The franchise business plan
Although widespread agreement exists that a business plan is a necessity, many aspiring entrepreneurs are reluctant to compile one. They believe that this is a complex task, best left to some accountant or consultant, but this is a fallacy. In reality, you are the best person for the job! After all, your business plan needs to show what you want to do, how you want to do it, what you need to achieve your goals and why you believe that you will succeed. In addition to essential facts and figures, your business plan needs to reflect your vision for the business and your passion should shine through.
Our advice is this: Seek input from subject experts but do not delegate the responsibility for drafting this important document to anyone. Above all, make sure that you understand the meaning of every projection you include. This is important because initially, you will have to explain the business plan to bankers and other stakeholders. And as your business develops, the business plan will help you keep the franchise on an even course.
State the name of your business and the date you compiled the plan. Print your contact details either on the title sheet or on the first inside page of the document. This will make it easy for external readers of the plan to contact you.
On this page, list the headings of the various sections the business plan contains and provide page numbers.
The Body of the Business Plan
This is the main part of the business plan. It outlines what you want to do and how you plan to go about it. Use the following step-by-step approach to the creation of a killer business plan:
This overview summarises the salient points of the project. Bankers and other stakeholders you wish to interest in your project are busy people. They will probably read the executive summary first and if it fails to hold their interest, you may have lost them for good. It is of utmost importance, therefore, that you make this opening section exciting reading but without gushing, and without straying from verifiable facts!
It is vital that you explain how you plan to position yourself against similar existing businesses. What will differentiate your product from others and what gives it that elusive competitive edge?
If your project is a Greenfield venture and cannot be compared to anything that is already available, be brave enough to say so. If you have managed to identify an untapped niche market for an existing product, explain its potential in detail. Even if your breakthrough discovery centres on a new way to market an existing product, point it out and explain your strategy. Above all, make your business concept sound as if it’s the breakthrough business of the century, and then use verifiable facts to back up what you have said.
Step 2: Clarify your business objectives
You may want to be the next Richard Branson, with a finger in a hundred different pies, but this could alarm your prospective financiers. Slow down and take it one step at a time. Set your objectives out in a concise and achievable manner and stay clear of pie in the sky scenarios. Business objectives are about facts, not fiction! Stick to what is attainable and likely to add up to Rands and sense in the minds of your bank manager and other stakeholders.
Step 3: Define your business concept
Before you go into detail, you should first be clear in your own mind what you plan to do. You can then provide readers of your business plan with an in-depth picture of your business and its potential.
Is it a product-based business? Will you be setting up a manufacturing division and if so, what will this entail? Will you need a warehouse to store incoming goods, keep finished stock and package goods? Will you need to set up a distribution system and hire a sales force?
Alternatively, is it a service business? What is the competitive edge of the business? How are you going to reach your target market? How will you deliver the service? How will you provide backup and handle warranty obligations? Your franchisor will no doubt be able to assist you to formulate appropriate answers to this and the following points but remember, it’s your business plan; it therefore needs to reflect your thoughts and dreams. Quite obviously, you need to stay within the confines of the network’s guidelines.
Step 4: Is there anyone out there?
Do you know where your market is and, more importantly, who your customers are? Does your customer have a face, a personality profile, a character, an age, specific preferences and perhaps even an opinion?
It happens all too frequently that inexperienced business owners generalise and compartmentalise their market. They perceive their customers as faceless numbers that will, for no rhyme or reason, buy their product and make them rich. This is unlikely to happen! If you do not have a clear picture of the individuals you will be selling to, it’s like driving your car in heavy fog, at high speed with your fog lights off. You will be driving blind, with an excellent chance of crashing the car in the process.
Should you be in the business-to-business market, this paragraph applies to you in equal measure. You need to appreciate the fact that even if the customer is a company, you will still be dealing with living, breathing individuals. After all, have you ever seen a company walk into a store and buy something? Of course not, and neither have we. So, stop just for a moment and make sure of a few things:
- Is there a market for the network’s products in your territory? Is there really a gap for your product or are you just adding to the range of products that are virtually identical in their characteristics?
- Explain how the network has narrowed down the target market. Perhaps they would want to sell to all 47 million South Africans, but this just won’t happen. In today’s competitive market place, specialisation is the name of the game and some of the world’s most successful companies sell into niche markets.
