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:
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.
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.
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.
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.