BUSINESS PLANNING

4 Major Components:
1. Marketing Plan
2. Technical Plan
3. Financial Plan
4. Organizational Plan

Importance of Business Planning

1. Planning can eliminate business risk.
2. Planning can minimize cost of production.
3. Planning can detect the weaknesses of the business
operations.

Why Prepare a Plan?

 Minimize, if not eliminate, the risk of losing money on a
poor business idea.
 Save on costly mistakes.
 Determine your financial requirements.
 Program your activities in advance.
 Evaluate actual performance against set targets,
especially in terms of sales, costs, and profits.
BUSINESS PLAN
 Name of business, name of principals, addresses,
and phone numbers.
 Business Goals
 Strategies
 Table of Contents
Section 1: The Business
 Description of Business
 Product/Service
 Market
 Location of Business
 Competition
 Management
 Personnel
 Application and Expected Effect of Loan
 Summary
Section 2: Financial Data
Sources and Application of funding
 Capital equipment list
 Balance Sheet
 Break-Even Analysis
 Income Projections (profit and loss statements)
a. Five-year summary
b. Detail by month for first quarter
c. Detail by quarter for second, third, fourth, and
fifth years.
d. Notes of explanation
 Deviation Analysis
 Historical financial reports for existing business
a. Balance sheet for five years
b. Income statement for past five years
c. Tax returns
Section 3: Supporting Documents
Personal resumes, personal balance sheets, cost of
living budget, credit reports, letters of reference, job
descriptions, letters of intent, copies of leases,
contracts,
Legal documents and anything else relevant to the
plan.
FRANCHISING
Franchising is now considered a sunrise industry
because of the sector’s major contribution to the economy.
As a way of doing business, franchising lessens the risk for a
neophyte entrepreneur because he is buying an established
brand and customer-ready base. He does not have to worry
about building the business from scratch. With the spread of
franchising nowadays, more and more people are seeing the
wisdom behind going to the franchising route. Yet, being
won over by the concept is only the first step.
Franchising is originated from the French word
Franchir, which means “for free”. It is a marketing concept-
an innovative method of distributing goods and services. It is
not a business itself, but a method of doing business,
wherein a franchiser license trademarks, and tried and
proven methods of doing business to an franchisee, in
exchange for a recurring payment, and usually a percentage
piece of gross sales or gross profits, as well as the annual
fees. Various tangible and intangibles, such as national or
international advertising, training, and other support
services, are commonly made available by the entity
licensing the “chain store” or franchise outlet (commonly
shortened to the word “franchise”), and may required by the
franchiser, which generally requires audited books, and may
subject the franchisee or the outlet to periodic and surprise
spot checks. Failure of such test typically involves non-
renewal or cancellation of franchise rights.
Franchising is used to describe a number of business
models, the most commonly identified of which is “business
format franchising.” There are other models that are also
dependent on franchise relationship. These include the
following:
A. Manufacture-Retailer Relationship. It is where the
retailer, as franchisee, sells the franchiser’s product
directly to the public. (e.g. New motor vehicles
dealerships).
B. Manufacturer-Wholesaler Relationship. It is where the
franchisee under license manufactures and
distributes the franchiser’s product. (e.g. Soft drink
bottling arrangements).
C. Wholesaler-Retailer Relationship. It is where the
retailer, as franchisee, purchases products for retail
sale from the franchiser-wholesaler (frequently a
Cooperative of the franchisee retailers) who have
formed a wholesaling company through which they
are contractually obliged to purchase (e.g. hardware
and automotive product stores).
D. Retailer-Retailer Relationship. It is where the
franchiser markets a service or a product under a
common name and standardized system, through a
 network of franchisees. This is a classic business
format franchise.

The first two categories above are often referred to as

product under a common name franchises. These
include arrangements in which franchisees are granted
the right to distribute a manufacturer’s product within a
specified territory or at a specific location, generally
with the use of the manufacturer’s identifying name or
trademark, in exchange for fees or royalties.

The Business format franchise, however, differs from

product and trade name franchises through the
use of format, or a comprehensive system for the
conduct of the business, including such elements
as business planning, management system,
location, appearance and image, and quality of
goods.
Standardization, consistency, and uniformity
across all aspects are hallmarks of the business format
franchise.
Business format franchising is today’s fastest
growing segment of franchising and had spread to
virtually every sector of the economy in Australia. It has
significantly more franchise system, more outlets, more
employees, and more opportunities than product and trade
name franchise.
Business format franchising requires a unique
relationship between the franchiser (the owner of the
system) and the franchisee (owner of individual outlet),
which is commonly referred to as a “commercial marriage.”
This ongoing business relationship includes the
product, service, and trademark, as well as the entire
business concept itself from marketing, strategy and plan,
operational standard, systems, and format, to training,
quality control, and ongoing assistance, guidance and
supervision.
In short, it provides small business (the franchisee)
with the tools of big business (provided by the franchiser).
It is also a win-win relationship, where the franchiser is
able to expand its market presence without eroding its own
capital and the franchise gains through access to established
business system, for their own commercial advantage.
The “commercial marriage” between franchiser and
franchisee is ultimately a legal relationship, with the full
obligation and responsibilities of both parties outlined in a
highly detailed franchise agreement. This commercial
contract varies in length and conditions from one system to
the next, such that it would be almost impossible for any two
franchise system to have identical agreements.
By nature of the relationship, the franchise agreement
will be imbalanced in favor of the franchiser, as the
franchiser must at all times remain in control over certain
standards critical to the ongoing success of the business
format.

