Choosing to open a franchise is a proven path to success. Although the problem most people have is raising the initial capital to buy the franchise, and for the necessary startup costs. In this article I’ll explain how to write a franchise business plan, and what lenders want addressed in order to have the confidence to loan you money.
Choosing a Franchise
You’ve most likely already chosen a franchise, but if you haven’t this section will point you in the right direction. When you think about opening a franchise the first thing that probably comes to mind are quick-service food franchises such as McDonalds, Tim Hortons or Subway. Although, chances are you’ve decided on a more original choice.
Franchises can be in industries including food, retail, cleaning, real estate, travel, automotive, education, hospitality, accounting, fitness, beauty, property services and more. For more help on choosing the right franchise you can visit this article.
But remember that investing in franchise is a serious decision, which requires a lot of time and money. Do your best to choose a franchise that you truly believe in and support. If you’re passionate about something you are so much more likely to be successful with it, and owning a franchise isn’t any different.
How to Design a Franchise Business Plan
Before we begin I want to talk about how a franchise business plan should look. Unless there’s any stipulations, you want to utilize the exact logo, branding, colour scheme and font of the franchise you’re looking to purchase. Some business plans maintain a more conventional look with strictly text, where other plans feature visuals to help the audience digest the content in other ways. To see how a business plan with graphic design can look, view one of our samples here.
Begin your executive summary by explaining the present opportunity in the marketplace. There should be plenty of data to support this decision.
For example, if you were planning to open a Starbucks at a busy corner in downtown Toronto, and there were five other coffee shops within a fifty metre distance, you would need to provide the market research to prove a demand for your Starbucks franchise. No matter who you are, or how reputable your franchise is, you should always provide strong market research to support this expansion of the core business.
Next, think of your executive summary as the blurb at the back of a novel. Providing enough information to hook you into reading the rest of the business plan, but not so much that it tells the entire story. Utilize key, overriding themes from each segment of your franchise business plan.
This is why most business plan experts recommend writing your executive summary last, to extract a key point from each section. We say the opposite: write your executive summary first, so you have something to reference to, and when your plan is complete revisit the executive summary to update it.
Immediately after your executive summary it’s time to sell your audience on the franchise itself. Things you should include in the franchise overview are:
- When it was founded
- A brief history
- Country of origin, and current headquarters
- Gross revenue in the previous year
- Amount of franchises across the world or nation
- Its unique offering or service
- It’s target audience
Problem and Solution
Is there even a need for this franchise? There is one way to find out, through market research. If you want to test your market to ensure there will be a demand for your franchise check out this article.
Once that’s complete state your findings in the problem and solution section.
For example, Angela wants to open a women only bootcamp franchise in downtown Toronto. The problem she’s identified is “women aged 25 – 50 are looking to exercise in a fun, non-threatening environment for an affordable monthly fee”.
Currently this demographic is left with only a few bleak options: exercising alone by running through public spaces, signing up for gyms that demand long-term contracts, or fitness centres that have an array of personalities and interests, therefore putting women aged 25 – 50 in a slightly uncomfortable position.
The solution is “a women only bootcamp franchise which is welcoming, affordable, fun and effective. Moreover, this franchise has a history of bringing women together in each community. Women aged 25 – 50 can become a part of this community that celebrates safe, healthy and rewarding fitness environments”.
Products and Services
The products and services for a franchise business plan is often the easiest section to write. There is often a pre-established list of which products and services the franchise offers; therefore, simply carry that information directly to your business plan. With that being said, it can be helpful to ask whether there’s any leeway in the products or services your location can offer. Also, make sure to list the respective price of each product or service.
There are typically three components of the market analysis:
Market Growth Rate
It’s important to disclose the market size and growth rate of your franchises industry. This information is usually widely available, but it’s often more a matter of finding the most accurate data.
Three Closest Competitors
For this portion of your franchise business plan you need to identify the prospective franchises three closest competitors within a predetermined distance around the location.
For example, if you were to open a McDonald’s in the Greater Toronto Area you would need to identify all the quick-service restaurants within a square kilometre, and then realize which of those restaurants would be in direct competition with your franchise. You might find that a Subway, Tim Hortons and A&W restaurant location are in the closest competition.
