Franchising: An Entrepreneurs Guide

4e
by Jonathan Comish, Scott Julian, Richard J. Judd, and Robert T.
Justis
 Chapter 4:
The Franchisor Business Plan
Franchisor Business Plan

A promising franchise opportunity should be reinforced by a

substantial business plan.
There are certain aspects of a Franchisor Business Plan that are
unique to franchise opportunities.
Franchisee Recruitment Package

The Franchisee Recruitment Package is the part of a franchisors

business plan that is designed to show a potential franchisee what
the franchise has to offer, and should include the following:
The objectives of the franchisor firm
The initial capital and expected investment required of a
potential franchisee
Personal and other qualifications a potential franchisee must
have
Franchisee Recruitment Package

The training provided by the franchisor to the franchisee

The anticipated benefits and responsibilities of becoming a
franchisee
Franchisee Operations and Success Package

Often referred to as the Bible of a franchise operation, this

package details the procedures of the organization. It should
include details on:
The accounting system
The advertising, promotion and sales programs
The franchisor support packeage
The training manuals
The Franchise Feasibility Study

The feasibility study should contain sufficient information to enable

either a franchisor or a franchisee to make a go or no go
decision.
Feasibility Study

The franchise feasibility study will contain six content sections:

1) executive summary
2) marketing segment
3) management segment
4) finance, accounting, and taxes
5) legal requirements
6) appendix
Executive Summary

The most crucial part of any business plan is the executive

summary because this is what tells the story of the franchise
venture and will spark the interest of any outsiders.
Executive Summary

The summary is generally comprised of:

1) the company name
2) type of business
3) company description
4) key personnel
5) startup schedule and competition
6) funds requested
7) funds use statement
8) fund repayment ability
Marketing

The following are eight elements that are included in the

marketing section of a franchisor business plan:
1) major marketing objectives
2) market plan and pricing strategy
3) franchisee recruitment plan and flow chart
4) franchisee prospectus
Marketing

The following are eight elements that are included in the

marketing section of a franchisor business plan:
5) franchisee sales/advertising
6) franchisee location criteria selection
7) grand opening plan
8) customer advertising
Major Marketing Objectives

What franchisor wants to accomplish by when

Characteristics
Meaningful
Quantitative
Ambitious
Realistic
Time-deadlined
Market Plan and Pricing Strategy

Target market analysis-

identify the target market
analyze that markets primary characteristics
determine the potential buyer power available through that market.
Pricing strategy
The price at which a product/service is offered must cover relevant
costs and ensure an adequate profit.
Franchisee Recruitment Plan and Flow Chart

This section should include a basic description of the franchisee

profile describing who you are trying to recruit.
The recruitment flowchart outlines the steps a franchisee needs to
take in order to be:
1) accepted as a prospective franchisee
2) interviewed, trained, and assigned as a franchisee
3) authorized as the operator of an opened franchised unit
Franchisee Prospectus

The franchisee prospectus discusses the franchise opportunity.

Sales brochure to explain to prospective franchisees what the
business is about and to encourage them to become
franchisees of the system.
Franchisee Sales/Advertising

Promoting the franchise to prospective franchisees

Media Mix
Newspapers
Direct mail
Magazines
Point-of-purchase
Franchisee Location Criteria

List factors which they are going to use to select the best possible
franchise location.
Site considerations
Demographic considerations
Grand Opening Plan

Explain the costs to both the franchisor ad the franchisee.

how many representatives from the franchisor will be on site
during the grand opening
advertisements and promotions which will be used at that time.
Customer Advertising

Promotion & advertising

Sales promotion is associated with specific time-related efforts
to improve sales of a specific product, line of products, or
services.
Advertising concerns more- general factors of the brand,
trademark, or product/service of the business.
Management

The management section of the franchise

feasibility study should include detailed
information on the following five elements:
1) Headquarters' organization
2) Franchisee organization
3) Operations manual
4) Training manual
5) PERT chart
Headquarters' Organization

The Headquarters Organization section should include a chart,

diagram, or table of organization that clearly Illustrates and
identifies each positions
authority and responsibility
placement
Franchisee Organization

Sufficient direction should be provided by the franchisor so that

each franchisee will know:
what is expected concerning operations and management of
the franchised unit
what elements are essential to the franchisor-franchisee
relationship
Franchisee Organization

The franchisee organization section also needs to include:

1) organization structure
2) policies
3) personnel management
Operations Manual and Training Manual

The operations manual provides step-by-step illustration and/or

description for each set of required activities within the stores
operation.
The training manual provides the information necessary to train
unit employees to perform the required functions and operations
within the specific business environment of the franchise.
PERT Chart

PERT is an acronym for Project Evaluation Review Technique.