HOW MUCH DOES IT COST TO BUY A

FRANCHISE?
Buying a franchise is a sort of established
business. It involves the kind of business arrangement;
however, it is not merely buying a business system
and walking away. The Franchisee is affiliating himself
with an on-going business concern (Franchiser), which
the Franchisee takes part in many aspects. The
franchisee receives benefits for which the franchisee
has to pay some money, and the typical costs or
expense involves the following:
  initial licensing fees
 security deposits
 building cost for the outlet
 pre-operating expenses
 initial operating capital

The initial fees include payment for the use of the

franchiser’s trademarks and business system, while
the building costs include the expenses for leasehold
improvements, equipments, furniture, fixtures,
construction management, and design fees. The pre-
operating expenses include the cost of registering the
business and training the franchisee’s employees. The
franchisee also sets aside an amount to cover the
branch for the first month or for the first two months.
The Continuing franchise fees are paid after
signing the franchising agreements or the franchiser-
franchisee relationship. Once the business starts
operating, the franchise begins paying royalty-usually
a percentage of the gross sales receipts. The royalty
fees may also be flat fees per period (per month or
year) , while the franchiser collects in return for the
use of business name, product, and support system
that goes along with the franchising business in
addition to the fixed royalty charges. Some franchisers
often charge a cooperative advertising royalty. The
advertising cost/charge takes care of the new product
and promotional campaign of the franchisers, whose
immediate beneficiaries are the franchisees
themselves.
The normal business expenses covers all the other
costs outside of fees and charges shelled out by the
franchisee and paid to the franchiser. As the franchise
is separate business entity by itself and is governed by
its own corporate rules and organizational structure,
the normal business expenses are rent, payroll, taxes,
product supplies, business supplies, utilities, and
business equipments.
 IS BUYING A FRANCHISE BETTER THAN
PUTTING UP INDEPENDENT BUSINESS?
Franchising provides people with better chances
of success than they would when they set up their own
independent business, for the following advantages:
 There is a proven business system that is
passed on to franchisee.
 Business set-up mistakes are minimized.
 The franchiser mentors the franchisee
throughout the term of franchise.
 The franchisee rides on an established and
successful brand.
 There is reduction of risk you will be taking
for your investment.
 They get better deals on supplies.
 They often get instant recognition from
customers.

On the other hand, an entrepreneur starting

business from ground zero must go through a
learning curve that can be costly. Indeed, statistics
show that 90 percent of all independent
businesses close during the first five years. He is
truly on his own, and must span time and
enormous resources to build the brand and attract
customers.

THE RULES ON FRANCHISING FEES

There are two groups involved in a franchise, the
franchiser (the person or company leasing the rights to
business name and system) and the franchisee (the
person who purchases it).
The right to the franchise is sold by the franchiser
to the franchisee for an initial sum of money, often
called the up-front entry fee or franchise fee. This
money will be paid once the contract has been signed.
The contract (franchise agreement) typically details the
responsibilities of both franchiser and franchisee, and
usually for specific length of time (typically seven
years). Once the contract expires, it must be renewed.
State laws often have an impact on the option for this
renewal.
The initial franchise fee does not include anything,
except the right to use the name and system, and
sometimes training, procedures, manuals, and other
assistance like the site selection. It does not include any
of the necessary inventories, fixtures, furniture, and real
estate.
In addition to the franchise fee, the franchisee must
pay the franchiser royalty fees, or other on-going
payments. These payments are usually put into a
general account and use for national and regional
promotion for the entire chain.

THE RULES ON RESTRICTIVE COVENANTS

The success of most franchises is based on the
operating systems methods and products produced. For
this reason, franchisers must protect their proprietary
information and trademarks. In order to do this, they
establish restrictive covenants for their franchisees.
These covenants govern the things a franchisee can do.

WHAT IS A SUCCESSFUL FRANCHISE?

A successful franchise is one where the franchiser
has developed a system and procedure that works. This
means he has defined his market, established a niche,
developed an operations manual, perfected a training
program, and put up a research and development team
that has successfully launched products, introduced
new ones, and made the brand competitive. He must
also have put up an audit team that makes sure all
outlets follow standards and procedures.

