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How to Write a Franchise Business Plan

How to Write a Franchise Business Plan

Richard Holden, head of franchising at Lloyds Banking Group, explains how to write a winning business plan

Planning a business is not a simple matter of scribbling down a few ideas. If a franchisee is going to make their plan work, a much more thorough approach must be adopted.

A business plan simply sets out your idea, objectives and how you intend to achieve them. It shows there is a good market for your product or service.

Working document

0You should treat your plan as a working document. While you will need it to secure the financial backing you’re looking for, your plan should never gather dust. It is a great tool for measuring where the business is compared to where you thought it would be. It helps you identify opportunities for your business, as well as development areas you may need to focus on.

You should regularly review your plan. No business plan is ever set in stone, as your plans will evolve over time. So update it at least once a year.

When you start out, a lender will want to study your business plan, so it needs to demonstrate that you have the ability to build a successful business in your chosen market. A lender will only provide you with assistance if it’s confident you will be able to repay the financial commitment you are taking on. Your plan will help provide the confidence that you’ve thoroughly researched the opportunity and fully considered how you intend to develop your business.

While thorough research is necessary, a good business plan doesn’t need to go into minute detail about every aspect of the franchise. It will be relevant, punchy and to the point. It will grab the bank manager’s interest, so that they will want to lend to you.

What would I expect to see in a business plan? It’s always useful to start off with an executive summary, which provides a brief overview of what you’re looking to achieve.

The personal details of the business owner should include name, address, contact details, age, dependents, etc. You can include your previous experience, skills and knowledge or include your CV if you have one as an appendix to the plan.

Your plan should set out a mission statement and your short, medium and long-term objectives for the business. Nobody is going to hold you to these objectives, however it’s useful to understand from the outset what you want to achieve.

A brief overview of the franchise brand and its history is helpful. While a bank’s franchise unit may be fully aware of the opportunity you are investing in, the plan may be read by a bank manager or credit underwriter who doesn’t deal with the franchise brand in question on a regular basis.

Explain what the business does and how it does it. Include details of premises, vehicles, equipment, IT, stock, suppliers, customers, etc. Detail what local market research you’ve undertaken to incorporate demographics, potential customers and competitors.

If you have staff who are important to the business, list their roles and experience. Set out your marketing strategy to include any proposed launch event, public relations activity, website, local and national advertising, media profile, leaflet drops and promotional offers.

Close attention

The financial section is an important part of a business plan and receives close attention from any bank manager reviewing financial support. It’s tough to predict the future trading performance of your business, particularly if you are just starting out, when assumptions will be based on market research and possibly past performance of other franchisees in the network.

Financial projections for the first three years of trade are usually sufficient. However, a bank will be able to guide you. The cash flow forecast and profit and loss projection should be broken down monthly.

A cash flow statement shows the ability of the business to have cash available to pay bills on time. It’s all about timing and the amount of money flowing in and out of the business. A cash flow forecast can be a valuable tool if used correctly to identify potential shortfalls and if you need to take appropriate action.
The profit and loss projection will determine when the business will become profitable and how profitable it will be.

Most franchisors will offer support producing your financial projections by providing you with figures to work from. Don’t take things at face value - ask about how and when they were produced and ensure they accurately reflect the potential of your business in your chosen location. Financial projections that have no relation to existing trading performance within the franchise network are speculative and open to challenge.

If you’re taking on an established franchise operation, provide the latest financial trading accounts and up-to-date management accounts for the existing business.

In addition, a bank requires a breakdown of the business owner’s own personal income and expenditure position, as well as their assets and liabilities summary. A bank manager will cross reference this with your personal bank statements, so ensure you provide an accurate summary.

You should also include how much capital you are investing in the business yourself and how much you are looking to borrow from the lender and for how long. Detail what security you are offering the bank to cover the proposed finance. Also declare if you’ve had any past or present financial difficulties, no matter how small they are. It is prudent to have a contingency reserve fund to fall back on in case the business takes longer than expected to get off the ground, so provide details if you can.

SWOT analysis

Producing a SWOT analysis is a useful exercise. Focusing on the business’ strengths, weaknesses, opportunities and threats can help demonstrate you have carefully researched the potential opportunity. Try to mitigate any weaknesses and threats to the business. Include your exit strategy if you have one.

The Lloyds Bank franchising website (www.lloydsbank.com/franchising) and the British Franchise Association website (www.thebfa.org) are great starting points for would be franchisees.

For new business owners, preparing a business plan and financial projections can be an intimidating process. However, it doesn’t need to be, as there is plenty of assistance available for people starting their franchise journey

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