Why should you become a franchisor?

Business Planning for building up a new franchise system

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Franchising offers companies the opportunity to rapidly increase sales using a limited amount of their own capital as well as of their own working capacity. Building up a new franchise system, however, is considerably more complex than founding a normal company or simply expanding a business. The planning involves two quite different markets, the market for products or services which are to be offered by the franchisees and the market for people starting a new business on which very many business concepts are competing with each other. Experience shows that franchisors first enter the profit zone after a period of 2 - 5 years. It is important for the businessman to know how high the capital requirements are, what profits can be expected as well as what the possible risks are. He needs this information in the form of a company plan before he invests in the system. For building up a franchise system the following criteria should especially be taken care of

Documentation of the Pilot Phase
The starting point of company planning is documenting the experiences of the pilot business. Running a pilot business for a sensible period of time before building up a franchise network is placed at the top of the "European Code of Ethics for Franchise". The reasons for the pilot business’ success must be identified and described in detail.

Planning Inflows
The inflow planning must be carried out step-by-step: With regard to the results of the pilot unit the receipts of the system’s head office from can now be calculated from the expansion plan as well as from the expected sales development of the future franchise businesses.

Planning Costs
The starting point of planning costs is to define the tasks and services of the system’s head office with respect to the partners, Besides this there are further tasks required in order to be able to continue to develop the system. Once these points have been determined as well as the previously defined expansion aims, it is then possible to establish the necessary infrastructure (required office space, personnel, required equipment) for the system’s head office. During the initial phase, however, it is important to try and limit the fixed costs and buy in services. The quality of the assistance, however, should in no way suffer from this.

Planning Capital Requirements
Capital requirements are determined by the required infrastructure of the system’s head office.

Resource Requirements
An exact assessment of the resource requirements is necessary in order to ensure the necessary liquidity of the system. This should dynamically result from monthly comparisons of the expected inflows and outflows.

Profit and Loss Forecast
The profit and loss forecast is the final basis for deciding whether or not to build up a franchise system. However, it is impossible to realistically assess profits if the previously described steps for company planning are not individually and carefully solved.

Planning Time and Work
The last step of company planning is to assess how much time and work is required before the first franchise business is opened up. The network planning technique is recommended here as there is a logical interdependence between each step required.

Source: Jens Syring, Management Consultant

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