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Franchisee Advice

Business Plans: A Remedy for Failure

Each plan needs five sections, and franchisors make it easy to fill them out by providing all the info you need.

Jeff Elgin

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As with any other business, one of the most important elements of a franchise start-up is writing a business plan. A business plan forces you to anticipate and answer a number of questions about the challenges you’ll face and the expectations you have for your new business. The creation of your business plan is also essential if you’re going to need financing from third-party sources, since this is probably the first document they’re going to ask you for.

Preparing a business plan is substantially easier with a franchise than it is for an independent business start-up since there is so much information already available.

During the sales process, the franchisor typically supplies you with a great deal of verbiage you can use to create the narrative portions of the business plan. You can also often find much of the financial information you’ll need in the earnings representations of their disclosure documents.

In addition to the sections that are usually addressed, a business plan for a franchise will have a section outlining the track record, personnel and support available from the franchise company. You may include items like the franchise company’s sales brochure or disclosure document as attachments to your business plan. This additional section can provide a much higher degree of confidence for people like lenders that you’re trying to impress with your plans.

The five key sections in a typical business plan, whether franchise or independent business, include:

1. Introduction.

This section involves a complete description of the business, including an identification of the product or service that will be sold, the size and competitive nature of the market for the business, a description of the operational approach that will be used to take the business to market, and the challenges and risks associated with the start-up.

2. Management.

This section describes the key management roles in the new business. It names the people who’ll fill the roles and provides background information on these people, such as CVs with prior, relevant experience. In a franchise, you’d also include information about direct support staff of the franchisor in this section.

3. Marketing.

This section defines who your customer is and how you plan to attract him to your business. It includes an explanation of the business’s competitive advantages, an examination of the value equation related to the product or service as it relates to potential customers, and of course detailed marketing and advertising plans for the business.

4. Pro Forma Financial Projections.

This section includes income statements, cash flow statements and balance sheets that project the anticipated financial performance of the business when it begins operation. The statements should include extensive notes on all material assumptions used to prepare the projections. These projections should always be prepared on a very conservative basis since it’s not possible to project the unexpected delays or challenges that always seem to happen on any new start-up.

5. Financing Needs.

Even if all funding comes from your savings, always prepare a section in your business plan related to financing needs. This section involves a complete analysis of all start-up costs related to the new business, including sufficient working capital to cover initial marketing plans and operating losses until the projected break-even point for the business. The process of carefully detailing this information, even if you’re not borrowing anything from an outside source, will better prepare you for whatever might happen as you get the business set up and operating.

Again, one advantage of a franchise, in relation to creation of a business plan, is that most of this information is readily available from the franchisor. You’ll probably find that the franchise company’s brochure or website contains sufficient information to complete much of sections 1 and 3 above. You’ll also find that its disclosure document contains much of the information to complete section 5 and, if the franchisor publishes financials, then you may be well on your way to completing section 4, as well.

Sometimes franchise companies require potential franchisees to start and/or complete their business plans prior to being approved. Whether or not the franchise requires this, it’s a good idea to start thinking about a business plan. This will force you to consider options and formalise your projected course of action in the new business. You’ll typically identify questions during this process that may not have otherwise occurred to you. You can contact the franchise company and get answers to make sure you have a clear understanding of the franchise prior to making a final decision to proceed.

Remember to update and finalise your business plan after completing the franchisor’s initial training. Regardless of how much research you do prior to becoming a new franchisee, you’ll have a far greater understanding of factors like operational and marketing plans for the business after the initial training. Most franchisors will have pro forma financial models prepared that you can use to double check, or even replace, those you initially developed for the financial projection section of your business plan. Review your entire business plan based on your new knowledge, and you’ll be as prepared as possible for your new franchise business to be off and running successfully.

Jeff Elgin has developed a consulting system that matches pre-screened, high-quality prospective franchisees with the franchise opportunities that best fit their personal profile.

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1 Comment

  1. Last_cast

    Jun 21, 2012 at 14:13

    Business plans are viable in a franchise context, but for many non-franchise startups they can be more of a hindrance than a help, especially if they are drawn up by a 3rd party ‘expert’.

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Franchisee Advice

6 Questions Before You Discount

Try this checklist so that discounting doesn’t give you nightmares.

