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Developing Your Franchise Business Plan

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An essential part of any franchise business is its plan for success. The word "plan" stems from the Latin planum, meaning to lay a foundation or groundwork. Your business plan lays the foundation for your new business. Franchisors require that new franchisees develop a business plan, and it is essential when pursuing third-party financing.

Remember the famous saying: "Always plan ahead. It wasn’t raining when Noah built the ark." The discipline of developing a franchise business plan lets you look at the challenges ahead and your expectations for your new business. This involves looking at your business ideas and financial needs as well as your marketing and management plans.

The first part of your franchise business plan should have a cover sheet, a statement of purpose, and a table of contents. The cover sheet includes the name, address, and telephone number of the business along with the names of all principals. The statement of purpose gives the reason for the business plan. The table of contents lists the headings and subheadings in your plan. The following sample is courtesy of the Small Business Administration:

Sample table of contents:

I. The Business

  • Description of business
  • Marketing
  • Competition
  • Operating procedures
  • Personnel
  • Business insurance
  • Financial data

II. Financial Data

  • Loan applications
  • Capital equipment and supply list
  • Balance sheet
  • Breakeven analysis
  • Pro-forma income projections (profit & loss statements). Include three year summary; detail by month, first year; detail by quarters, second and third years; assumptions upon which projections were based.
  • Pro-forma cash flow (follow guidelines for pro-forma income projections above)

III. Supporting Documents

  • Tax returns of principals for last three years
  • Personal financial statements (all banks have these forms)
  • Copy of franchise contract
  • All supporting documents provided by the franchisor
  • Copy of proposed lease or purchase agreement for building space
  • Copy of licenses and other legal documents
  • Copy of resumes of all principals
  • Copies of letters of intent from suppliers, etc.

One of the advantages in developing a franchise business plan is that a good deal of the information is provided by the franchisor. Much of the financial information is available in the Franchise Disclosure Document (FDD).

A franchise business plan has four areas:

  1. Description of the business
  2. Marketing plan
  3. Financial management plan
  4. Management plan
Description of the Business

When preparing a description of your business, first look at the nature of your business. This includes what products and services you offer for sale, who your customers are (and how what you are selling benefits them), and the conditions of your overall relationship with the franchisor. Also included is the location of your business in terms of desirability and accessibility.

Marketing Plan

Franchises generally use the marketing strategy developed by the franchisor. Marketing and advertising should be covered in your franchise agreement. Marketing usually involves determining who your customers are, identifying their needs, and fulfilling those needs. Questions you need to answer include: Who is likely to buy your goods and services? What is your potential market share? How can you hold and expand your customer base? What is your pricing strategy?

Financial Management Plan

Financial management is one of the keys to keeping your business profitable. Do this by planning a realistic budget that covers startup costs and operating costs. Begin by asking yourself the following questions:

  • How much money do you have?
  • How much money will you need to purchase the franchise?
  • How much money will you need for startup?
  • How much will you need to stay in business?

Your operating budget should show the expenses you will incur and how you will pay for these expenses. You should cover the first three to six months of operation. This section should also address your accounting system and inventory control. In franchises, the franchisor may require you to use a particular type of accounting and inventory system. You will also need to include any pertinent financial forms previously listed in the sample table of contents.

Management Plan

With franchises, the franchisor may provide operating procedures, manuals, and materials. This also can include training and assistance. Answer these questions: Who are your prospective managers? What are your plans for hiring and training personnel? What salaries and benefits will you offer?

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