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Franchising

How to write a franchise business plan for a finance application

Your franchise business plan should explain how your location will work. Adapt the franchisor's figures, test the cash flow and prepare for a finance application.

Reading time 5 min read
Category Business guides
Written by The bizbritain team
A franchise business plan explains how you will run the business in your own territory. Use the franchisor's figures as a starting point, then test them against your local market, your costs and your experience. Show how cash moves through the business and how loan repayments would fit.
Lenders do not want the franchisor's brochure back. They want to see that you understand the business you are about to run.

Section 01

What should a franchise business plan include?

Keep it practical. Most plans cover five areas.

  1. You

    Your experience, your skills and why this franchise suits you. Be honest about any gaps and how you will fill them.

  2. Your territory

    Who your customers are, where they are and who you compete with locally. A national brand still competes street by street.

  3. How you will run it

    Premises, staff, opening hours and how you will win customers in the first months.

  4. What it costs

    The full investment, from the franchise fee to working capital, and where each part of the money comes from.

  5. The numbers

    Your sales forecast, your costs and a cash flow forecast, with the assumptions behind each one.

This is your plan as a franchisee. It is different from the franchisor's plan for growing the network, even if it borrows from it.
For a Start Up Loan, the business plan sits beside a cash flow forecast and a personal survival budget. Our guide on financing a franchise with a Start Up Loan explains how the scheme works for franchises.

Section 02

Does the franchisor's forecast replace your own plan?

No. The franchisor's figures are evidence to examine, not a plan to copy.
Ask where the numbers come from. The British Franchise Association suggests asking whether projections are based on actual performance within the network. Then ask these questions too.
  • Which outlets are the figures based on, and how long have they been trading?
  • Are those outlets in places like yours, with similar rents and customers?
  • Did the owners work in the business full time, or employ a manager?
  • Do the figures include every charge you will pay, such as royalties and the marketing contribution?
A network average does not tell you what your territory will do. Neither does the best performer. Treat them as a range, then make your own estimate.
Here is how that works for one figure.
Step 1

Start with the franchisor's figure

Say the franchisor expects first-year sales of £180,000 for a typical unit.

Step 2

Ask what supports it

You learn the figure comes from units that have traded for three years or more, in larger towns.

Step 3

Make your own estimate

Your town is smaller and your unit is new. You plan on a lower figure and explain why.

Step 4

Show the effect of slower sales

You run the forecast again with weaker early months and check the lowest cash balance.

This example is made up to show the method. It is not a real franchise or a benchmark.

Section 03

Build a cash flow forecast around your territory

A cash flow forecast shows money coming in and going out, month by month. It is not the same as profit.
Build it in this order.
  • Sales: How many customers, at what price and in which month. Then note when they actually pay you.
  • Running costs: Rent, wages, stock, insurance, utilities and what you will draw to live on.
  • Franchise charges: Royalties and marketing contributions, often a share of sales. Put them in the month you pay them.
  • Borrowing: The loan money in the month it arrives, and each repayment from the month it starts.
Keep loan money apart from sales. A loan pays for the set-up. It does not show that the business can pay its way.
How should royalties appear in a cash flow forecast? If the royalty is a share of sales, it rises and falls with your sales. If there is a minimum fee, use the minimum in the slow months.
How long should the forecast cover? For a Start Up Loan, the scheme asks for 12 months. Other lenders may want a different period, so check before you build it.
If the borrowing is personal, your household budget matters too. Show what you need to live on and where it will come from.

Section 04

What if sales start more slowly?

Most new businesses take time to build. Your plan should show what happens if yours does.
Build two versions of the forecast. The base case is what you expect. The slower case pushes sales back or lowers them in the first months.
Then find the month when the cash balance is lowest. If it drops below zero, you have a gap to fill.
What if your forecast shows a cash shortfall? It is better to find it now than six months after opening. You can close it in a few ways.
  • Put in more of your own money, or keep more of it in reserve.
  • Cut or delay a cost, such as part of the fit-out.
  • Borrow a little more for working capital, if the repayments still fit.
  • Open later, once the funding is in place.
A plan that shows a gap and how you will close it is stronger than one that pretends there is no risk.

Section 05

Check the plan before you apply

Run through six checks before you send anything.

  1. The costs add up

    The investment in your plan matches the franchisor's breakdown and your own quotes.

  2. Each figure has a source

    You can say where every key number came from.

  3. The assumptions are local

    Sales, rent and wages reflect your territory, not a network average.

  4. The timing is right

    Cash comes in and goes out in the month it really would.

  5. All debts are included

    Existing borrowing and the new repayments both appear.

  6. Open questions have an owner

    Anything still unknown has a name and a date against it.

When the plan is ready, talk to us about finance for your franchise plans. Bring your cost breakdown and the questions your forecast raises. We can help you understand the next step in preparing an application.
If you apply for a Start Up Loan through bizbritain, myplan builds your business plan, personal survival budget and 12-month cash flow forecast by asking plain questions. It is free for every bizbritain applicant. It shortens the paperwork, but it does not skip the assessment.

This guide is general information, not financial advice. Applications are subject to status, affordability and lender criteria.

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