Owning a franchise is an excellent way for business owners to gain instant brand recognition.
By paying a franchise fee, you can own a fast-food restaurant like McDonald’s, Subway, or Kentucky Fried Chicken, a 7-Eleven convenience store, a gym chain, or even a hotel like a Marriott or Hilton.
For franchises with fees between $25,000 and $100,000, recent research indicates that the 5-year business failure rate is about 5 percent, just one-tenth of the overall business failure rate. Put simply, you have a much higher chance of success opening a franchise than a traditional business.
But getting a proven brand name doesn’t guarantee success. You’ll need to ensure you understand the franchise’s business model and expectations.
Plus, you need to determine if there’s a big enough market for your business to be successful, what potential customers expect from businesses like yours, and how many competitors you’ll face.
Fortunately, answering these questions are all part of writing a comprehensive business plan. Here are the steps to writing a franchise business plan that shows your business’s unique value—while answering critical financial and operational questions your franchisor or lender will want to know.
Ready to write your plan? Check out our selection of franchise business plan examples to inspire your own.
Why you need a business plan for your franchise business
Writing a detailed business plan is crucial for two reasons.
First, it demonstrates to the franchisor that you understand how their business operates.
Since the company sets your prices, controls your product inventory, and will likely tell you what marketing tactics you can use—the business plan puts in writing that you understand how their rules and guidelines affect your business.
Second, the plan also organizes all of your expectations, assumptions, and research about your business into one document that serves as a roadmap for success:
What’s your biggest business challenge right now?
- Business objectives
- Franchisor requirements
- Funding needs
- Financial goals
- Growth strategies
How to write a business plan for your franchise
1. Understand your franchise business model
Since the franchisor has already established the company’s business model, your business plan should focus on how you can adapt it to be successful in your chosen location.
Imagine you’re planning to open a fast food restaurant, chain hotel, or convenience store. How do these kinds of businesses operate successfully? Consider the business models of each:
Fast food restaurant: Standard menu, streamlined kitchen operations, marketing strategy leaning heavily on national advertising campaigns.
Hotel: Efficient room turnovers, maintaining cleanliness and amenities that the brand promises.
Convenience store: High foot traffic, quick inventory turnover, and flexible operating hours.
Each case presents different business dynamics – and considerations for your business plan. You should be able to show in your plan that you understand the revenue streams and direct costs of running this type of business, and what your customer acquisition costs might be.
2. Conduct a market and location analysis
Buying into a franchise gives you some marketing advantages. You have a widely recognized brand to attract customers, access to promotional materials, and maybe even some information about customer buying patterns from your franchisor.
But operating a franchise doesn’t take away the heavy lifting of market research. Each franchise has to consider local factors that could affect its profitability.
A good starting point is to conduct a SWOT analysis, documenting the strengths, weaknesses, opportunities, and threats facing your business. Here are some other key elements to consider:
- Employment status
Understanding the demographics of the people most likely to visit your business could help you set operating hours or decide who to target with promotions.
- Identify your competitors
- Compare your product or service offerings with theirs
- Compare price points
- Compare marketing strategies
- Define the competitive advantage of your business
Don’t just look at direct competitors that are similar to your franchise. If you’re opening a 24-hour 7-Eleven, you should also look at supermarkets, drugstores, or food delivery services in your area.
- Neighborhood characteristics
- Population trends
A chain restaurant in a busy downtown probably has different customers and peak times than the same restaurant in a shopping center near a residential area. So it’s essential to understand the characteristics of the neighborhood you’re operating in.
Consumer behavior patterns
- Technology use
Understand what drives consumers interested in your business to make the choices they do. This is where you will want to do online research and, ideally, go out and talk to potential customers.
You should also answer questions about the competitive positioning of the franchise – and franchises as a whole – in your area.
- How do similar franchises perform in your area?
- What is the brand perception of the franchise you intend to start?
- Is there a large enough market in the area for your franchise?
- What non-franchise options are available? What are the advantages or disadvantages for customers who shop there instead?
Be sure to examine what potential customers discuss on social media platforms and online message boards like Reddit to understand what they expect from businesses like yours.
3. Highlight your unique value proposition within the franchise
Even though you’re buying into a proven business model, you’ll still face competition. Your business plan gives you a chance to put on paper what gives you a competitive advantage.
In the case of a franchise business, your franchisor may be the most important stakeholder to read your business plan. So the plan is to show them you can run a successful business under their name.
Maybe the 7-Eleven convenience store you want to open is in a location with a lot of foot traffic and no larger grocery stores nearby. Or maybe your restaurant offers late-night delivery in an area with few alternatives.
By outlining your unique value proposition in your business plan—you can align your individual strengths and market opportunities with your franchisor’s proven business model.
Backing up your unique value proposition with any data or information about customers will be especially important if you’re operating in a crowded market with lots of competition.
4. Do your own financial projections and scenarios
The franchisor may provide some guidance, but this is your business.
That means your business plan should include the same financial details and projections as if you were starting a business from scratch. Your financial plan should include:
Start-up costs: The initial investment required to get your franchise off the ground. This should include the franchise fee, the cost of equipment, initial inventory, license fees, and any expenses related to your location.
Ongoing fees and operational costs: These are costs that recur monthly or annually. They include fixed costs like franchise royalties, lease payments, and staff salaries, and variable costs like utilities, inventory, maintenance costs, and marketing expenses.
Revenue projections: Detail how much revenue you expect to bring in monthly. Forecast revenues out into the future, and don’t be afraid to make projections several years out.
Remember, good financial forecasts are meant to be adjusted as real numbers come in, and comparing your projections with actuals over time can help you make better business decisions.
Break-even analysis: This is where you calculate how long it will take for your franchise unit to cover its initial investment and start making a profit. Knowing your break-even point is essential not just for you but also for lenders.
5. Create an operational plan
Even though the franchise provides the business model, you must ensure it runs smoothly daily. Your business plan should provide a clear operational plan that outlines:
You should be specific about the staffing level your business needs. You’ll need cashiers, cooks, and delivery drivers if you’re running a fast-food franchise. List the skills and experience needed for each role, and outline your plans for training new hires.
While a franchise agreement might take some of the pressure off of sourcing your inventory, it’s still your responsibility to develop processes for managing it.
You’ll need to understand if there are seasonal trends in your business, how often various products are returned, how long an item can sit on your shelves, and a variety of other factors that affect how much of a product you should order and when you should order it.
Since you’re operating under a franchise agreement, you must comply with the standards the franchisor sets out for operating their business. Detail the quality control procedures you’ll put in place to meet those standards.
Also, take some time in the business plan to address how you’ll stay compliant with local, state, and federal laws and the franchise’s policies.
6. Review and adjust your business plan
The business plan for your franchise should not be a static document. Market conditions evolve, consumer demands change, and new competitors emerge. Additionally, Franchisors often update their business models, add new products, or change their marketing strategies.
You may also be expected to periodically share financial reports or general updates about your business with the franchisor. (LivePlan lets you create and share visually engaging, professional reports using information from your business plan.)
Either way, your plan should outline how you’ll account for market shifts or franchise changes in your operations. Just as important, you should make it a habit to review your business plan periodically – many business owners review their plans quarterly or even monthly, especially when starting out.
That way, they can adapt the plan as their business evolves.
Download your free sample business plan for a franchise business
If you need help getting your franchise business started, check out our free franchise business plan template. You can download this document in Word form and use it to get you started on your own business plan.
It’s just one of 550+ sample business plans we’ve made available to download.
You can also review our step-by-step guide on how to write a business plan for a detailed look at how to write specific sections of a traditional business plan.