Follow these steps to create a detailed plan and set your new business up for success
by Raavya Bhattacharyya
Regardless of the franchise opportunity you choose, you need to map out your path to success before getting started. A comprehensive business plan holds the key to unlocking the full potential of a franchise and ensures a solid foundation for profitability. It also gives banks, investors, and lenders an idea of the scope and specifications of your project, so they’ll feel more comfortable providing their support. By creating a business plan, you signal that you’re serious and understand the tools you need to succeed.
Here’s what your business plan needs to convey:
- There’s a market for your products or services
- You and your management team are capable
- You have the necessary financial resources
- You understand your franchise ownership goals and
how you’re going to achieve them
- The franchise you’re buying is financially viable and
you’ll be able to repay any loans
Components of a Business Plan
A comprehensive business plan is made up of several elements. Here’s a list of items you should include.
The executive summary should describe the franchise you intend to purchase, include the background and track record of the franchisor and other existing franchises, and identify your core market.
Company description and management team profile
You should outline the basics of your business in this section, like its name, location, and type of business. The management team profile should describe your skills and experience, explain why you’re suited to own and operate this franchise, and include the same information for any other members of your management team.
Description of products and services
Here’s where you describe what your business offers. The description of your products or services should include featured benefits, am explanation of how your product or service differs from your competitors, and outline how you will deliver these products and services.
Core market information
This section should describe your core market sector: Who’s your competition? What do they do well? What do they not do well? How are you going to stand out? Is your market trending up or down? Here you can outline your competitors and describe your existing customer base. You can also talk about how much of the market share you expect to cover.
Description of operations
The description of operations should describe where you’ll operate and explain how you’ll produce your products or services. Include information on location, property, facilities, leases, employees, insurance, technology, equipment, and suppliers, which are all crucial details that need to be determined before you get started.
Make sure you complete a thorough financial analysis to ensure you have a plan for success. Your financial advisor can be particularly helpful with preparing and itemizing this part of your business plan. The financial section should cover the details of what makes this a financially viable business. You should describe your current financial situation and include monthly budget and cash flow projections/analysis. It should also include a personal net worth statement that lists all of your personal assets and liabilities.
Remember that it often takes months or years for a new business to become profitable. Your business plan should include a comprehensive section on financial requirements, including detailed estimates of all anticipated start-up costs until the projected breakeven point.
Here are some costs to include:
- Legal and accounting fees
- Marketing costs, including plans, website, print materials, tradeshows, etc.
- Inventory purchases
- Real estate and/or building and equipment procurement
- Working capital reserves to cover operating losses until
the business is capable of generating sufficient revenue
- Monthly overhead for six to 12 months
- Personal living expenses for six to 12 months
- Financing costs
- Cash flow projections (see sidebar)
Other supporting documents
Here are some other supporting documents to include:
- The resumes of yourself and the key members of your
- management team
- Job descriptions
- Personal and business credit history
- Letters of reference
- Letters of intent
- Leases/contracts and other legal documents pertaining to the franchise you’re purchasing
When it comes to franchise finances, a comprehensive business plan can give you a straightforward path to profitability. By following these steps, you can show lenders that you’re serious about your business ownership goals.
What is cash flow forecasting and why is it important to a business plan?
A cash flow forecast outlines the anticipated income and expenses of the franchise. If you’re purchasing a new franchise location, you can determine the expected revenues and costs by doing your due diligence, including talking to the franchisor and other franchisees in the system.
Once you start to get a picture of the numbers, you can do a sensitivity analysis to understand the impact of fluctuating cash flow. Create multiple cash flow scenarios: one based on high sales, one based on low sales, and one in the middle. This helps you determine the targets you need to hit, and the sales required for you to make money.
Along with a complete accounting of cash requirements for the franchise, identify the sources of funding, as well as the relevant financing terms.
Financing for most new franchise companies comes from the owners, supplemented by friends and family members, along with some bank financing. Investors or lenders expect owners to personally assume some of the risk with a solid self-financed capital base of 30 per cent to 50 per cent of the total debt.