Franchise Plan

Do-It-Yourself Franchise Documents, and Franchise Operations Manuals, Franchise Agreements

If you have read this far, it can be assumed that you (a) have a successful business and (b) are thinking about how to expand that business.

Typically, the idea of franchising develops from a situation where someone with a successful business is approached by others who want to know how to replicate that success. And as with any undertaking, planning is a key element to success, so you’ll want to prepare a franchise plan to guide you through the process of turning your carefully nourished enterprise into a franchise corporation that will enable dozens of others to realize the kind of success you have achieved – and you to realize a greater degree of success than you imagined.

Start with a Framework

Think of your franchise plan as a framework, a fill-in-the-blanks puzzle where you plug in your ideas.

If a complete picture begins to appear, you’re on the right track. If there are too many blank spaces left – if the picture falls apart – you may need to go back and start over.

It’s a good idea to make a checklist of the questions that come up when you start to develop your franchise plan. Categorize your questions and check them off the list only when you have satisfied yourself that you have addressed them: Where will I get the funds I need to start the franchising ball rolling? How should I set up the pricing? How will I present the benefits of my franchise to prospects? Where will I get leads? What kind of recruitment materials do I need? How will I track my leads? What kind of incentive and motivational programs will I have for franchisees? What kind of training program will I have? How will I write an operations manual? What kind of legal paper work must I have to begin franchising? What kind of field support methods will I have to improve the effectiveness of my recruitment efforts? What kinds of support will I provide franchisee’s opening their new franchise, and how will I support them during their grand opening? What will my advertising guidelines be?

It’s often also helpful to create a storyboard of your franchise plan to help you visualize all the elements; this can sometimes enable you to spot issues and strategies that may be hard to see otherwise.

As a minimum, your franchise plan should cover a five year period so that you can address all likely occurrences during the growth phase. This is important because there is usually little opportunity to make structural changes once franchise agreements have been signed by your first franchisees.

Franchise Plan Elements

What goes into a franchise plan? First, a description of the proposed franchise; second, the marketing plan; third, the financial plan; and fourth, the management plan. These elements are discussed in the following paragraphs.

Franchise Plan Description

Start with a detailed description of your proposed franchise: what products will your franchisees market, what services will you provide, and a thorough description of what makes your franchise unique, what is your market? Your franchise plan could start like this:
Universal Franchise will set up a franchising system to recruit and serve other business owners who want to utilize our system for selling and servicing the widget market. The widget market is one of the fastest growing sectors of the technological field. Universal Franchise will be able to quickly build our franchise network by appealing to a large pool of prospective franchisees.

Our company consists of senior management teams who have all had experience in franchising. We have been encouraged to start franchising our concept by many, and we feel strongly that the time is now.
In describing your prospective franchise, elaborate on where you will get the funds needed to start the ball rolling. How will you set up the pricing of your franchise offer? How will you present the benefits of your franchise to prospective franchisees? Where will you get leads? What kind of recruitment materials will you need? Describe any unique aspects of your proposed franchise and why it will appeal to prospective franchisees. And, perhaps most important, explain why and how your franchise will be successful in its recruitment efforts.
Next, describe the value of your franchise from the franchisee’s perspective. What is different about your franchise? Describe your proposed recruitment efforts.

Marketing Plan

Marketing – how you identify, approach, sell, and retain your franchisees – should be at or near the top of your priority list for franchising your business. Start by systematically identifying your potential franchisees in terms of age, sex, educational level, income and available cash for investment in your new franchise. Then describe in an organized way how you expect to attract them to your franchisee and hold their interest.
The best franchises sell themselves, so some franchisors maintain a low profile in marketing an initial franchise and wait until they are approached by someone who wants to be a franchisee. Ideally, this happens when a potential franchisee make contact through a friend, newspaper or magazine article, or through your prospecting efforts.
You may or may not have the luxury of waiting for potential franchisees to contact you, so marketing your franchise will require persistence. First, you’ll find yourself in a crowded marketplace, where many other franchisors are competing for attention, and prospective franchisees may do a lot of “shopping.” Out of every 100 inquiries you get, 80 will probably never go beyond the initial get-in-touch stage and another 10 will probably want to decline when they look at the investment required. The remaining 10 may be worth serious discussion; and, at the end of the day, only one or two may sign up. Remember, though, that one or two good franchises may be enough to start the ball rolling; and their success will make your franchise that much more attractive – and your further efforts at recruitment more effective.

Competition:

At first glance, you may think the marketplace is overrun with competitors for your potential franchisees’ attention. But keep in mind that you don’t have to go up against all of them: only the ones in your segment and price range. Your franchise plan should clearly identify the niche your operation fulfills and show that you’ve taken the time to examine your competitors in detail. First, discuss your franchise’s market segment in terms of industry and size. List your ten nearest competitors and document how their franchises are doing, including their profitability, hours of operation, products, employees, advertising, and what you think their strengths and weaknesses are. Also, talk about their franchise and royalty fee structures. This will provide valuable data on your competitive position and help you determine your most effective fee structure.

