Developing a Business Plan for Your Franchise: When and How to Do it

business plan

Creating a business plan is a critical step toward the launch of any new business, including a franchise. It’s a step to take earlier in the process than you may think. Will you be seeking financing from a third party? If so, your business plan should be complete before you even ask. And that’s a good thing, because the process of preparing a business plan is very useful. It forces you to anticipate and answer a number of questions about your expectations for the new business. You’ll identify the challenges ahead and be ready to tackle them.

Developing a business plan for a franchise is much easier than for an independent business start-up. You’ll have a good deal of information already at your fingertips or readily available. You can find much of the verbiage you’ll need for the narrative portions of the business plan within the franchisor’s documents. Look to any earnings representations in the franchisor’s disclosure documents to find the financial information you need.

5 Key Sections to Include in Any Business Plan

Each business plan is unique to the particular business it describes. Nonetheless, there are several sections common to any business plan. Franchise business plans will have an additional section outlining the track record, personnel, and support available from the franchise company. You can also include items like the franchise company’s sales brochure or Franchise Disclosure Document (FDD) as attachments to your business plan. This additional section will give lenders (and others you may be trying to impress) a great degree of confidence going forward.

Five key sections contained in a typical business plan, whether for a franchise or independent business, are:

Introduction

This section describes the business in detail. It specifies the product or service involved, the size and characteristics of the market, and the degree of competition present in the market. It also sets forth the operational approach for taking the business to market, as well as any associated challenges and risks.

Management

This section lists key management roles for the new business. It names the people who will fill each role and provides background information about each one. Each bio should emphasize prior experience that’s relevant to the new business. For a franchise business, this section will also include information about the franchisor’s staff who provide support to franchisees.

Marketing

This section defines the target market: who is your customer and how will you attract them to to the business? It explains advantages your business will offer over competitors and details marketing and advertising plans.

Pro Forma Financial Projections

This section includes projected income statements, cash flow statements, and balance sheets that show the anticipated financial performance of the business. It discloses all material assumptions that are used to prepare the projections. Make sure to prepare these projections on a very conservative basis. There will always be delays and challenges that you can’t anticipate.

Financing Needs

Be sure to prepare this section even if all funding is coming from your savings. It includes a complete analysis of all start-up costs, including working capital to cover initial marketing plans and operating losses until the projected breakeven point. Even if you are not borrowing, the process of carefully detailing this information will better prepare you for whatever might happen as you get the business up and running.

Don’t be overwhelmed as you consider the information above. Remember, for a franchise business, most of this information will be readily available from the franchisor. Check out the franchise company’s website for information that will help you complete the Introduction and Marketing sections. The franchisor’s FDD will help you with the section on Financing Needs. And, if the franchisor’s FDD includes Item 19 earnings representations, you’ll be on your way to completing the Pro Forma Financial Projections section.

Preparing a Franchise Business Plan: The Early Bird Gets the Worm

Some franchise companies require franchisee candidates to begin work on (or substantially complete) their business plan before they can be approved as a new franchisee. Even if they have no such requirement, it’s a good idea to prepare your business plan relatively early on. The process will help you identify a number of questions that may not have otherwise occurred to you. You’ll then have a chance to contact the franchise company and get answers. Make certain you have a clear understanding of all aspects of the franchise prior to making your final decision.

Finally, remember to update and finalize your business plan after you complete the franchisor’s initial training for new franchisees. You will have a deeper understanding of operations, marketing plans, and many other aspects of the business after you complete the initial training. And many franchisors will supply pro forma financial models that you can use to double-check or even replace the financial projections in your business plan. Take the time to carefully review your entire business plan based on your new knowledge. That way, you’ll be fully prepared to get your new franchise business successfully up and running.