Richard Mukheibir

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For some retailers, discounting is a way of life. Most, though, begrudge the thought of discounting – and I completely identify with that.

It was not until last year that we ran our first company-wide discounting, our “Spring Clean” campaign. It took Trevor Locker, our Chief Operating Officer, to convince me that there are times when discounting makes great business sense – just as there are times when it could spell business disaster.

Here is the checklist of questions which we hammered out as a guideline to successful discounting that will let you sleep peacefully at night:

1. Is this a stock clearance?

Some businesses stock ranges that have a very short shelf life, such as clothing that quickly goes out of fashion. If this is your market, you need to learn to accept that some of the goods you have bought in will be less appealing than others to your customers. The sooner you shift them out of the store through sale discounts, the sooner you can replace them with goods that repay you with a full profit.

Related: What To Know About Franchising Your Business

2. Is this a cashflow crunch?

If you are reluctant about devising quick discounts on selected ranges to generate enough cash to pay the rent, you are right. This is a red flag that your business could be in trouble. Pay attention and spend time focusing on how you will recover once you are past this immediate crisis – otherwise you are in a downward spiral.

3. What are you celebrating?

Maybe you have a business or seasonal anniversary that you want to celebrate. Selected discounting in this situation can help you reward repeat customers and consolidate their loyalty as well as attracting new customers into your business.

4. Is your promotion a win-win?

Long-term repeat discount promotions can have a negative impact on even your most loyal customers. Effectively you are training them to wait for your discounts – unless you set up a win-win strategy such as partial discounting. A great example of how this can work is Steers’ Wacky Wednesday. Customers win when they come into the branches for a discounted hamburger. Steers wins because customers still pay the normal price for cool drinks, chips and so on, sales that the company probably would not otherwise make on a quiet midweek trading day.

5. Are you joining the herd?

black-fridayBlack Friday is a classic example of this. Some retailers have felt stampeded into offering discounts because they worry that everybody else is. The jury is still out on whether this new trading phenomenon increases sales overall or just moves them out of December and into November. To benefit most, you need to have stock that you want to clear or loss leaders that you have bought in at prices that do not cripple you financially.

Related: 5 Last-Minute Tips For Small Retailers To Boost Black Friday Sales

6. Do you own your own sale?

Our company-wide “Spring Clean” concept sale was a great example of finding a reason to discount that worked for our branches, our customers and our brand and meant that our discount was not drowned out in the marketplace.

We encouraged customers to bring us unwanted goods from their homes and benefit from freeing up the cash value.

At the same time, we also attracted customers into the stores to pick up bargains from stock that we wanted to clear. Running this promotion at a time of year when many other retailers are quiet promotionally meant that we owned the spring-clean discount concept and it highlighted our brand across the market.

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Franchisee Advice

What To Know About Franchising Your Business

For many businesses, franchising is an excellent route to growth, opening up new opportunities and markets. Laurette Pienaar, National Franchise Manager at Nedbank, unpacks why it’s worth considering this route.

Nadine Todd

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Vital Stats

  • Player: Laurette Pienaar
  • Position: National Franchise Manager
  • Company: Nedbank Limited
  • Visit: nedbank.co.za

What type of business is ideally suited to the franchise model?

Franchising has been proven successful across all industries, including the automotive, food, entertainment and retail industries. However, several key qualities ultimately determine a concept’s ability to successfully become a franchise.

Firstly, the business model must be scalable and able to be repeated in several locations. Secondly, there must be demand for the products sold and, thirdly, the franchise model must be proven as profitable.

Related: (Infographic) 7 Digital Marketing Strategies For Franchises

Why is franchising a good growth option?

Franchising is often used as a cost-effective growth strategy for businesses. A key benefit of this strategy is that no capital layout is required for a new franchised store as opposed to corporate-owned stores.

Franchised stores are also proven to be more successful than corporate-owned stores. This is mainly due to the fact that the franchise owners have a vested interest in the store, whereas corporate stores are supervised by a manager. Franchising is therefore also a great way to build your brand.

What should business owners focus on?

Franchisors should set up good infrastructure to support their franchisees, including good upfront and ongoing training to both the franchisees and their staff, the correct legal advice and assistance, and a strong operational team to assist franchisees daily.

