Preparing the business plan for buying a franchise opportunity

The Business Plan explains what you hope to do, how much money you need to do it with and how you propose to pay the money back. Your plan will include a Profit Forecast and Cash Flow Model.
 
However, there is more to the Business Plan than getting funding. It will help you clarify your ideas and objectives. You will have to answer questions on your business objectives, your product or service, pricing methods, your customers and competition. (Many Franchisors will assist in the preparation of a business plan) But remember that it is your business and your business plan. Your bank will be interested in your long-term forecasts - but your family will be equally interested in your short-term projections. Will you be able to afford a holiday next year? What will your standard of living be?
 
Preparing, presenting and defending your business plan is a real test of your business acumen. Producing the plan tends to bring everything out into the open, focuses your mind on all elements of the business, and helps put your thoughts down in black and white.
 
Preparing Your Business Plan
 
Your Business Plan is the 'sales document' for you and your franchise business. Its’ preparation and presentation should project the image you want for your business. Its content should be clear, concise, to the point and divided into logical sections.
 
AS A GUIDELINE, YOUR PLAN SHOULD STRUCTURE BROADLY AS FOLLOWS:
 
1.      INTRODUCTION
 
  • Describe the purpose of your Business, briefly outline the concept.
  • Include YOUR overall business objectives.
  • Decide on the 'legal status' of your business - sole trader, partnership, limited company or co-operative? All have benefits and shortcomings. Find out which is right for your situation.
 
2.      THE PRODUCT OR SERVICE
 
  • Describe precisely the product or service that your business will offer. Include any relevant history of the product or service and try to avoid any jargon.
  • List the distinctive qualities of your product or service and describe your 'Unique Selling Point' (USP) - the key feature which makes your product or service stand out in the Australian market place.
  • Describe how your product or service can be developed in line with a changing market.
 
3.      THE PERSONNEL
 
'Any business is only as good as its people.' You should include details of anyone who will be involved in making your business a success. These people are a very important asset and this is therefore a key section of your Business Plan. Include in this section:
 
  • A précis of each person, including their personal assessment of their attributes, strengths and weaknesses as well as your own assessment of each person.Their relevant experience, commitment and reasons for involvement in your new venture.
  • You should also include a detailed CV for each person in the 'Appendix' at the end of your plan.
 
'Your business plan is the sales document for you and your business'
 
4.      THE MARKET
 
This is probably the most important section of the whole Plan - without a clearly defined market your business will not succeed. If you can show that you have 'done your homework' in this section, you will gain credibility for the whole Business plan. Your franchisor will also have research in this area.
 
  • Describe the current conditions in the market place for your product or service.
  • Detail any relevant facts and figures relating to the market sector(s) that you will be targeting - for example geographical location, size (in terms of people and money), expected growth, and the type(s) of potential customers for your product or service.
  • Give details of your competitors and explain why your potential customers will choose your product or service rather than the competition.
 
This is the point where research pays off. You should make use of the wealth of business information that is available about markets, competitors and customers.
 
5.      THE MARKETING PLAN
 
A business without a Marketing Plan is like a ship without a rudder. Your company must therefore have a clearly defined marketing plan, which will include:
 
  • Your marketing objectives - for example number of sales or market share.
  • Where your product or service will be 'positioned' in the market place in terms of price, quality, image etc.
  • What your planned marketing communications are - advertising, leaflets and brochures etc.
  • How your product or service will be distributed and /or sold e.g. through agents, sales teams, etc.
  • What customer care policy is planned and how it will work.
 
Any interest that you have already generated or details of possible orders you have already taken should be include in the appendix.
 
Without a clearly defined market your business will not succeed.
 
6.      THE OPERATION
 
Having an efficient operation can be the key to a profitable franchise business. This section should describe how you will supply your product or service. Your Franchisor will have set systems that you will have to adhere to.
 
  • Include your sources of supply, labour and materials.
  • Detail the resources required to operate your business, differentiating between what you already have and what you need to acquire.
  • Identify any critical procedures or sensitive issues and outline possible alternatives.
  • State where you intend to operate from - your current premises and future requirements.
  • Outline your current Health and Safety policies - if you don't comply with your statutory obligations, you will need to take action.
 
7.      THE PREMISES
 
You need to decide on the most appropriate premises for your business needs together with the franchisor.
 
Whether you are working from home or looking for factory premises, you need to consider the following:
 
  • Location
  • Future business growth
  • Running costs and 'Uniform Business Rates'
  • Insurance's
  • Planning Consent
 
8.      FINANCIAL INFORMATION
 
a)      Introduction
 
Start with a summary of the key facts:
 
  • The forecast profit (or loss) for the year.
  • Whether financing is required and if so, how much and where the money is to come from.
  • The 'break even' sales for the business should be calculated and shown as a percentage of your anticipated sales.
  • Details of the money you need to take out of the business to live on - your required income'.
 
A detailed schedule of your required income should be included in the Appendix.
 
b)      Profit & Loss Forecast
 
Your forecast profit (or loss) should be based on your anticipated sales, minus your direct costs and overheads. The assumptions made in producing your forecast should be listed:
 
  • Include as much detail as possible to justify anticipated sales.
  • Any direct costs (materials etc.) should be detailed
  • Don't forget your overheads - it is just as important to show how they have been calculated.
 
c)      Cash Flow Forecast
 
Cash will flow in and out of your business - often at different rates and times for example, you may have to pay for materials in advance, yet wait months for payment after you have sold your product or service.
 
Situations like this can lead to cash flow problems in an apparently profitable business.
 
To anticipate how much cash your business will require, you should convert your profit and loss forecast into a cash flow forecast. List your assumptions:
 
  • When will you get the money from sales
  • When will you have to pay suppliers
  • The timing of specific overheads
  • How much capital equipment that you require for your business
  • Differentiate between existing equipment and expenditure still to be made - how much and when
 
Properly done, this will tell you when your franchise business is likely to be short of cash and it will enable you to plan for this.
 
Appendix
 
This is the final section of your Business Plan. It should include the detailed information mentioned earlier - CV's, details of orders etc. You can also include:
 
  • Details of premises
  • Insurance details
  • Product brochures, photographs and letterhead
  • Anything else that you believe will enhance the credibility of you or enhance the credibility of you or your business


Got a question to ask?

Steve Seddon - Westpac

Steve SeddonSteve Seddon is a Senior Business Development Manager with Westpac. He specialises in the franchise sector and holds a position on the Franchise Council of Australia's Western Australian Committee. He holds a Bachelor of Commerce, Diploma in Franchising and is a qualified CPA.

Ask Steve Seddon a question

Greg Lawton - Bankwest Business

Greg LawtonGreg Lawton has spent almost 10 years specialising in franchise finance. In that time he has developed a real passion for the industry, as well as strong relationships with franchisors and franchisees alike.

Ask Greg Lawton a question

Tim Kilham - Lanyon Partners

Tim KilhamTim is a director of Lanyon Partners Chartered Accountants and heads up the franchising area of that division. Tim has been active in the franchise industry for nearly twenty years as an advisor, consultant and author.

Ask Tim Kilham a question

Grant Dawson - Commonwealth Bank

Grant DawsonTim is a director of Lanyon Partners Chartered Accountants and heads up the franchising area of that division. Tim has been active in the franchise industry for nearly twenty years as an advisor, consultant and author.

Ask Grant Dawson a question

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