- Describe how your franchisor has selected a market that has proven potential for growth. It is equally important to demonstrate why you believe that the product will stay the course. Changes in consumer lifestyles are often a good indicator of market trends. With time being of the essence in our pressure-cooker world, anything that saves the consumer time and/or adds convenience appears to be a sure-fire bet. Expand on that.
- Explain how the franchisor keeps abreast of market trends.
- Explain how your franchisor has helped you select the right location. South Africa offers an eclectic mix of climates, cultures and opportunities. Describe how your location makes the best of this.
- Talk about seasonal strategies. Selling ice to Eskimos in winter may identify you as an excellent salesperson but it is not something we would recommend in the normal course of doing business. Consider the implications of seasonal fluctuations in consumer demand for your product and adjust your sales projections accordingly. Plan your sales year around the seasons and explain alternatives commonly used within the network to take up the slack during the slower months, for example winter months or school terms.
- Beware of the competition! They say that competition is healthy, and so it is. We are not suggesting that you should be afraid of your competition, but you should always treat them with respect. Follow their every move, and do not just focus on the store next door as your competition. Competition could come in various shapes, including products that appear to be quite unlike yours. On the surface of it, it may appear that a burger barn and a pizza outlet are not in direct competition. However, they both compete as meal solutions for the same customers.
In the liquor industry, they describe this as the battle for share of throat, meaning that beer competes, for example, with mineral water, or flavoured milk for that matter, in the quest to quench the public’s thirst. On the other hand, if a family goes out for a meal and their tastes differ, the combination could work in your favour.
Step 5: Infrastructure – the building blocks of success
Defining your infrastructure must form an important part of your business plan. Establish precisely what you will need to operate your business at peak efficiency, both in the short term and in the longer term.
Remember to build expansion plans into your strategy or you may find yourself on the losing end once your sales exceed your capacity to meet the demand the network’s marketing campaigns have created. Incorporate absolutely everything of consequence in your business plan.
When you outline how your business will operate, remember to mention that all systems and processes have been documented in an operations and procedures manual published by the franchisor.
At this point, you may wish to explain that in essence, an operations manual is a detailed description of the way you will be operating the franchise. It contains clearly defined standards, collated and disseminated by the franchisor.
Step 6: Apply the marketing mix to your recipe
This is another important section of your business plan. It deals with the way the network approaches national marketing, and how you intend maximising the results by plugging in at a local level. Describe your strategy for identifying your market sector, and which media you propose to use to ensure that you reach your prospective customers.
Step 7: Pre-opening checklist
It may seem that you have covered all the bases by now, but there is no harm in double- checking everything, just to be sure.
Step 8: Does the budget tally?
After planning and strategising, dreaming and despairing, you now get to the crucial point of translating these plans into cold, hard cash. Now comes the million-dollar question:
- Will you have enough capital to start your franchise and keep it operational until the cash flow is strong enough to sustain it?
- Have you over-budgeted or under-budgeted?
- How long will it take to reach break-even point?
We must stress that the preparation of detailed financial projections is crucial to the success of your franchise. Besides, this is the document your bank’s loan committee will rely on the most when considering the viability of your proposal.
Step 9: The human angle
Earlier in this section, we mentioned that it matters little whether you are dealing with end users or companies. Even if your customer is a company, you still deal with the individuals who represent it. Every type of business is built on relationships, and the finance business is no exception. Your banker will want to know that your project is viable, and they will lay great store upon the financials, but there is more.
Progressive bankers and other stakeholders in your business will want to know who you are and what makes you tick. It is of vital importance, therefore, that you portray yourself as the passionate human being you are. Make the point that you strive for excellence in every respect and have a burning ambition to turn your business into the best in its industry sector, and your chance of success will be as high as the sky above.
The appendix should contain detailed schedules of market research results, sales projections and other supporting documentation that underpin the assumptions you have made throughout the document, plus copies of the network’s vision and mission statement.
Acknowledgement: this article was taken from the book Eric Parker’s Road Map To Business Success, 2nd edition, Frontrunner Publications, Johannesburg, 2006. Copyright: Eric J Park