Preparing a Franchisee Business Plan
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Preparing a Franchisee Business Plan

Historically, a business plan is mostly a financial plan and analysis, specifically focusing on: "Why I need your money, what I will do with your money, how and when you will get your money back, and what a great guy I am and what a great business this is; or, why you should give me the money." It is usually a highly stylized presentation with numerous spreadsheets and exhibits.

This is a justifiable focus for most business start-ups since it is common knowledge, especially among lenders and investors, that many new businesses fail because they "run out of money." The available money usually dries up quite quickly, that is, during the start-up phase of the business. Owning a franchise will help prevent this from happening, thus the need for a different approach to the franchisee business plan.

What Should Go Into a Business Plan and Why

The franchisee business plan must be a total success plan, not just a financial plan. It will, of course, include the expected financial elements mentioned above. However, a great deal of the franchisor's vision, mission, philosophy, operating procedures and experiences must be blended in with and balanced by your firsthand knowledge of factors in the local marketplace. These elements are both needed to allow you to repeat the successes of other franchisees.

In the decision-making process of acquiring a franchise you will have already obtained the necessary local market knowledge for the plan:

    • Working experience in the type of franchise you are planning to acquire
    • Information from telephone calls with, and on-site visits to, currently operating franchisees
    • Comparative industry association statistics
    • Latest information from industry press and newsletters
    • Local economic data from your state industrial commission
    • Local press marketing information
    • Franchisor's FDD
    • Franchisor's literature
    • Other franchisor information such as preliminary plans
    • Population, household and income statistics for market area
    • Special permits and licenses needed
    • A map of the market area with numbered dots for each existing and anticipated competitor outlet
    • Each dot color-coded for independent, competing franchise-other, same franchise competitor
    • Table with a number for each dot with all obtainable information about each competitor:

Location characteristics:

    • Shopping strip
    • Mall, open or closed
    • Visibility
    • Access
    • Parking
    • Square feet of outlet
    • $ sales
    • Length of time open
    • Hours
    • Number of employees
    • Location characteristics

Franchise Type

Your franchise opportunity research has outlined the various types of franchise arrangements you might consider:

Typical franchise types:

  • Single Unit
  • Multiple Units
  • Area Development

Less typical franchise types:

  • Sub-Franchisor
  • Fractional franchises
  • International

Your selection of franchise type will have a very significant impact on your franchisee business plan. For example, a single-unit, 1200-square-foot retail outlet franchise plan will be considerably easier to prepare than a franchise hotel development plan for an area development franchise with sub-franchise rights granted by an off-shore franchisor.

You Are the Planning Staff and More

It has probably become apparent to you by now that the preparation of the franchisee business plan, as well as your ultimate success as a franchisee, will be pretty much be the result of your own effort. In order to write a franchisee business plan that has credibility, it is imperative that you do all your own research. All the analyses need to be examined from both the macro and micro points of view, especially competitive analyses. Your personal support staff is limited at best. It is likely to be made up of your spouse and family, those you pay to prepare the document in its final form and your CPA and attorney.

Once you have signed a franchise agreement, you will find that your franchisor is in a position to provide the information you need from him in order to complete the plan. In some cases franchisors provide their franchisees with business plan formats on disks with blanks to fill in for a specific franchisee situation. These are usually handed out during the franchisor's training program. Since it is likely you will want this information prior to training, you will begin the delicate task (which will last the lifetime of the franchise) of obtaining from your franchisor what you need, when you need it, without impairing the franchise relationship.

Unless the corporate executive is willing to create a precise total success plan, he or she should make a lateral move to another organization in which demonstrated skills may be capitalized upon. The reason is that the decision to be a franchise owner is one from which there is only, at best, a very painful retreat, which is very likely to seriously impact both personal financial condition and ego. From the moment the franchise agreement is signed, personal negative cash flows begin and continue until the business reaches break even. A corporate executive should view his or her franchisee business plan as a set of personal "no retreat strategies." There are very few places of comfort to go back to, unless the franchisee business plan results in success.

Purposes of the Franchisee Business Plan

Quite often the franchisee business plan is undertaken to raise money for the business start-up. Even if the start-up is completely funded, the plan should still be written with the following audiences in mind:

  • Yourself
  • Spouse and family
  • Advisors, CPA, banker and attorney
  • Suppliers
  • Public relations entities
  • The franchisor
  • Regulators

The reasons for writing the franchisee business plan, other than raising funds, are to provide:

  • Decision confirmation
  • Self-direction and controls
  • Timetable
  • Basis for reality checks
  • Personal expectations adjustor
  • Confidence builder
  • Basis for timely assistance solicitation
  • As a reference when obtaining input in areas of non expertise
  • Financial analysis, initial budget control
  • Basis for results measurements and evaluation
  • Control business development
  • Cash flow projections
  • Bail out signals
  • Exit and end game strategies
  • The Payoff

The steep negative cash flow which can occur from the point of franchise agreement signing to break even on operations is punctuated by a host of activities the typical corporate executive may never have undertaken or has long forgotten. The time between events in the start-up will feel especially short, since the franchisor has the formula down pat and is prepared to implement it swiftly. Unless you are obtaining a turn-key franchise, you can look forward to doing at least the following during start-up:

  • Business plan preparation
  • Determine, evaluate and provide resources
  • Site selection and approval
  • Site design, signage and zoning approvals
  • Site preparation
  • Build-out, orders, supervision and control
  • Franchisor training
  • Employee selection and training
  • Initial inventory or start-up package
  • Initial marketing
  • Grand opening
  • Operations refinements
  • Providing reports required by:
  • Franchisor
  • City
  • County
  • State
  • Federal
  • CPA
  • Attorney
  • Bank and/or investors
  • Spouse
  • Regulatory compliance issues, licenses

The primary purpose of your franchisee business plan is to see to it that you get through this critical start-up period successfully. Your franchisor can help, but in the last analysis you must do it. Plan well, for unless you do, there will be no tomorrow.

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2.3: Preparing To Buy a Franchise
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