Rob Orme, Hitachi Capital Franchise Finance’s franchise relationship manager, explains the importance of a robust business plan
Benjamin Franklin once famously said: “Failing to plan is planning to fail.”
This statement certainly holds true for franchising. A good business plan, or business SatNav as we refer to them, will help you prepare for your journey ahead, guiding you from where you are now, to where you want to be in a given time frame.
Although business plans can be written purely with the objective of raising finance, the usefulness of a well researched and thought out plan should not be underestimated.
By laying out and regularly monitoring business performance against specific goals and objectives in a plan, the chances of achieving the desired results greatly improve. The well known phrase: “What gets measured, gets done,” really does ring true.
If you don’t need to raise finance, do you still need a business plan? We think so. A business plan is an essential tool for raising finance, but it’s so much more than that. A business plan maps out the road ahead, highlighting any potential threats, how these threats will be mitigated and laying out how you will achieve those all important business objectives.
The financial forecasts within the plan will determine the levels of working capital the business will need to achieve its goals and objectives, while avoiding cash flow challenges.
If you don’t complete a business plan, the question you need to ask yourself is: “How do I know I have suffcient cash to ensure my business will be successful?”
Many good businesses struggle or fail in their early years because the levels of working capital required were simply underestimated at the start. Keep in mind the all important phrase: “Cash is king”.
You might be thinking of self financing your new franchise. This is an option for some, however it’s important to consider your options carefully before committing all your savings.
It’s often more prudent to borrow something than to leave yourself with little or no contingency funds in place.
Retaining an emergency reserve of funds will help improve your ability to deal with any unforeseen changing economic conditions you may encounter. Or if things are progressing ahead of plan, you could look to invest those reserves into the business to aid further growth in the future.
The business planning process is a prime opportunity for you to sanity check your proposed strategies and confirm the viability of your franchise proposals. It should highlight the risks, the mitigating factors, outline the competition and the proposed marketing activity, in addition to reviewing the potential return on investment.
It’s important a business plan contains all the information a lender will require to make an assessment of the risk and reward of a proposed business.
This picture needs to be full and complete and it’s crucial to get the plan right first time to ensure you improve your chances of securing any funding you require.
A comprehensive business plan will therefore not only help the business navigate its way to success, it will make it much easier for a lender or investor to say “yes” to a funding application.
If business planning is new to you, don’t panic, as there are lots of resources available to assist you.
Many franchisors will provide you with a template for you to follow and complete. At Franchise Finance, we have a team of experienced professionals ready to assist franchisees and franchisors with their business planning and funding requirements and we are here to help, support and guide you as you embark on your business journey.