Having spent over 35 years in the franchise industry as a franchise executive for several companies I've had the opportunity to meet and interview almost a thousand prospective franchisees. Apart from the usual qualifiers including financial profile, job experience, etc. I've found that one of the most important tools for both parties is a franchisee business plan. It was my practice to require a franchise candidate to submit a business plan as part of their franchising process.
A well constructed business plan requires the franchisee to document how they will operate the new franchise. It also provides the franchisor insight into the potential franchisee in terms of their business acumen, market strategy and financial expectations. The prospective franchisee doesn't need to construct a highly detailed business plan similar to what's used for obtaining investment capital. Rather, a simple business plan and cash flow model to include competitive information, financial goals and a marketing plan is an important part of a comprehensive franchise validation and due diligence process.
Franchisee benefits from constructing a business plan:
· Requires a detailed analysis and understanding of how the franchise operates
· Will generate additional questions to ask the franchisor
· Establishes more realistic investment requirements
· Provides a document the franchisor can review and use to provide feedback to the franchisee
· Enhances the franchisee due diligence process by identifying actual sales and financial targets
· Can be used as a source of information gathering from existing franchisees
Franchisor benefits from a franchisee business plan:
· Provides additional insight into the business knowledge of the candidate
· Reveals the financial expectations of the candidate. I've seen franchisee business plans with unrealistic expectations
· Can indicate the strengths and weaknesses of a candidate
· Requires the candidate to conduct a more detailed analysis of the franchise opportunity
· Can be a source of new marketing and sales strategies for the franchise
· Documents a plan of action that the franchise candidate can follow
A well constructed business plan can be a highly effective tool for the prospective franchisee and the franchisor. It's an example where quality is truly more important than quantity. A business plan in combination with proper due diligence can provide the prospective franchisee and franchisor with a more objective estimate of future success.