How to Study the Business Plan of a Franchise Business Opportunity
When the franchise business model first started in earnest in the 50s, no franchise owner really put much thought into the Franchise Disclosure Document that they would show to potential franchisees. These days, these FDDs run to 100 pages, and absolutely have a talk about at least 23 basic things. When you are sitting there contemplating a franchise business opportunity though, the first thing you want is a franchise business plan – something that gives you the lay the land, that puts things into sharp focus without too much fuss. When you review that plan, there are a few things you need to be able to spot with a trained eye. Here is how you go about it.
A franchise business plan is supposed to set out an establishing shot onwhat the business is about, a friendly round of introductions to everyone on the board and so on, until you get to the tough part – where they explain the financial projections. The aim is to tell you what you need to bring to the table, to tell you with a bunch of graphs and financialspeak, what exactly you can expect in return for different levels of sales that you achieve.
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The part that talks about the money is where you really evaluate the franchise business opportunity they are offering you. Typically, you’ll find two parts to the financial section. In the financial projections section, they will give you very detailed estimates of what kind of cash flow you can expect, what your income from that can be, balance sheets, income statements and so on. If everything seems a little too good to be true, you’ll need to wonder how professional the statements really are. The next section talks to you about everything that you need to invest – initial capital, marketing expenses, working capital. Not only should it just set out lists of these things out for you, it needs to explain to you the total amount of money both you and the franchise owner will bring to the table. If there are any loans that they expect you to take out, those should be listed as well.