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How to Create a Franchise Business Plan

By: Bill Bradley

 

the building blocks of a franchise business plan

Becoming a franchise owner could potentially put you in a position to make a lot of money each year. The average franchise owner makes about $80,000 per year. And you’ll have the opportunity to make even more than that if you play your cards right.

Before you start thinking about how much money you might be able to make as a franchise owner, though, you’ll need to come up with a franchise business plan. You’ll need to write a business plan to get the funding you’ll need to get a franchise off the ground.

You’ll also need to create a franchise business plan to put your company in a position to succeed from the start. It should have all the right business plan elements set in stone so that you know how you’re going to take your initial franchise business concept and bring it to life.

Are you unfamiliar with how to go about creating a franchise business plan? If so, keep reading to see how to put together a financial plan for a franchise from beginning to end.

Begin by Looking Around at Business Plan Templates

One thing you should keep in the back of your mind from the moment you start creating a franchise business plan is that there aren’t any hard and fast rules regarding how you have to do it. You’re free to look around at different business plan templates that exist before choosing the business plan template you like the most.

Generally speaking, you aren’t going to want a franchise business plan to be too long or too short. If it’s too long, you’ll run the risk of putting a lender to sleep while they’re reviewing your business plan. If it’s too short, it might not include all the pertinent information a lender will need to decide if they’d like to provide you with funding.

Your goal should be to have your franchise business plan land somewhere in between these two extremes. There is a sweet spot you’ll want to try to hit so that you’re able to set a lender up with everything they’ll need from you.

You should be able to find a great business plan template that’ll enable you to do this. Don’t be afraid to poke around online to find great (often free!) options.

Secure a Franchise Disclosure Document

There are quite a few benefits that’ll come along with buying a franchise business versus starting your own company from scratch. One of the first ones will be that it’ll provide you with what’s called a franchise disclosure document (FDD). It’ll give you a lot of the information you’ll need to create a franchise business plan.

Just before you begin the process of trying to write a business plan, you should look into obtaining an FDD from the franchise you’d like to buy. It’ll really come in handy when you’re aiming to make a good first impression on lenders and others who will be associated with your franchise business.

Create a Company Description

A lender is going to want to know more about the franchise business you plan to start with the money you’re looking to borrow. It’s why your franchise business plan should begin with a company description.

You should be able to find most of the information you’ll need to create a company description in the FDD we just mentioned. Your company description should include:

  • A brief overview of the franchise you’d like to open
  • The history of the franchise business you want to buy
  • Another other important information about the company you’ll be buying a franchise from

You don’t want to go too in-depth with your company description. But it should provide a lender with an overview of a franchise and what it’s all about.

Write a Description of Products and/or Services

After you’re done providing a lender with a description of your franchise business, the next thing that should appear in your business plan is a description of the products and/or services you’ll sell. This is, once again, information you should be able to locate in an FDD.

In many cases, you’ll be able to sell the same lineup of products and/or services that other franchisees sell. But you don’t want to make the mistake of assuming this without checking first. There might be some products and/or services you won’t be able to sell because of your location or for another reason.

At any rate, you should let a lender know which products and/or services you’ll be selling to give them a general idea of who your franchise business will cater to.

Lay Out Detailed Market Analysis

A lender is going to want to see that you aren’t trying to buy a franchise business on a whim. Instead, they’ll want you to show them that you’ve done your research on your local market and know that it’s going to be able to support your franchise business.

You should be able to utilize an FDD to provide some market analysis. But you may also need to do research on your own so that you’re able to answer questions like:

  • How large do you anticipate your market being?
  • What type of people will make up this market?
  • Is the market you plan to serve underserved at the moment?
  • Who will be your closest competitors and what will separate your franchise business from them?
  • How do experts feel about franchise businesses like the one you’re trying to purchase?

The more information you can give to a lender in this part of your franchise business plan, the better off you’ll be. It’ll suggest you’re fully committed to the idea of opening a franchise business and making it a total success.

Show the Management Structure

You’re more than likely going to be at the top of the food chain when you buy a franchise business. As a franchise owner, you’ll be in charge of making many of the decisions related to the business both on a daily and annual basis.

But who else is going to have some say over what goes on with a franchise business? Will there be other people who own a stake in it, or will there be others who help manage it regularly?

