Why should I write a business plan for my franchise?

James Thomas writes:

Banks will insist on a well-researched business plan before agreeing to a loan/start-up capital for any new franchisee, regardless of the franchise brand.

In most instances, the franchisor will also request a plan to be completed too, as it indicates you are familiar with the business model and have a keen understanding of the numbers required to make the business successful.

However, having a workable business plan, where the numbers add up, goes way beyond ticking a series of boxes. It provides a road map for activity moving forwards.

The business plan should contain basic background information, including details about the franchise proposition, directors’ relevant experience, plus targeting and marketing plans.  Most importantly though, the business plan is a way of modelling financial scenarios to calculate carefully when the break-even point will occur. 

The plan needs to include every financial element attributed to running that business, from start-up loan repayments and asset finance to bills and marketing budgets. Including all these costings means it is possible to make realistic projections on income depending on various circumstances such as variable growth. 

Cash flow can then be forecast to ensure there are enough funds available to get the franchise up to speed within a realistic timeframe. You certainly don’t want to run out of money just as your new franchise starts to get going! Or worse, realise your franchise will never become profitable within the term of the franchise agreement.

As trading gets underway, comparing progress against the plan means any necessary adjustments can be made without exerting undue risk. 

For example, if not enough new business leads are being generated then marketing spend may need to be increased. The impact on the break-even point can be monitored closely through an adjustment to your plan.

Although the franchisor will support the plan’s creation through sharing information from previous franchisees, it is always the franchisee’s responsibility to put a business plan together. However, this can be challenge for new franchisees unfamiliar with cash flow projections and factoring in all the different elements required. 

We often see people underestimate the financial support required to start a new franchise or those that simply don’t factor in every cost. Therefore, the best advice is to work with an independent organisation experienced in business planning and one that is committed to adding value not numbers. 

You get just one shot at making your new franchise profitable and don’t want any nasty surprises further down the line. Therefore, take advice to create a workable, realistic business plan. It will be one of the most important steps you take towards ensuring the long-term success of your new franchise.

James Thomas is commercial manager at business advisory and chartered accountancy firm d&t. As well as accountancy services and a fully independent funding service, connecting franchisees to much needed finance to start or grow their business, d&t offers business planning services.