Here the expert that is Richard May, co-founder of the consultants company System 4Results, shares experience and advice to help a franchisee write a successful business plan.
Why is a business plan important?
Quite simply, your business plan should describe the journey you intend to make: where you’re starting, where your destination is in your chosen timetable, what that timescale is, and how you intend to get there.
When you go on a journey the map doesn’t just tell you what selections and turns to take, it also tells you if you’ve gone off the route AND the quickest and easiest way back to the straight and narrow. So if you don’t have a business plan (which is the map and a speedometer to measure how long you’re taking) then you’ve significantly reduced your chances of arriving anywhere good.
Photo: Clare and Richard May, owners and founders of System 4Results.
Do you still need to write a business plan if you’re not intending to borrow money from a bank?
I knew you’d ask that – that’s why I didn’t add something really important to my previous answer: NEVER write a business plan for the bank or anyone else. Nor should you have anyone write it for you. To help you most it must be your plan for your business.
If you’re borrowing or want someone else’s opinion or whatever, give them a copy. And if they or the bank want it in their format that’s fine, because it’s their money you want. But whatever format or template or whatever, make sure it’s your plan for your business.
What advice would you give franchisees who are putting together a business plan?
Be realistic. Business plans normally contain a profit and loss and/or cash flow forecast together with the assumptions you’ve used. I’d encourage you to look at it rather differently. By all means have the numbers; they are vital, showing a summary of where the money comes from, what happens to it, and the outcome. But for every page of numbers there should be at least three pages of words. Three pages of action for every page of numbers, including an action plan of what will make those numbers happen.
Let me give you an example. A business owner says he’s going to grow sales by 20%. That needs to be supported by ‘The How’. And that how needs to explain:
- How much is from price increases?
- How much from new customers? And where are they coming from?
- How much is from existing customers?
Let’s say the above answer is that 10% is coming from additional sales to existing customers. The next level of the action plan needs to say if that’s from:
- Getting each customer to place larger orders
- Getting the customers to buy more often
- A mixture of both.
And when the business owner finds that the shortfall against plan this month is all because of a failure to get existing customers to buy more often, he or she knows exactly where to spend their time getting back on track.
Now you see the importance of a business plan, and that it must be by you and for you.
Make sure your business plan has two or three levels: what you believe you’ll make happen; what it looks like if it’s, say, 10% worse; and what numbers constitute your break even. That way you’ll know how robust your plans are.
Forgive the advert but at System 4Results our franchisees spend all their time with business owners – old, young and start-up – helping them grow their business. Growing a business takes a very different set of skills to running a business.
How much are franchisors usually involved when it comes to writing business plans?
I don’t know how much they are involved, but I do know what should happen. The franchisor should supply all the ‘raw numbers’ needed, plus access to existing franchisees to give verification. The franchisor should articulate all the assumptions and give a very loud health warning because the unknown factor (you, the franchisee) is the biggest element of the equation.
Then the franchisor should be as far away from the business plan as is possible. It’s your plan for your business.
What factors should be taken into account when goals are being set?
That does depend on the type of business but it should include all the major profit and loss items of income and expenditure. Where many new businesses (or new owners of old businesses) go wrong is that they think they operate in a vacuum. They don’t. So external factors like the economy, the performance of that sector (now and in the future) and competitor analysis are vital to a good plan.
We offer a Competitor Spy Report™ for free (normal cost £997) to any business owner who convinces us that they’re serious about growing their business. Nine times out of ten it shows that the business doesn’t actually know who its real competitors are, let alone how to beat them.
And that brings me to the last part of my answer. A good plan always includes a SWOT analysis – something most people have heard of but do very badly, if at all.
Here’s how to do one really well:
S: Write down all the Strengths of the business (that’s all the internal good news)
W: Write down all the Weaknesses (all the internal bad news)
O: Now the opportunities (external good news)
T: Finally the Threats (external bad news that’s coming your way)
Then make sure your plan:
- Plays to your Strengths and maximises them
- Improves your Weaknesses or play away from them
- Exploits those Opportunities
- Mitigates the Threats or moves away from them.
Are entrepreneurs usually realistic when budgeting?
I’m always confused by that word ‘entrepreneur’. I don’t think many entrepreneurs buy a franchise – they start their own business with their own idea and their own vision. They’re probably totally unrealistic but some have such drive that they succeed anyway.
People who buy a franchise really want their own business but either don’t have that original idea or feel it’s much safer following behind someone else who’s made all the mistakes for them. And they’re right, it is safer!
But you’re right in your question. Once people start planning their own business realism can be an early casualty. That’s why a business plan should be ‘sanity tested’, ideally by an arm’s length business expert who can be objective, dispassionate and who asks that one question that everyone else assumed was OK.