Many successful franchisors provide support by expanding through vertical integration, which provides franchisees with logistics, supply chain security and product consistency.

Several franchisors advocate a structure with both franchisee and corporate-owned stores. This enables a franchisor to keep in touch with the daily challenges franchisees experience and new products and solutions can be tested at a corporate store before being rolled out to the franchise network.

How can franchising consultants assist business owners?

Franchise consultants provide daily operational support to franchisees. They are responsible for daily store visits to assist with quality checks, process flows, supplier relationships and, often, financial assessments. They are a helpful soundboard on any improvements to be made in the business model and can convey suggestions to the franchisor.

Related: The Secret Sauce To Great Franchise Leadership

What challenges should business owners be aware of?

Businesses looking to franchise need to ensure that their business is teachable to others. Overcomplicated products and systems may deter franchisees from investing in your brand.

Franchisors have to do ongoing introspection regarding their company culture. For example, does the culture promote innovation and inspire franchisees and consumers, which ultimately is a culture worth investing in?

New franchisors’ selection criteria for franchisees are often not sufficiently thorough and comprehensive. For a new franchisor, it is important to choose good quality franchisees and to have strict selection criteria to ensure that your brand remains reputable and stable during fast-expanding cycles.

What lessons can be learnt from SA’s successful franchises?

Businesses looking to expand through franchising should consider setting up several corporate-owned stores first. This assures potential investors that your business is based on a proven model with a track record and supportive infrastructure.

There is not always a one-size-fits-all model. Many franchisors have created custom models to accommodate and adjust to the need of a specific property or consumer market. A great example of this would be the food industry where many franchisors offer shopping centre concepts, drive thrus and kiosk or express concepts. Consider this when developing your model.

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Franchisee Advice

Develop Digital Marketing Competency In 3 Simple Steps

Conquering the digital revolution needn’t be daunting. Polish up your tech skills and watch your digital marketing prowess increase throughout your franchise.

Diana Albertyn

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As a franchisor, digital marketing may be proving to be a challenge due to the unique structuring of the business.

“The very nature of franchises is ‘structured’, however, when it comes to marketing, that structure often lacks,” says Marcela De Vivo, Founder and CEO of Gryffin Media.

Franchisors and franchisees often struggle to reach common ground when looking to achieve different marketing goals. While the franchisor needs to control the brand in its entirety, the franchisee wants to market their business using particular strategies suited to their location.

Research has found that smartphones are the biggest influencers of 82% of users when they make their in-store purchase decisions while. It’s for this reason that the importance of digital marketing for franchises has increased.

Here’s how to harness its power of influence, amplify foot traffic and solidify brand loyalty:

1. Recruit digital natives and early adopters

As much as you’re the leader of your franchise network, there are franchisees in your chain you could learn from. The global increase in millennial franchise owners means it is highly likely that you’ll be able to identify early digital adopters within your franchise network.

“The best people to learn from are those who have been in your shoes before,” says Matt Forman of the Franchise Centre at Griffith University.

“Encourage and support their efforts and use them as case studies to demonstrate to the rest of your franchisees the value of digital marketing, and how to do it right.”

2. Invest in training your team

“Each digital competency level requires more education and resources in order to integrate digital marketing with your physical stores,” says Forman. For this reason, regularly investing in continuous training for your team so as to ensure they keep abreast of any new and emerging trends.

Proactivity and adapting to the constantly evolving digital landscape led KFC to open a LinkedIn account for its founder and mascot Colonel Sanders. KFC’s out of the box tactic is a fresh approach to what has long been considered a B2B platform, under-utilised as a B2C platform.

3. Apply custom targeting techniques

The discovery of new and small businesses is being fuelled by Google searches, social media and online reviews, making these platforms a goldmine of invaluable tools.

Leveraging certain custom targeting techniques like easily searchable keywords and exposure on other reputable and high-traffic websites, gives your franchise’s digital marketing efforts a boost. This results in an effective campaign, favourable reviews and meaningful and lasting interactions with consumers “whether it’s a reply to a Facebook comment or a retweet,” says Entrepreneur’s Emily Conklin.

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