A PERT cart is a simple, clearly delineated set of related events
presented in sequence.
The franchisee can see the steps with their requirements and
time periods for accomplishment
Can plan how to best use the time prior to opening the
franchised unit
Financial Records for the Franchisee

It is appropriate to develop a set of financial figures for a

prospective franchisee.
1. Startup or turnkey costs (itemized)
2. Financial position for starting franchisors system
3. Pro Forma Balance Sheet
4. Pro Forma Income Statement
Financial Records for the Franchisee

5. Pro Forma Cash Flow Statement

6. Break-even Analysis
7. Ratio Analysis
8. Provision for taxation
Startup or Turnkey Costs

This would generally include expenses required to start a

business
Land
Building
Furniture
Fixtures
Equipment
Personnel costs
Financial Position

Determine the availabilities of money to start a franchising

program.
New building construction or purchase of land may require
many tens of thousands of dollars just to start a franchising
operation.
Balance Sheet

The balance sheet is a snapshot of the financial condition of the

franchised business.
Assets = Liabilities + Ownership Equity
The balance sheet differentiates between money used by the
franchise business for a short period of time and money utilized for
longer periods of time.
Income Statement

Profit is shown on the income statement through identification of

expenses to make the sales.
The expenses are subtracted from the revenue and this figure is
considered gross profit.
Revenues into the business are sales made through the franchises
product/service line, plus other forms of revenue.
Expenses are the outflow of resources required to produce and sell the
product/service line, including direct cost of production as well as
overhead.
Cash Flow Statement

The cash flow statement shows

sources from which the firm obtained its income
how it was spent
Equity, collateral, and loans constitute the capital that can be
applied to the business at a given time.
Working capital is simply an accounting expression that refers to
how much cash or capital is available or can easily be made
available to pay current debts.
Break-even Analysis

The determination of that point in the franchised business activity

where revenues (income) exactly equal expenses (costs of doing
business).
At the point of their intersection, the business is neither making
nor losing money.
Up to the point of intersection the firm is losing money, and after
the point of intersection, the firm is making a profit.
Ratio Analysis

Ratio analysis is a method of determining the various financial

relationships which would suggest the degree of financial health of
a firm.
The ratios are designed to compare the current business activity
1) with that of prior time periods
2) with that of similar firms in the same industry
Provision for Taxation

Generally, there are four main areas of taxation:

1) Sales taxes
2) Business taxes
3) Property taxes
4) Employee-related taxes
Legal Requirements

Typical factors covered in the legal agreement include:

1) business structure
2) licenses, contracts, and permits
3) types and anticipated costs of insurance
4) disclosure documents (UFOC)
5) the franchising agreement itself
6) conditions integral to the franchisor-franchisee relationship
7) Possible termination
Disclosure Documents

The FTC has a requirement called the Franchise Rule

This rule requires that all franchisors engaging in franchising
practices disclose their business activities through a disclosure
document or UFOC.
Appendix

The appendix should include all of the exhibits referenced in the

body of the franchise feasibility study. It should serve to
complement and support the claims made therein.
The Franchise PERT Chart

These are the phases in the development of a successful PERT

chart:
1) Research and Analysis
Meant to develop those analyses which are necessary for a wise
decision about whether to start a franchise
2) Organizational Development
Focus on all of the internal factors necessary in order to develop a
franchise system
The Franchise PERT Chart

3) Marketing to Franchisees
In-depth analysis and compilation of the marketing package to be
used to attract prospective franchisees
4) Franchisee Selection
Identifying those characteristics which lead to franchisee success
and making them a part of the franchisee selection process
The Franchise PERT Chart

5) Site Selection and Training

Develop thorough and effective guidelines for site selection and
franchisee training
6) Start-up and Feedback
Help the franchisee to run an appropriate grand opening and to
employ those skills and processes which will ensure continued
success
Questions?