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Plan ahead for your franchise success

One of the key documents a new franchise owner needs is a well-written business plan. Derin Clark investigates the impact it can have on a franchise and how to write one.

When launching a new franchised business it can be tempting to save time and energy by skipping the process of writing a business plan, especially because, as a franchise owner, you will be following a tried and tested business model. If you do choose to do this, you will probably find it a very costly mistake in the long run.

Although there are many factors as to why a new franchise owner will need to write a thorough and comprehensive business plan, one of the main reasons is that it will help towards the long-term success of the business.

Richard Holden, Head of Franchising at Lloyds TSB, explains: “It is often assumed that a business plan is needed just to secure funding. While this is an important benefit of producing a business plan, it can also assist with the management of the business such as monitoring the ongoing performance against the original benchmark and identifying areas for development. The plan is a working document and should be regularly reviewed and updated as the business develops.

“A business plan is a blueprint for running your business. The planning process will help you to get to grips with your business and set clear objectives. Naturally, as the business develops your plan should be updated so that if you need to approach your lender again at a later date for additional support, you will be able to demonstrate that you have your finger on the pulse of your business.

“Careful planning and preparation should place you in a better position to raise the required finance from a lender and to operate your business successfully.”

What to include

For those new to franchising, deciding what to include in a business plan for a franchise can seem daunting, however Richard reveals: “The basic structure of the business plan and the information provided is similar whether you are investing in a franchise or not. A business plan for a franchised business will contain some background information about the history of the franchise and the level of training and support provided by the franchisor.

“Anyone planning to set up a business is advised to carry out local market research before they get started. People investing in a franchised business are recommended to speak to as many existing franchise owners as possible in the network they are looking to invest in to establish the level of support received and whether start-up projections are realistic. The findings of this research should be incorporated into the business plan.

“Banks that have specialist franchise departments are able to offer guidance to the investor based upon their knowledge and track record with the franchise. This will help to ensure that sensible financial projections are adopted based on the past performance of other franchise owners. It is much harder for owners of independent start-up businesses to produce accurate and achievable forecasts with so much more of the key information assumed.

“Generally, most well established franchise systems offer a tried and tested business model with initial training, ongoing support, brand recognition and the collective buying power benefits that a network of businesses can bring. There is evidence that franchised businesses tend to grow quicker and survive longer than new start-up independents. It is for these reasons that banks generally consider franchising as a less risky way of operating a business and preferential terms are provided to franchise owners.”

Business plan writing tips

So what does a well-written business plan look like? Professor Roy Seaman, CFE, founder and Managing Director of franchise consultancy company Franchise Development Services, explains: “The basic business plan needs to have a professional introduction so that a third party reading the document can clearly understand why you have chosen to enter the sector. You then need to identify your annual goals and ideally stretch those for the following three years so that you have a clear vision of what you are endeavouring to obtain.

“Next the plan should report your findings in relation to the market and identify your competition. You then need to create a comparison table relating to the price and other criteria of what you are offering compared to the top two competitors.

“The plan should also include information about how your product or service differentiates from the competition and what you see as your main advantages. Putting all of this information and much more into a written plan helps you to crystallise your thinking and hopefully become a market leader. Most franchisors will provide you with a template for creating your business plan and all of the headings, that range from personal drawings through to rent and rates, vehicle costs, bank charges and accountancy fees, will be listed for you to complete.

“To ensure that your business plan helps you to be in control of your business, you need to have carefully worked out sales projections based on various assumptions. You will then need to identify what assets you need to have to start up the business and make sure that you have enough to survive year one.

“A well-written plan should also include your staff requirements and the various roles that they will be providing to ensure that you generate the maximum turnover and profitability. You should then finish up with a business plan divided into the various sections and these will cover the nature of your business, its history and your plans for its future development. Other areas will include the financial aspects of your business.”

Expert guidance

It is recommended that if you are new to writing a business plan, you get professional help to ensure that it is thorough and easy to understand. Many of the high street banks will be able to offer guidance, as Richard explains: “Banks will be able to provide a business plan template detailing what information should be included in the document.

“Lloyds TSB Business Managers help around 100,000 new businesses get started every year. Whether you are starting up for the first time or you’ve run a business before, you’ll be supported by a Business Manager who really understands the issues you’ll face.

“The Lloyds TSB franchise unit regularly evaluates franchise brands and monitors the ongoing performance of franchise owners that bank with them. The insight into the trading performance of existing franchise owners means that the bank can offer preferential terms to people investing in well established and proven franchise opportunities. Banks without franchise units tend to treat franchises the same as a new independent start-up business.”

It is clear that without a business plan, a franchise owner is putting themselves at a major disadvantage, not only when trying to secure funding from a bank, but also in the long-term success of the business.

Roy concludes: “Making a business plan will help to determine whether or not a franchise is the kind of business you are going to feel happy with and how it will operate, most importantly whether or not it is financially viable. Maintaining your business plan will help you ensure that your business stays financially healthy and the more time and effort you put into creating your business plan, the better.”