easier to write a business plan
Let’s get started!
Importance of the Business Plan
Most of the time, you’ll need a business plan to secure bank funding. Lenders use them to assess how viable a business idea is.
However, a business plan not only helps you get a loan—it also forces you to take a hard look at your investment. This allows you to anticipate the challenges of starting a franchise so you can more easily overcome them.
The process of writing a business plan helps you come up with a plan of action. This will assist you in identifying questions you can ask the franchisor. That way, you’ll have a better understanding of the franchise before you get started.
What’s a Franchise Disclosure Document (FDD)?
Once you've decided to start a franchise, one of the first things you'll want to do is create a business plan. However, you won't have to write one from scratch. Many of the details you'll need can be found right in the franchisor's Franchise Disclosure Document (FDD) and the Uniform Franchise Offering Circular (UFOC).
An FDD is legally mandated to be given to people interested in buying a US franchise as part of the pre-sale due diligence process. The document contains information franchisees need to know before they plunk their hard-earned money down.
This is one area where starting a franchise is vastly superior to starting an independent business. The FDD and UFOC contain many details you’ll need to write your plan. The helpful information in both documents include:
Franchise’s corporate background
Target market description
Competitive advantages of the product
Marketing strategy
Initial and ongoing costs
Some franchisors even help franchisees write their business plan.
Parts of a Franchise Business Plan
A franchise business plan should be written in such a way that it overcomes every single one of your lender’s objections. Here are the sections you’ll need:
Executive Summary
An executive summary is the first section of a business plan. It provides a brief overview of the rest of the plan and contains its main points.
Think of it as your two-minute elevator pitch.
Some people call the executive summary the most essential part of the entire business plan. If it isn't eye-catching, your intended audience won't read it. This would be disastrous if you planned on getting startup funding for your venture.
Write the rest of your plan first, and when you’re all done, summarize the whole thing in this section.
Business Description
The business description portion of a business plan explains what your company does. You'll find many of the details you need for this section under item one of the FDD, including the franchise company's history.
Include the factors that will make your business successful, what's going to provide it with a competitive edge, and a list of products or services you intend to sell.
Product and Services Description
Your product and services section should include:
A description of the products or services you’re planning on offering
How you’ll price your products or services
A comparison of the products or services your competitors offer
How you’ll process orders
How you’ll deliver your products
Market Analysis
The market analysis section should include:
- MARKET TEST RESULTS: Include the results of any market research you conducted. Only the most crucial statistics should be included in this section. Detailed data should be placed in the appendix.
- INDUSTRY DESCRIPTION: Add statistics about the industry, including size, growth rate, trends, and outlook.
- TARGET MARKET: Who’s your ideal buyer? This data should include demographics, including age, gender, income level, and lifestyle. Include data on target market size, buyer motivation, and how you intend to reach your audience.
- COMPETITIVE ANALYSIS: Who’s your competition? What are the strengths of the competition? What are their weaknesses?
Sales and Marketing
Talk about your overall marketing plan in this section.
However, you’ll need to research the customer acquisition strategy of the parent company to do so. Include what kind of advertising and marketing support you’ll be getting from them.
Make sure you get answers to the following questions:
How will they get the word out about the newest store in their franchise?
What kind of ongoing advertising campaigns can you expect?
How will they help drive traffic to your shop?
Organization and Management
List your management team members. Include as much prior experience and background information as possible, focusing on things relevant to the business. Lenders need to evaluate risk, and often, a management team with lots of experience might lower the perceived risk in the eyes of bankers.
State whether this will be a sole proprietorship or if there will be more than one owner.
Financials
This section is an analysis of all startup costs related to your new venture, including working capital to cover operating losses until your business breaks even.
This is where you provide the numbers that back up everything you describe in the other sections. There should be profit and loss statements, balance sheets, and cash flow statements for the next three years. Include graphs and charts detailing the startup costs and projected sales forecast for the franchise.
Get the advice of the franchisor and fellow franchisees about what realistic financial projections might look like for your business. These projections should always be conservative since it's impossible to predict the unexpected delays or other problems that are part and parcel of starting a new venture.
Find out from the franchisor what the ongoing fees and royalties are going to be and what other operating costs arise during your first year in business. Ask how much operating cash you’ll need to have on hand and how long they estimate it’ll be before your location becomes profitable.
Offer a reasonable time frame when the lender can expect full repayment of the loan and back that up with hard numbers.
Appendix
The appendix is always the last section of a business plan.
Include additional documents to give your reader a more complete picture of your enterprise. This could be tables or charts that would add too much complexity to other sections, resumes, tax returns, or newspaper articles. It could also be anything else that gives your audience a more comprehensive understanding of your business.
Outside Resources
The Small Business Administration (SBA) has a lot of resources for entrepreneurs looking for business plan assistance. You can also outsource your business plan writing by hiring a professional.
Your Map for Success
There's never been a better time to get into franchising. When you’re ready to take the plunge, Franchise123 is your start-to-finish map to business success.
Everything you need to find the franchise opportunity that’s right for you is all in one easy-to-use place. Research the ones you’re interested in. Then, choose one that appeals to you when the time is right.
