While most franchisors will provide franchisees with a generic business plan containing the projected figures for the franchise that they want to buy, in most cases these projections are very optimistic.
For this reason most credit providers will require a well-motivated and realistic business plan from applicants. And while there are a multitude of standard business plan templates on the Internet, here are a few additional guidelines to keep in mind:
1. Be specific about the information you ask the franchisor to provide
Asking the franchisor for as much information as possible will not only ensure a smooth loan application process, it will also inevitably provide you, the potential franchisee, with a wealth of important information.
Ask for the following:
- Detailed set-up costs
- Turnovers, gross profit and net profit margins of other similar stores in terms of store size, area, shopping centres and demographics
- Joining fees
- Monthly royalty fees
- Monthly group advertising contribution
- Store failure rate in numbers and percentage of the total franchise network
- The franchise agreement
- The disclosure document
- When revamps are required and the cost
- How long the franchise agreement is valid for and what the renewal period is
- The lease length and monthly rental and utility costs
- The rental escalation per annum.
2. Critical areas to focus on
Accessing credit or a loan facility comes down to whether the credit provider believes you are low-risk and able to run a profitable business. They tend to focus more closely on the following critical business plan areas:
- Why the idea is viable
- ‘The jockey of the horse’ – CV of applicant with relevant experience
- A convincing, well-researched marketing plan
- A realistic financial plan (income statement, cash flow and balance sheet showing break-even turnover required and safety margin
- Own contribution in cash or kind
- Collateral or security offered
- Number of jobs created and/or maintained.
3. Positives that enhance a business plan
Showing you have done your homework and have adequate skills and knowledge to run your own business are other aspects credit providers will consider when assessing your loan application.
Try to demonstrate the following:
- A stable work track record
- A positive credit record with limited credit card liabilities
- Your intended personal day to day involvement in the business
- Your ability to communicate well
- Your ability to manage staff well
- Your ability to market and sell your products or services well
- Knowledge in respect of meticulous market research conducted
- Knowledge of costs of products, promotional mix spend and projected turnovers, gross profit margins, overhead expenses and net profit margins
- Knowledge of who your competitors are and their competitive product advantages
- Your Plan B and C if things go wrong.
4. Negatives to steer clear of
Being dishonest or exaggerating your knowledge, ability and financial situation will only set you up for failure.
Avoid the following:
- Don’t highlight personal weaknesses and those of the business
- Don’t lie about your past experiences or poor credit record – financiers will check and find it out anyway
- Don’t overstate your projected turnovers, gross profit and net profit margins – financiers have benchmarks and will soon know if it is unrealistic
- Don’t believe everything the franchisor claims
- Don’t assume you will easily take away market share from competitors – they will respond accordingly to prevent that
- Don’t falsely claim to have a certain amount of own contribution – remember you will need to provide a copy of your latest bank statement
- Don’t falsely claim you have collateral available. Remember, property valuations from estate agents are normally very optimistic and the municipal valuation on your water and lights account are normally outdated. Get a property valuation from one of the many online sites if possible and relevant.
Remember, a thorough and professional business plan sets the right tone and may fast-track the loan application process.