Creating a Franchise Plan

Most business owners forget basic business principles when creating a franchise plan.

Feasibility Study

The first step when starting any new venture or franchise, is to develop a business plan. This is called the feasibility study. This document creates a franchise model that will be used all around the process.

Franchise Model

The franchise model will include roles and responsibilities of the franchisor and franchisee. In addition, the terms offered, the upfront and ongoing fee structure. It also includes the size of the territory and whether territories will be offered on an exclusive or non-exclusive basis. If there is any basic performance levels for franchisees and the basis for any renewal of the franchise.

The model must have financial projections for the franchisee and the franchisor. This should show what every franchisee should achieve as a minimum and not be ‘on target earnings’. It is practical to understate the franchisee projections, so that franchisees exceed them. This helps in creating motivation and goodwill, rather than having disappointed franchisees.

The model includes franchisor projections for franchisee recruitment. The franchisor projections should not be an manipulated. Meaning, the number of franchisees recruited is adjusted until the bottom-line figure looks good. Most businesses start by recruiting four or five franchisees a year for the first couple of years is good. It would be ideal if all franchisees started together but in practice, this does not happen. In reality, franchisee recruitment will be ongoing throughout the year.

Three criteria should be used to decide if franchising is possible:

1) Franchisees must be able to make sufficient profit based on conservative income projections and realistic operating costs.

2) The franchisor must be able to make sufficient profit. Have realistic franchisee recruitment levels and realistic costs of properly supporting their franchisee.

3) The franchisee profit potential and upfront cost must be suitable for the targeted franchisee.

When franchising a business do not forget basic common business practices. Create the franchise development model first. If you get this right then the other elements in completing the franchise plan become easy.

Source: Business Franchise

Read: Are you ready to be a Franchisee?