Advertising:

Getting the word out is a big key to the success of your franchise, so your franchise plan should cover both your marketing to potential franchisees and the marketing tools and methods you will provide to your franchisees in advertising their individual franchises. Develop complete campaigns for each of these, making sure you emphasize your Unique Selling Proposition – the quality (be it pricing, a special recipe, a particular service method, or whatever) – that sets you apart from other franchises of the same type.
Attracting potential franchisees requires a specialized kind of approach. For this market, general media such as broadcast and other consumer-oriented outlets are not cost effective. Instead, choose business-to-business media such as trade publications, business magazines, trade shows, web advertising and selective direct mail, along with networking and public relations. Media examples might include media outlets such as Entrepreneur Magazine, The Wall Street Journal, and the business section of USA Today. The Internet is bursting with opportunities, from web listing services such as FranchiseOpportunities.com to individual websites like franchise.org, the home of the International Franchise Association, which lists major trade shows at which you can advertise.
In this area, it is a good idea to use the services of an advertising agency or a professional direct marketing consultant. Direct marketing firms can be particularly valuable by helping you find lists of likely prospects to which you can target your ads. These normally generate their income from the media rather than the advertiser, so you can usually obtain a certain level of creative help and media selection at little or no charge.
Your advertising approach to potential franchisees should be direct and professional. Potential franchisees will be more impressed by profit opportunities and ease of operation than slick graphics and clever copy. Your initial appeal – either an ad or a direct response package – should highlight your Unique Selling Proposition and show the prospect what your franchise offers in the way of profit and long term growth. Almost as important as the initial effort is the exertion used to convert inquiries into applications. Design a package consisting of a personal letter from you, a brochure selling the benefits of your franchise, and other supporting documentation, such as a reprint of an article on your franchise or a testimonial from a successful franchisee. Always include a device to encourage the prospect to continue the dialogue, such as an offer to provide more information or a copy of your FDD. Include in your materials facts and figures that will help the franchisee “glimpse” himself being successful. Give the history of your franchise, and be sure to include franchisee success stories as soon as any are available. Also, be sure to include plenty of information on your commitment and ability to help the new franchisee get up and operating successfully. Produce a variety of advertising and promotional materials as part of the franchise package, to be used by your franchisee to build their franchise. These include ad slicks, logos, pre-packaged TV spots, press releases, and other materials.
In all your advertising efforts, be careful to preserve an “image of excellence” because your whole crusade can be undermined if you produce a poor or shoddy response package to answer exploration from prospective franchisees.

Organization

Clearly define the duties, qualifications, strengths and weaknesses of your entire franchise management team – and be prepared to answer questions such as how you will compensate for any weaknesses.

Territories and Fees

Include a detailed plan detailing what territories are to be opened and on what time frame. At the beginning most franchises choose to spread outwards from their existing geographical base on the hypothesis that they can supervise closer franchises more easily, then spread out when all the kinks are smoothed out.

Territories

Should be large enough to insure that the franchisee can achieve an adequate return – and small enough to insure they can be serviced properly within an adequate time frame. At the same time, enough territories should be established to insure that the overall market is well served and you, the franchisor, get a fair return on your investment. It is also necessary to decide whether territories will be exclusive.
You will need to establish the franchise fees that will be required of the franchisee, such as:

Franchise Fee

The initial cost charged a franchisee for the right to join the franchise chain.

Service Fee or Royalties

These are fees paid to the franchisor, as a percentage of gross profit of the franchisee. These payments are sometimes established based on a minimum amount payable per month.

Training Fees

Charges established for initial and/or ongoing training of franchisee personnel.

Marketing fund fees

Fees used to cover centralized advertising for the benefit of all franchisees. The expenditure of these funds is usually accountable to the franchisees. In setting each of the above it is fundamental to insure that reasonable earnings can still be achieved for both the franchisor and the franchisee.

Advertising Fees

Most franchisors stipulate that franchisees spend a certain amount on local advertising. Most franchises have complex reporting requirements. These reports serve to facilitate close scrutiny of performance and potential by both the franchisee and the franchisor. Both parties profit from such review, because it will often provide early warning of potential franchisee problems Once all costs relating to the establishment and ongoing operation of the franchise system have been established you can decide what fees are to be payable by franchisees.

You’re Franchise Corporation

Once you have decided to franchise your successful business format, you have effectively created a second business; so it may be a good idea to create a separate company for your franchising program in order to protect the original business as far as possible. This separate company will help you to monitor and make transparent whether the franchising program is paying its way and when it starts making a profit.