Whatever the case, you should be ready to show a lender the management structure you’re going to put in place. You should also consult an FDD to see if the company that’ll be selling you a franchise business will have any say in what your management structure will look like.

Put Together a Marketing Plan

The good news for those buying a franchise business is that you shouldn’t have to worry too much about marketing it yourself. A franchisor is going to have advertising and marketing plans drawn up.

You will, however, need to have a clear understanding of a franchisor’s marketing plan. You’ll often need to go through training so that you’re able to learn what this marketing plan is all about and how it works.

Additionally, you’ll need to be able to let a lender know what your marketing plan is going to be when you buy a franchise business, regardless of whether or not you’ll play a part in this plan yourself. They’ll want to have evidence that shows that your franchise business will be marketable to those within your community.

Prepare a Financial Request

Arguably the most important part of your entire franchise business plan will be the portion that’s dedicated to asking a lender for a certain amount of money. You’ll need to be very strategic in how you go about doing this.

You will, of course, need to come up with a number when it comes to how much money you’d like to borrow from a lender. But you shouldn’t stop there. You’ll also need to be able to provide other numbers such as:

  • What other funds you’ll be using to buy a franchise business (personal savings, other investors, etc.)
  • How much money do you anticipate being able to make during your first few years of owning a franchise business
  • How long do you expect to take to repay a loan from a lender
  • Which expenses will you face in the first year or two of running a franchise business

An FDD might be able to provide you with some financial projections, but you should be aware of the fact that a franchisor is legally limited in what they can say about this side of things. So you’ll need to be ready to make your own sales projections based on the research you’ve done.

Just try not to make any financial promises that you might not be able to keep to a lender. It’s always better to be conservative with your sales projections and overdeliver later as opposed to promising a lender the world and facing roadblocks that may prevent you from repaying them in a timely fashion.

Add an Appendix at the End

Adding an appendix to the very end of a franchise business plan isn’t always necessary. If you get too carried away with it, it could cause your business plan to drag on for longer than it should.

But tacking an appendix onto the end of a franchise business plan could really sell your business concept and help you get approved for the financing you need. It can include things like:

  • Resumes for those who will be a part of your management team
  • Tax returns for you and any other owners of your franchise business
  • Media reports that portray your franchisor and your franchise business ideas in a positive light

Again, you don’t need to include an appendix within your franchise business plan. But if you feel as though it could help your case, it couldn’t hurt to put one together.

Consider Creating a Confidentiality Agreement

Are you planning on having a handful of parties review your franchise business plan? If you are, you should think about doing whatever it takes to protect all the confidential information that will be contained in it.

To accomplish this goal, you might want to consider creating a confidentiality agreement that you can have people sign before reviewing your business plan. It’ll provide you with some much-needed peace of mind as you start allowing others to look at all the hard work you’ve put into your business plan.

Tighten Up a Franchise Business Plan as Much as Possible

Creating a franchise business plan will typically take you anywhere from a couple of days to a couple of months, depending on how thorough you want it to be. As a result, you’re going to be ready to put a period on this project when you feel like you’re finished with it.

But right before you do this, you should review your franchise business plan one more time and tighten up any areas that could use a little more work. It never hurts to go back through a business plan to see which aspects of it could be improved.

Continue to remind yourself as to just how important this business plan will be to your plans to open a franchise business. It should provide you with all the motivation you’ll need to keep on tinkering with it right up until the moment you hand it over to a lender so that they can review it.

Write a Business Plan That’ll Wow Lenders

Writing a business plan for a franchise that you’d like to open is a lot like creating a foundation for a house. If this business plan has any cracks in it, your whole business concept could come crumbling down to the ground.

Remember this while you’re creating a franchise business plan. It needs to be every bit as strong as the foundation for a house.

When it checks all the right boxes, it’ll increase your chances of getting approved for funding from a lender. It’ll also get your franchise business off to the best start possible.

Find franchises you might be interested in starting so you can begin working on a business plan.

Published: November 1, 2023
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Source: America's Best Franchises

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Bill Bradley

Bill Bradley

Bill Bradley is founding member and CEO of America’s Best Franchises, LLC.  Bill founded three financial services firms, Ocean Shores Ventures, Denali International and William Bradley Enterprises. In addition, to launching America’s Best Franchises in 2005, Bill orchestrated approximately 20 private equity transactions in excess of $31 million, and launched five specific purpose private equity partnerships.

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