Both managers and founders regularly find it difficult to draw up a franchise business plan in practice. One of the reasons for this is that many have no experience with it or have not yet worked with it.
This fails to recognize that “good” plans are not characterized by the fact that they “correctly” anticipate the future, but rather by the fact that they give you the chance to think through possible future scenarios in a structured manner in advance.
The following article is intended to help avoid the most serious mistakes when creating a franchise business plan and, also, to provide concrete support for the creation.
Why Is a Franchise Business Plan Important?
In practice, there has been a controversial discussion about the meaning of business plans for some time. The main argument against the need for business plans is that a business plan or planning is generally not useful in today’s world – the future cannot be predicted anyway. This fails to recognize that “good” plans are not characterized by the fact that they “correctly” anticipate the future, but rather by the fact that they give you the chance to think through possible future scenarios in a structured manner in advance.
The franchise business plan was originally only intended to convince investors to invest. But not only venture capital investors, such as venture capital companies and business angels, make their investment decisions based on a business plan. For traditional lenders, such as banks, the business plan is an important decision-making basis for granting a loan in addition to the company’s key figures.
Also, franchisors usually require a business plan from the franchisee before moving ahead with the franchise basics. Also, important business and cooperation partners often expect a business plan.
In addition to an important document for external stakeholders, a business plan is also useful for internal purposes. For example, it can serve as the basis for internal documents such as the company presentation or the company manual. This reduces duplication of work and inconsistencies.
The Scope & Format of Franchise Business Plan
Immediately after the question of necessity, the question of form and scope of the business plan arises. There are no general answers to this, but there are some guidelines.
The basic rule is that all information important for the target group to assess a business must be included. Everything else can safely be left out. This means that the franchise business plan should be as short as possible and as comprehensive as necessary. From this, it follows that the scope depends heavily on the specific business model.
“Catchy” business models, such as those used in e-commerce, usually require less explanation. On the other hand, technically complex business models, such as in the areas of artificial intelligence or Iot, usually require more space for presentation.
In this case, the “classic” franchise business plan in a text document is usually also suitable.
In contrast to this, the presentation – so-called “pitch deck” – has established itself as a form of business plan for visual and catchy topics such as games and media, or in the start-up area. Companies usually do not have a long history. Depending on the complexity, 10-15 pages are usually sufficient for presentations.
Structure of Topics of Franchise Business Plan
In terms of form and scope, the question arises about the topics to be dealt with in the franchise business plan. Although there is no standard for franchise business plans, at least the following topics are dealt with in practice:
➡ Summary (Executive Summary)
➡ The business model or corporate purpose
➡ Market & competition
➡ Marketing & Distribution
➡ Management & employees
➡ SWOT analysis
Business plans of companies with a long history often contain a chapter on company history. In contrast to this, start-ups’ business plans often contain a chapter that shows the implementation of a roadmap for implementing the company’s development.
How Should A Franchise Business Plan Look?
The following brief illustration shows how the individual topics are specifically dealt with in the franchise business plan.
✔ The business model or company
Describe what the company offers and how money is to be earned with it.
Furthermore, statements about where the company has sustainable unique selling points.
✔ Market & Competition
Presentation of the market potential based on market volume, market growth, etc.
Furthermore, show how the company distinguishes itself from the competition.
✔ Marketing & Sales
Representation of the marketing and sales process.
Show how new customers are won and existing customers are retained or expanded.
✔ Management & Employees
Presentation of the company management or management’s professional and personal background as well as the company organization.
✔ SWOT analysis
Presentation of the company’s internal strengths and weaknesses and the external opportunities and risks of the market in which the company operates.
✔ Company history or implementation
Show which important milestones the company has already reached and which milestones will be reached in the coming years.
Detailed presentation of the actual and planned figures for the next three to five years and the potential capital requirements and the use of capital.
✔ Exit options
Show what option there is for a potential exit.
✔ Executive Summary
Brief presentation (maximum 1-2 pages) of the business plan’s essential statements – ideally one section per chapter. This part should be created at the very end.
The Common Mistakes of Creating a Franchise Business Plan
Although the quality of business plans has improved significantly in practice in recent years, many business plans still have several errors. The most common mistakes when creating a business plan are:
➡ Unsuitable scope
Either unimportant details, such as the generally known definition or market developments, are presented too comprehensively, or important information such as the management or are missing from the revenue model or are only treated superficially.
➡ Bad formal presentation
The business plan, like a company’s website, is also a marketing tool. Therefore, as with all important documents, attention should be paid to an appealing and error-free presentation.
➡ Incomprehensible presentation
Technical or complex issues are presented too abstractly, or the reader is expected to have expert knowledge.
➡ Unclear business model
It is not clear enough how the company makes or wants to make money.
➡ Unclear unique selling points
It is not pointed out at which points the franchise differentiates itself from the competition.
➡Product instead of customer
The company’s services are presented too technically and too little from the customer’s perspective.
➡ Sales process too abstract
It is not shown in detail how new customers are acquired, and existing customers are retained or expanded.
➡ Insufficient focus on management
There is a lack of detailed information on the background of management. This point is of great importance to external stakeholders – especially startups and small businesses.
➡ Unrealistic planning
An overly optimistic sales growth or an overly optimistic cost development is planned.
Time estimates for important milestones such as R&D or market entry/penetration are often too optimistic.
➡ Unrealistic financing
The speed of financing processes and the availability of investors are overestimated.
➡ Inappropriate assessment ideas Excessive assessment ideas are expressed in the business plan. This point should, therefore, be left out entirely in the business plan.