Anyone who's thinking about starting a new business is going to need to create a business plan. Why? Well banks and lenders require one for starters. But also because business plans are one of the crucial foundations for the beginnings of a business. And the franchising industry is no different.
Business plans are smart. They provide a road map to where you want to go and signposts for how you are going to get there. Writing a business plan causes you to consider challenges, risks, and opportunities that will be coming your way.
Because you are choosing to purchase a franchise, your business plan will be a little easier to create than someone who is starting a business from scratch. For example, many franchisors already have business plan templates - or elements of business plans, at the very least--that you can use and adapt. And you'll be able to obtain much of the financial information that's necessary from the Franchise Disclosure Document (FDD).
Basic business plans can be boiled down to five main sections. These are the main things lenders will be looking for.
First up, you'll need a concise and informative introduction section. Here you want to describe the business and the kinds of products or services for sale. You should evaluate your market and territory and include that information here. Analyze your competition. Discuss the operational approach you will take and the challenges and risks you've identified with taking a business into this market.
Second, describe your management approach. Outline your management structure and philosophies. Detail all of the management positions/roles and talk about the individuals who will be serving in these positions. Explain what makes them unique and qualified to excel. Your management team is going to be critical to your franchise's success.
The third section of your business plan should be the marketing plan. Here you want to explain how you're going to reach customers and get them through the doors of your franchise business. Outline all of your marketing and advertising plans. Discuss the value of your products and services and why they offer a unique advantage to your company.
Next, include financial projections. Here is where you'll want to include pro forma financial statements such as income statements, cash flow projections, and balance sheets. The idea is to use this data to point to how you project the business to do once it opens. Your projections should be very conservative and take into account as many variables as possible. Remember, projections are difficult to make--especially in a start-up business--so include as much information as possible in this section.
Finally, include a section that details your financing needs. Here you should provide, in detail, a complete analysis of your start-up costs. Discuss how much capital you will need (and where you plan to get it) to cover your operations from day one until you begin turning a profit. This section is important even if you are not borrowing money.
Creating a business plan forces you to think deeply about the business, analyze numerous options, and formally project a course of action. You'll learn more and you'll understand more about operating a business. And for that, you will be glad you did it.
7.1: Calculate Your Personal Net Worth
7.3: First Contact With A Franchisor