WHY YOUR BUSINESS PLAN MUST BE FIRST CLASS IF YOU WANT A BANK TO FUND YOUR FRANCHISE

By Richard Holden, head of franchising at Lloyds Bank

Franchising is playing an increasingly important role in supporting enterprising individuals setting up their own businesses, as it provides them with the reassurance of a proven model. The British franchise market continues to display strong growth, despite the recent economic challenges.

Setting up your own business under the umbrella of an established brand and a proven business format should give you a better chance of succeeding. However, not all franchise opportunities offer the same level of training and support to their franchisees and, surprisingly, some franchises have a significantly higher failure rate than the reported sector average of less than three per cent per annum.

Thoroughbred
How can you back a thoroughbred franchise investment, rather than losing your money betting on a nag? British Franchise Association member franchises that have a successful track record over several years and prospered through the ups and downs of the economic environment are well placed to offer you the opportunity to build a successful business of your own.

To achieve accreditation from the bfa, franchises must undergo a rigorous assessment and meet the standards laid down by the trade body that oversees ethical franchising in the UK. While it isn’t a guarantee of success, bfa member brands are a great starting point for your search.

Franchises that are relatively new to the market don’t have the same track record to support a decision to invest. For the more adventurous investor, that doesn’t mean they should be disregarded, however they do potentially carry a greater level of risk.    

One of the cornerstones of launching a franchise is ensuring you have access to the necessary funding, which is where a strong relationship with your bank can be vital. And beyond funding, banks with specialist franchise departments, such as Lloyds Bank, will be able to give guidance to support your franchising research.

Before approaching a bank for finance, you need to prepare a business plan. The importance of a good business plan cannot be overstated. People who have a strong plan and sound capital base are well placed to take advantage of available finance. The franchisor may provide some assistance with the plan and most banks can provide a template to guide you.

A business plan should include:

• Executive summary.
• Personal details (name, contact details, age, marital status, dependants).
• Franchisee’s experience, skills and attributes (include your CV).
• Objectives/mission statement.
• Overview of the franchise.
• Details of the local market (research, location, customers, competitors).
• Business operation (premises, IT, vehicles, equipment).
• Key personnel/management team.
• Marketing strategy.
• Borrowing requirements.
• Capital stake and security.
• Personal assets, liabilities, income and expenditure statement.
• Financial projections (cash flow and profit and loss forecasts).
• Financial assumptions.
• Three years’ financial accounts (existing businesses only).
• SWOT analysis (strengths, weaknesses, opportunities and threats).
• Exit strategy.

Objective
The initial objective of the document is to help you raise finance, but it will also help you understand what you wish to achieve from the business and to review the performance against your projections, alerting you to anything that is not going according to plan.

The presentation of the plan is also important to create maximum positive impact. You should practice delivery of it before speaking to a bank manager, so that you can communicate your enthusiasm and passion in a professional manner. Expect to be challenged by the bank manager, who will ask you questions and expect you to be able to answer them confidently.

It is worth remembering that well established franchises generally have much higher success rates than standalone independent start-ups. Therefore, some banks may be willing to consider lending a higher proportion of the total set-up costs. Generally, up to 70 per cent of the total investment is available from a bank for well established franchise opportunities, subject to status. 

For more information visit www.lloydsbank.com/franchising.