If you’re considering the purchase of a franchise, you’re probably exploring financing options. And an essential part of that process is the preparation of a franchise business plan. It’s likely the first thing a lender will ask you for. Take note that even if you’re not seeking outside funding, developing a plan is worthwhile. Here’s a look at what’s involved.
Readily available information and data
Preparing a franchise business plan is a lot easier than preparing a plan for an independent startup business. This is because you have easy access to much of the necessary information. During the sales process, the franchisor typically provides a great deal of verbiage you can use for the narrative sections of the plan. And you can find much of the required financial information in the earnings section of the Franchise Disclosure Document (FDD).
In addition to the typical sections in any business plan, a franchise business plan will include a section outlining the track record of and support available from the franchise company. You may include items like the franchise company’s sales brochure or FDD as attachments to your plan. This additional information can give lenders a higher degree of confidence in your likelihood of success.
5 sections of the business plan
The format of a typical business plan, whether it’s for an independent business or franchise, usually includes the following 5 sections:
Introduction
This describes the business, including the products or services the business offers, the size and competitive aspect of the market, the operational approach that will be used, and the challenges and risks associated with start-up.
Management section
This section identifies and provides background information about the people in management roles. It might include their resumes or descriptions of relevant prior experience. A franchise business plan also provides information about the franchisor’s direct support staff.
Marketing section
Here you define your target customers and how you plan to attract them to your business. This section explains the business’s competitive advantages and details marketing and advertising plans.
Pro forma financial projections
This section includes income statements, cash flow statements, and balance sheets that project the anticipated financial performance of the business. The statements should specify all material assumptions used to prepare the projections. Prepare these projections on a very conservative basis in case unexpected delays or challenges arise.
Financing needs
Even if you are self-funding the business, always prepare a section related to financing needs. This should include an analysis of all startup costs, including working capital to cover initial marketing plans and operating losses until you reach the projected break-even point. Even if you’re not borrowing from an outside source, the process of developing this section will prepare you for what’s to come in starting up the business.
You should be able to find much of the information you’ll need for the Introduction and Marketing sections on the franchisor’s website. The FDD will help you complete the Financing Needs portion of the report and, if the franchisor publishes a representation of earnings in Item 19 of the FDD, you may be well on your way to completing the Financial Projections section as well.
A helpful and worthwhile process
Some franchise companies require prospective franchisees to start and/or complete their franchise business plan prior to being approved. In any event, it’s a good idea to start thinking about your business plan early on. The process of preparing the plan is helpful in many ways. It forces you to consider options and formalize your projected course of action in the new business. You’ll typically identify questions during this process that may not have otherwise occurred to you. Contact the franchise company to get answers and make sure you have a clear understanding of the franchise prior to making a final decision to proceed.
Remember to update and finalize your business plan after completing the franchisor’s initial training. After training, you’ll have a far greater understanding of aspects like operational and marketing plans for the business. Most franchisors will also provide financial data that you can use to double-check, or even replace, the Financial Projections section of your business plan. Review your entire business plan based on your new knowledge, and you’ll be as prepared as possible to get your new franchise business up and running.
FAQ About Franchise Business Plans
What are the key elements of a strong franchise business plan?
A solid business plan for a franchise should include an executive summary, detailed description of the franchise system, a market analysis that identifies your target market and direct competitors, and a competitive analysis showing your unique value proposition. Additionally, a strong operations plan outlines day-to-day operations, inventory management, and delivery services if applicable. Including accurate financial projections, a break-even analysis, and funding requirements is also critical.
How does a franchise business plan differ from a traditional business plan?
While both types of plans share many components, a franchise business plan typically includes information about the franchisor, such as support systems, the franchise disclosure document (FDD), franchise agreement details, and franchise fees. Since the franchise model is already proven, the plan often relies on data from the franchisor about the business model, marketing strategies, average ticket size, and revenue projections, making it easier to complete than a plan for an independent startup.
What financial details should be included in the business plan?
Your franchise business plan should outline the total initial investment, including the franchise fee, operating expenses, marketing expenses, and working capital needed until break-even. You’ll also need detailed financial projections such as income statements, cash flow forecasts, and balance sheets. Be sure to base these projections on conservative estimates and reference data from the franchise disclosure document or information provided by the franchisor.
How should I approach marketing strategies in a franchise business plan?
The marketing section of your business plan should clearly identify how you plan to attract customers. Include social media platforms, advertising channels, local promotions, and community outreach strategies. Back up your marketing strategy with market research on foot traffic, customer behavior, and your franchise unit’s competitive advantages. If the franchisor provides a marketing playbook, reference it while tailoring your plan to local market conditions.
Why is it important to revisit and update the entire business plan?
It’s essential to revise your detailed business plan after completing the franchisor’s initial training. Training gives you better insights into business operations, marketing, and operational plans. You’ll also have a clearer understanding of the franchise’s intellectual property, mission statement, and any potential risks. Updating the plan ensures that your business decisions reflect real-world expectations and sets a stronger foundation for launching your new business.