There should also be plenty of additional research conducted by the corporation of the franchise. Provide any relevant findings that will help support your business case in this section.
This is research that you, or your business plan writer will have to carry out. As much as the corporation wants their franchises to be successful, there is still a gap between their interests and yours. In order to be sure this franchise opportunity is right, you must understand the trends within the industry you’re about to enter.
For example, if you’re planning on opening a boot camp franchise the head office will surely be telling you about every positive to owning one of their locations. Although, what do the industry trends tell you? If you carry out your own industry trend analysis and find out that boot camps are losing popularity then you need to make an important decision about the opportunity.
Here is one of the many positives to buying into an established franchise model:
Essentially any operation from taking out the garbage, to speaking to customers, to restocking supplies has a tried and tested formula; therefore, the operational plan in your business plan should simply reference this document.
Don’t reference the entire plan, but rather specific sections to help your audience understand the daily functions of your franchise. It’s also important to ensure the corporation approves your usage of their operational plan.
The marketing of your franchise will likely be done by the corporation. Which means this is yet another section where you are referencing their process to marketing, and how your franchise will support their efforts.
This is often done by an ongoing royalty fee between the corporation and each franchise. Royalty fees can range anywhere from 0-20%, and a percentage of those funds are designated to the corporation to advertise for the brand as a whole, internationally, nationally and regionally.
Give your audience a breakdown of the corporation’s success in marketing to consumers. Let’s take McDonald’s for example: McDonald’s has a prolific history in engaging people from all walks of life to keep them coming back to their restaurants. That consistent effort to keep their business relevant in an ever changing world has resulted in developing one of the most iconic brands of all time.
My honest advice is for you to consult with our team at Bsbcon on your financial plan. This is a core part of your business plan, which should be completed once every other facet of your plan has been flushed out.
In choosing to invest into a franchise you’re making a serious decision which can affect your financial future, your schedule, and the quality of life for you and your family. At the end of the day you need to ensure this investment will truly be worth it.
You will want to know how long it will take to begin making a profit, and how long you will be repaying debt for. Some people try to do this alone, or trust in business plan writing software. Work with a professional business plan writer, or a registered accountant to provide you with a second opinion on the financials of your franchise business plan.
The people that make up your franchise will make or break the location. It is ultimately your job as the franchise owner to hire the right people to ensure its success. Therefore, you must understand the roles and responsibilities of each position.
We’ve already mentioned that creating your financial plan should be your last step, and the step just before that will be developing a compensation summary table. A compensation summary outlines all positions in the first three years, and what the median salary will be.
|Quick Service Franchise – Compensation Summary|
|Late Night Manager||$58,000||$59,000||$60,000|
Your management team will often be the link that decides whether your franchise receives funding, or not. Lenders and investors must have confidence that the franchise will be led by capable individuals, which are uniquely qualified for the opportunity.
In doing so you’ll need to provide a professional bio for each management team member. Do your best to have at least two management team members. The reason being, that lenders will have greater confidence in lending to a company with multiple managers, because in the scenario that the leader is injured or passes away there are others to keep the business functioning.
Franchise Business Plan Format
- Executive Summary
- Franchise Overview
- Problem and Solution
- Products and Services
- Market Analysis
- Operational Plan
- Marketing Plan
- Financial Plan
- Key Personnel
- Management Team
Should I Open a Franchise?
There are so many factors to consider like which franchise is best, and whether you’re the right fit. Lets first discuss how to know if a franchise is right for you.
Investing in a franchise is likely a poor idea if you’re a rebellious, innovative entrepreneur. The reason being that franchises are best for individuals who can follow directions while being able to manage a team and utilize a pre-established system.
So, who is the right person to open a franchise?
Someone that is self-motivated, enjoys leading a team, and believes deeply in order. So entrepreneurs can certainly open a franchise, but they would have to understand that there are set rules, offerings and procedures that must be followed. Owning a franchise is not the place to evolve a company, although some franchise owners might like to think so. If that’s what you’re interested in doing you should start your own company, or become a director on the board of an established business.
There are immense benefits in hiring an independent consulting firm to help you decide on a franchise and location that is tailored to your interests.
Our team at Bsbcon are here to help you with any of your business plan writing needs. You can reach out to me personally at [email protected] or +1 (888) 880-1898.