The Franchise Business Plan requires much more digging than imagined.
Is there a difference between a regular business plan and a franchise business plan? My business partner and I were thinking about starting a franchise. Most of the sample business plans we find are for non-franchised businesses.
Developing A Business Plan
A franchise business plan does not necessarily differ from any other business plan. However, there are some headaches you might not expect. For financing purposes the plan is of course, a necessity. Even as a personal guide, a business plan is a worthwhile instrument for turning thoughts into, hopefully factual, statements. But, as seasoned business people know, all plans have a habit of changing once a business is in actual operation.
The Non-Franchise Business Plan
Creating a non-franchise business plan is actually somewhat easier than its counterpart in a couple of practical ways. First, one can easily research similar business performance by SIC (standard industrial code) and plug-in some reasonably factual, accepted costs and profit margins. Second, given a ‘normal’ small business start-up, i.e., a common business, there are abundant resources in the form of actual business owners and accountants familiar with those enterprises. In other words, there are many sources of performance data. This is generally not the case in franchising.
Franchisors And The Business Plan
Buying a franchise inherently means buying into and working under a specific brand name. So, for better or for worse, a buyer must make cost and performance assumptions based on that particular concept/brand. If you’re fortunate enough to have chosen a franchise that publishes an Item 19 or FPR (financial performance representation), you’ll have some information to work with. However, that information can be quite scanty and sometimes quite useless.
The idea behind the FPR, first known as an earnings claim, is to give buyers some relative data to work with. However, franchisors who want to give performance information are doing so to add meat to their disclosure documents. The bottom line is this. Franchisors are afraid, legitimately so, of giving so much performance information as to create problems if that level of performance is not realized. Lawsuits are no fun for anyone and franchise lawsuits have historically been the bane of existence for franchisors.
Whether or not the franchisor provides an Item 19 there is one key resource that must be approached – franchisees. (BTW, we strongly disagree with purchasing a franchise that does not provide an Item 19.) The problem, of course, is that unlike engaging independent business owners in your proposed business type from a broad, non-competitive geography, you are hemmed in. Yes, some data from the SIC’s noted above can be helpful, but active and past franchisees as found in the FDD are the best resource. Of course, for a multitude of reasons, one would have to cultivate relationships with those franchisees before information can be expected.