Chapter 3: Franchisor Business Plan

Lecturer: Dr. Nguyen The Man

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 Learning Outcomes
• Understand the franchisor business plan.
• Learn franchisor management: Organization and
Administrative policy.
• Learn other characteristics of franchising: Franchise
feasibility study; franchisee selection; franchisor’s
planning; Organizing and Decision Making.

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 Franchisor Business Plan
• The creation of a business plan plays a crucial role
in attracting the lenders’ funding.
• Lenders use a business plan as a guide to assess
whether the prospective franchisee is a on a path
towards success and profitability.
• To approve loans, lenders want to have a clear,
straightforward account of the business to be
opened, the principals involved, and—perhaps
most importantly—perspective on when the
borrowed money will likely be repaid.

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 Parts of a Business Plan
• Company description: Provide an overview of the
franchise and its history to the lender. You will also
provide a brief outline of the franchise’s service/product.
• Service/product description: Describe in detail the service
and/or product your franchise will provide to customers.
This section can be combined with the company
description.
• Market analysis: Use this section to prove to the potential
lender that you are not jumping into a business venture
on a whim. Concentrate on the specific area (market) in
which the franchised business will be located.

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 Parts of a Business Plan 2

• Management structure: This section provides a look at the

people who will be responsible for the day-to-day operation of
the franchise, particularly you as the owner. Is this venture
going to be a sole proprietorship or will there be multiple
owners? Explain if you will be involved day-to-day with
business operations or will be acting as an absentee owner.
• Marketing plan: 'How are you going to get customers?' is the
main question you’re answering in this section. It provides an
overview of the franchisor’s advertising and marketing efforts.
Also, it provides a description of the training you will complete
before opening. Often marketing and sales courses are part of
required training.

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 Parts of a Business Plan
• Financials: Give the lender the big picture of your
financial situation as well. Detail how you are going to
obtain the entire initial investment. Often times, a
lender will not be financing all of the franchise
investment. Are you using a mix of personal savings,
loans, credit, etc.?

• Other aspects of business plan include 1. the

advertising, promotion, and sales programs; 2. the
franchisor support package; 3. training manuals.

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 Franchise Feasibility Study
• The franchising feasibility study includes the following six
content sections:
1. Executive summary
2. Marketing segment
3. Management segment
4. Finance, accounting, and taxes
5. Legal requirements
6. Appendix

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 Executive summary
• Company name
• Type of business
• Company description
• Key personnel
• Start-up schedule and competition
• Funds requested
• Funds use statement
• Fund repayment

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 Marketing segment
• Major Marketing Objectives
• Market Plan and Pricing Strategy
• Franchisee Recruitment Plan and Flowchart
• Franchisee Prospectus
• Franchisee Sales and Advertising
• Franchisee Location Criteria Selection
• Grand Opening Plan
• Customer Advertising (Ongoing)

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 Management
• Headquarters
1. Organizational Structure
2. Policies
3. Personnel (Wage and Salary)
• Franchise:
1. Organizational Structure
2. Policies
3. Personnel (Wage and Salary)
• Operations Manual
• Training Manual
• The Project Evaluation Review Technique (PERT) chart
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 Finance and accounting
• Start-up or turnkey costs (itemized)
• Financial position for starting franchisor’s system
• Pro forma balance sheet
• Pro forma income statement
• Pro forma cash flow statement
• Breakeven analysis
• Ratio analysis
• Provision for taxation

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 Legal requirements
• Business structure
• Licenses, contracts, and permits
• Types and anticipated costs of insurance
• Disclosure documents (Uniform Franchise Offering
Circular – UFOC)
• The franchising agreement itself
• Conditions integral to the franchisor – franchisee
relationship
• Possible termination

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 Franchisee Selection 1

• Entrepreneurial Spirit and Strong desire to Succeed

• Ability to motivate and train people
• Ability to manage finances
• Willingness to personally devote full-time and best
efforts to day-to-day operations on premises
franchisees
• Willingness to complete comprehensive training and
evaluation program
• Financial Qualifications

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 Franchisor Management
• Six Major Organizational Development Tasks:
1. Identify and define the fitted market to create competitive
advantages for the franchise firm.
2. Design products and/or Services to meet wants, needs, and
expectations of the target customers.
3. Develop policies and plans for controlling the Franchise
system.
4. Acquire Financial and Human Resources; Recruitment and
Selection of franchisees, solicit and train franchisees

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 Franchisor Management
5. Refine operational systems to accommodate franchisees
units and develop management systems to oversee,
monitor, and guide franchise system development.

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 Strategic Management of a Franchisor
Vision

Mission
External
Internal
-Customer Objectives
-Resource
-Government
Environmental Capability
-Competitors
Scanning -Location
-Suppliers
-Culture
-Financial
-Structure
Resources Situation Audit
-Technology
-Technology

SWOT analysis

Franchise System
Strategies

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 Set Priorities for Strategic Decisions on Building a
Franchise Business
• To establish and maintain high performance of the franchisor and
franchisees
• To be state of the art in products and services
• To gain and maintain market shares with quality service to
customers
• Continually improve efficiency, quality and strong financial returns
• Develop competent and committed workforce
• Position the franchise system in long terms.

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Leadership principles important to franchising
• Directing
• Giving directives: oral forms; written directives; orders given to franchisees
• Supervising
• Leading
• Motivating and Communicating

• Controlling
• Appraisal of performance of subordinate managers
• Appraisal of policies
• Appraisal of financial transactions

• Designing franchisor policies

• Motivating
• Innovating
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Ten commandments of a successful franchise
organization
• 1. Leadership
• 2. Staying with the business one understands
• 3. Developing and maintaining a unique niche
• 4. Keeping firsthand touch with customers
• 5. Relentless pursuits of management principles and
fundamentals
• 6. Organization
• 7. Freedom from government interventions

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Ten commandments of a successful franchise
organization
• 8. Strong Fiscal Responsibilities
• 9. Strategic Development
• 10. Picking winners

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 Quality and quality controls in franchises
• Quality of Sales services
• Quality of products
• Service Time: lead time between order and receiving
the goods.
• Regularly organizing survey to learn about customer
satisfaction.

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 Franchisee Advisory Councils
How to establish the council?
◦ By the franchisor’s group of appointed and elected
members.
◦ By several franchisees’ group of appointed and
elected members
◦ The franchisor and franchisees jointly set up the
councils

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 Franchisee Advisory Councils
Benefits of the FAC:
◦ Help develop mutual trust
◦ Improve communication in the franchise system
◦ Handle policy changes, product introduction, program
development, feedback
◦ Improve sales, motivation, the entire franchise system
◦ Strengthen the franchisor-franchisee relationship.

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 Franchisee Advisory Councils
Areas of advisory matters:
◦ Operations
◦ Marketing
◦ Products and services
◦ Finance
◦ Grievances

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