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The Franchise Business Plan

October 05, 2009 by Alan Gleeson

Business planning is very important for all businesses, and franchise businesses are no different. The business planning process helps ensure that sufficient thought is put into all aspects of the franchise. While it is tempting to assume that because a franchise is based on a successful, proven business model, it is guaranteed to deliver results once you are up and running, the reality is very different. All businesses need a business plan, developed to reflect their unique circumstances and to help them succeed, regardless of whether they are a franchise business or not. A business needs to have a plan with specific objectives, milestones, responsibilities and the like.

All business plans are different

The content of a business plan is shaped by its purpose. So if the intention is to use a business plan to raise finance, then the plan’s composition will vary from one being used predominantly to decide internal priorities, to allocate resources effectively, or to manage cash flow. Typical uses of business plans in the franchise context include:

  • Prospective franchisees looking for investment.
  • Franchisors looking for a business plan as part of the franchise sign up process.
  • Franchisees using a business plan to manage their business.

So depending on which of the above three business planning events is of most relevance, the content will vary slightly.

What are the key elements of a franchise business plan?

One of the benefits of franchising is that some of the challenges associated with a conventional new business are removed such as decisions regarding product, pricing, branding, marketing collateral, signage, etc. In essence you are acquiring a number of intangible elements which, in theory, should serve to help you reduce your business risk.

However, having these several elements optimised in advance in no way guarantees success. While these elements will help you in terms of brand awareness and will help ensure you have a compelling marketing mix, they still only represent a part of the overall picture.

If you are looking to raise finance, prospective investors will be keen to understand more about the management team, their investment, and also the cash generation prospects. Those franchisees using a business plan to manage their business will be more interested in the creation of a strong marketing plan as well as sales forecasts.

Ultimately it’s about an ability to generate cash

A business relies on its ability to generate cash flow at a satisfactory level so as to prosper. Hence the emphasis many franchise owners place on cash flow generation, sales forecasting, and marketing plans when writing a business plan. The bottom line is that you will need to run a successful business, and this means attracting paying customers in sufficient numbers to generate a return on your investment. Naturally you will be able to receive some support from the franchisor as part of the franchise package. They should also be able to provide access to demographic information to help you with your analysis.

Many franchises are allocated on a territorial basis so you’ll need to have a clear feel for some of the following:

  • Demographic profile of the market (or neighbourhood) you will be serving.
  • Existing competition in the area.
  • Traffic/ footfall in the vicinity of the proposed store (if a retail premise).

It will be important to set financial goals and forecast the sales levels necessary to successfully manage your franchise. Franchising has become very popular in recent years, and many franchisors will have access to data which can help determine if there is a profitable market within a proposed territory. It will then be up to you to capitalise on this market opportunity by successfully targeting customers.

You will also need to be aware of local nuances as these can play a role in the success or failure of the operation. For example, when Starbucks® initially launched in Japan it was very keen to cater to local tastes and sensitivities. Recognition of these local factors such as menu make up, local branding, consumer tastes and cup sizes helped shape a unique Starbucks® proposition in Japan. Japan, along with the UK, are now key countries in the Starbucks® worldwide operation.

In summary, business planning is good business practise regardless of whether or not the business is a franchise. Even if the franchisor does not insist on a business plan it is recommended that you apply the key elements of business planning to your franchise to help you ensure its success.

This article was originally published on BPlans.co.uk

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