BUSINESS PLANNING

A good franchisor will help their franchisees with business planning as they know what it has taken to get a franchise off the ground. They also know what it takes to keep it running.

A business plan is more than just a financial forcast. It should cover:

Purpose and objectives of the organisation - an overview of what it does, some history of the franchise nationally, the work to be delivered, the type of clients, relevant information about the location/territory selected along with what you hope to achieve
Any SWOT and PEST analyses you have done (see Preliminary Research).
Experience of other franchisees - how other franchisees have developed or not and reasons why. (Don't just be led by the Franchisor's top 10 successful franchisee list).
The Activities (products and services) you will be offering in your location. How they will be managed, staffed, promoted. How this builds over time.
Property requirements - where you are planning to deliver the services from. What building work is needed along with costs, timescales and contractor details.
The Team. The structure, the background, skills and experience of all key individuals.
Risk. A risk assessment showing a methodical review of the risks that may face your organisation with the likelihood of happening and their impact. Include a way of dealing with those events, should they occur.
First year plan. A timeline of key tasks and activities and/or a work plan for the first year.
Money, budgets and cashflows. Operating figures and a cashflow forecast covering the first two years. (See below). How you will fund the cashflow, including details on additional funding required.

It is essential that you understand that budgets and cash flows are very different things:

Budgets - seek to give an overall picture of the levels of income and expenditure that are expected over the year. They do not seek to reflect the actual timing of money that flows into and out of your organisation.
Cashflows - aim to ensure that your organisation will have enough money in the bank to allow it to pay for all the goods and services it may need throughout the year. It reflects the actual timing of money moving in and out of the organisation.

The Budget projects income and costs on a monthly or weekly basis. From this one can calculate profit. Projecting when income and costs might be paid e.g. 30 days terms will give a feel for cash flow. Cash flow is what you need to finance.Here is a simple example:

Month 1 income invoiced £1000, costs £1500. Profit/loss -£500
Month 2 income invoiced £2000, costs £1500. Profit/loss +£500
Month 3 income invoiced £2000, costs £1500. Profit/loss +£500

So after 3 months, total profit/loss is +£500 which seems good. But say you have to wait a month for invoices to be paid and had to pay costs immediately e.g. wages. The first month you need finance of £1500 (£0 income received, £1500 costs paid). The second month you need to finance £2000 (£1000 income from month 1 received, £1500 costs on top of £1500 from month 1). The third month you need to finance £1500. So although on paper you have made a profit of £500, you have had to finance £2000 at the bank. This why you might have heard it said that cash is king.

In addition, Income and costs may have some seasonality e.g. customers away in holiday times, which could mean you paying out costs whilst not having much income.

On the cost side, the number of costs vary according to type of franchise.

There is of course the initial franchise fee. Other costs might be:
Costs which vary according to sales (variable costs):

stock replacement
venue hire
staff who are only paid for an event
travel
franchisor service fees based on income

Costs which are incured whether you make sales or not (fixed costs):

purchase or lease of a branded car/van
opening stock
premises lease
refurbishment of premises plus branding, fixtures and fittings
professional charges
insurance
recruitment costs
uniforms
marketing
launch costs
travel and expenses
training costs
salaries
telephones
IT and website
finance costs

Your business plan is a vital document for obtaining finance. Not only do you need to understand the product and service but you need to be sure that you understand the figures, what they are based on and how much you will have to turnover in order to break even. It is important to consider the financial implications carefully before buying a franchise. You are entering into a long term commitment and need to get the finance right at the outset.

BUSINESS PLANNING

TAG CLOUD

BRITISH FRANCHISE ASSOCIATION