When it comes to business plans, Richard Holden, head of franchising at Lloyds Banking Group, has some valuable advice for budding franchisees
More than a decade ago, it was fair to say that the quality of business plans submitted to lenders varied widely from a one-pager to detailed and thorough overviews of the business opportunity and financial requirements.
With the onset of the financial crisis, all lenders naturally requested very robust business plans to assist owners with their funding options.
In recent years, the amount of business bad debt seen by lenders has reduced considerably. However, there have been early signs that some business owners are becoming blasé about the need to produce a well researched and robust plan with detailed financial projections to secure the financial backing they’re seeking.
Let me be clear: a business plan is an essential document for any lender, but it’s also just as important for the business owner.
Benjamin Franklin supposedly once said: “If you fail to plan, you are planning to fail.” And that still rings true today. I don’t believe anyone sets out to fail, but sometimes people don’t know where to start or are afraid to ask for guidance in researching and producing a sound business proposal.
The good news is, support is available to help aspiring business owners prepare a sound strategic plan.
Lloyds Bank, in conjunction with the British Franchise Association, provides valuable guidance to budding franchisees to help them make an informed decision about their options.
The Prospect Franchisee Certificate programme, which has been jointly developed by Lloyds Bank and the British Franchise Association, is an essential tool for all who are new to franchising.
This modular training programme of informative videos, delivered by sector experts, is free and can be accessed at http://bfa.trainme. tv. There are fi nancial and business plan modules within this educational programme to support business owners.
Vision into reality
Strategy is the framework for how you intend to make decisions to achieve your overall business objectives. Planning is about how you’re going to turn your vision into reality.
Without a plan it’s likely you’ll be reacting to day to day operational issues and are constantly firefighting problems.
A good business plan is not just to help you secure the financial backing you need, but it is also a working document to benchmark where you are to where you thought you were going to be. It will help you identify weaknesses within your business, as well as spotting new development areas and opportunities.
Businesses are constantly evolving. Therefore, your business plan needs to change with your developing needs. It’s therefore useful to review your business plan at least once a year and to update it.
The presentation of the plan is important to create maximum positive impact and you should practice its delivery before speaking to a lender, so that you come across professionally.
Think of those entrepreneurs on the BBC’s Dragons’ Den programme. From the outset, many don’t stand a chance of securing the investment they’re seeking because their presentation is poorly conceived or they don’t have a good understanding of the key financial information.
Consequently, they are unable to establish their own creditability and project confidence in their business when challenged by the likes of Peter Jones or Deborah Meaden.
Similar to the Dragons, bank managers will ask challenging questions about the plan and expect a business owner to be able to answer those questions confidently. It’s therefore important that any business owner understands all aspects of their plan, including the figures and any assumptions that have been used. It’s for this reason that I would recommend that the owner has close personal involvement in producing their plan. It is too important to abdicate responsibility and to leave it to someone else to write.
Most banks will be able to provide a business plan template detailing what information should be included in the document. However, support from the franchisor is essential in developing an effective business plan.
A business plan should be punchy - a common mistake is to make it too detailed. Ensure it grabs the bank manager’s interest. Careful planning and preparation should place the business owner in a better position to raise the required finance from a lender and operate the business successfully.
The plan is the most effective way to crystallize your business objectives and provide a sense of direction. Used in the right way, it’s an essential tool. However, no business plan is set in stone and it should be regularly reviewed as the business develops.
To ensure you receive expert support, always approach lenders with specialist franchise teams. The initial approach should be through the franchise team, rather than a local manager.
A bank’s franchise department regularly evaluate franchises and monitor the ongoing performance of franchisees, giving them the ability to offer you some excellent insight from the outset.
Typically, banks will consider funding up to 70 per cent of the total investment cost, including any working capital, for people looking to invest in an established franchise brand. For newer, less established brands the finance available may well be lower.
Finance up to £25,000 is often considered without the need for supporting security. Banks will probably require security for larger loans, which commonly will be a legal charge over a residential property with sufficient equity.
Don’t be put off if you don’t have any assets to offer the bank. The government backed Enterprise Finance Guarantee scheme may be available for those who have a strong business proposal, but lack security that the banks usually require.