A Business Plan Should be a Requirement for Buying a Franchise
by Ed Teixeira
If a franchise candidate was required to write and submit a business plan
to the franchisor before final approval I truly believe the result would be less
franchisee failures and more successful franchise networks. This article
presents the reason why.
Visit any website that offers advice on starting a new business or expanding an
existing one and youíll find articles and advice on the importance of writing a
business plan. There are tips ranging from how to write an effective
business plan to the reasons why itís so important.
During my early years in the franchise industry I spent some of my time
meeting with and evaluating franchise candidates and I can recall only a small
number of these candidates submitting a business plan. However, I had always
felt that the process of writing a business plan was valuable for an individual
on the cusp of purchasing a franchise. As a result, during my career as a
franchise executive, I instructed my franchise sales team that it was a
requirement of all candidates at a particular stage in the franchising process
to submit a business plan.
I believed then and continue to believe today that the process of writing a
business plan should benefit both the franchise candidate and the franchisor.
Why donít more individuals write a business plan as part of their franchising
process? Perhaps itís the result of the belief by some that buying a franchise
has far fewer risks than starting up a new business, which is not universally
true; since franchisees and franchisors do fail.
I would advise every franchise candidate to write a business plan before signing
the franchise agreement and for their part franchisors should require an
individual to submit a business plan before receiving final approval for a
Here are ten reasons why a prospective franchisee should write a business
- The process of writing a business plan requires focus and
attention on the key details of a franchise operation
- A business plan serves as a form of checklist for opening,
operating and growing a franchise
- A key component of a business plan is the competitive
climate and potential challenges in the marketplace
- Constructing pro forma financial statements and cash flow
projections will require financial data gathering from the
franchisor and existing franchisees
- The financial models require the franchisee to obtain cost
and expense data pertaining to staffing levels, supply and
product costs and other operational expenses.
- In the absence of an earnings claim by the franchisor a
franchise candidate could at the very least construct revenue
and income projections
- Establishes key milestones for franchise financial
performance ranging from break even to profitability
- A business plan is necessary in order to obtain funding from
- A comprehensive way to evaluate the franchise opportunity by
raising numerous questions
- Provides a document that franchisor staff and franchises can
review and comment on. The type of response from a franchisor
might provide an indication of how committed they are to their
Individuals that have an interest in purchasing a franchise should construct
a detailed business plan. The process of constructing a business plan will
require the candidate to dig deeper into the franchise operation. In order to
lower the risk of franchisee failures franchisors should make it a requirement
of franchise candidates to submit a business plan.
© 2011 FranchiseKnowHow, LLC
Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at