HOW DO WE SELECT THE RIGHT

FRANCHISE?
How do you select the business franchise that fits
your needs, skills, and best desires while you are joining
the top organization? There are several steps to be
followed, begin with the weeding out process.
First of all, think about the work environment you
are interested in, and the requirements to run a
business. For example, you like working late (and long)
hours, hiring and managing employees, and dealing
with the public. If so, you can consider the food service
industry. Think long and hard about what “fits” your
lifestyle. Involve your family or any friends and
associates you may want to pull into the business. Write
down your objectives. Sometimes, just the act of writing
things down helps you more to clearly identify what you
really want.
Once you identified the general category of
business you want, visit some franchising site, search on
what investment levels you can afford, the type of
business you want, and sometimes, the geographical
location. Some even give you the estimated breakdown
of what your total investment will be, as well as the
ongoing royalty and advertisement payments. You can
also use a franchising consultant to help narrow down
your choices.
When you get a list put together, begin contracting
the franchisers for additional information. One thing to
keep in mind throughout this process is that while you
are shopping for a franchise, those franchises are also
shopping for franchisees. You will be interrogated as
much as you interrogated them. You both have to agree
that it is good match in order to proceed.

THE FRANCHISING PROCESS

1. The franchiser will send you brochure

and other materials, and most likely
request that you complete a
questionnaire. You will proceed based on
the outcome on that exchange of
information.
2. The next step will be your evaluation of
the company’s Uniform Franchise
Offering Circular (UFOC). The Federal
Trade Commission (FTC) requires that
this document be provided to disclose
detailed information about the franchiser
at least 10 days prior to any franchise
purchase. That information includes the
following:

 The franchiser, its predecessors, and

its affiliates
 Business experience/history
 Litigation
 Bankruptcy
 Initial Franchise Fee
 Other fees
 Initial Investment
 Restrictions on Sources of product
and services
 Franchisee’s obligations
 Territory
 Trademarks
 Patents, copyrights, and proprietary
information
  Obligation to participate in the actual
operation of the franchise business
 Restrictions on what the franchise
may sell
 Renewals, termination, transfer, and
dispute resolution
 Public figures
 Earnings claim
 List of outlets
 Financial Statements
 Contracts
 Receipts
3. Visit as many of the franchiser’s existing
franchisees as you can. Meet directly with
the owner of each establishment, and pay
close attention to opinion of the
franchiser. Ask the owners about the
support they get on an on-going basis, as
well as training and assistance they
received when they first purchased the
franchise. Did the franchiser help them
with the location decision and assist with
initial set up? What about the
promotional effort of the franchiser? Do
they get any say in how the advertising
dollars are spent or allocated? Is their
 earning living up to their expectations?
Did their total investment stay in line
with what they were expecting?
Ask specifically if they would do it
again knowing what they know now.
These opinions are very important to
your research into each other franchise.
Look for the trends that might indicate
overall dissatisfaction with the company
and avoid those like plaque.
4. Review the franchiser’s business plan,
operations, manuals, and market analysis.
Try to meet with the franchiser in person.
Make it a point to meet the franchising
operations in mind, while you are
meeting with them.
 Is the information you are giving
clear?
 Does the training program
appear to be thorough?
 Does it match what you were
told by existing franchisees?
 Does the market look strong?
 Are there too many existing
franchised location in your area?
 If the area is already saturated,
you may need to look elsewhere
(either in location or business).
 Are there no locations in your
area? These may not necessarily
be a good thing either. It may
mean that the competition has a
strong hold on that regional
market and you will have a
difficult time getting a share of
it.
Take careful notes about each franchise
opportunity you are investigating. Make sure you
understand all of their policies and have a good feel
for the level of satisfaction their existing
franchisees have. Then, use this information to
make your final decision.

WHAT IS FRANCHISE AGREEMENT?

It is a contract that binds the franchiser and the
franchisee to the franchise relationship, indicates the terms
and conditions of the franchise.
The greatest mistake many franchisees make is not
reading the whole franchise agreement, since it is long and
usually has a minimum of 30 pages. While it is good to ask a
lawyer to review a contract, the franchisee must first read
and try to understand its contents, and to make sure he or
she is willing to abide by its term.

WHAT SHOULD I LOOK FOR IN THE

DOCUMENTS?
Study the following:
a. The site/location. If you can, visit the site being offered
to determine if it fits to your business plan.
b. The projected financial plan. You must arrive at a
projected financial with the site at hand. Ask the
franchiser to help you crunch the numbers. You will
need to know where your customers will be coming
from and the projected sales you will be making from
the outlet. Remember that no franchiser ever guarantee
your income.
c. The franchise agreement. This is the most important
document you will need to study, so take your time.
This agreement spells out your obligations to the
franchiser and his obligations to you. It is a suggestion
that you read every page at least three times for at least
10 days. Underline the sections you do not fully
understand, then, get a lawyer who is familiar with
 franchising to explain them to you. As soon as you are
ready, set a meeting with the franchiser and have him
explain the agreement and its contents. The agreement
is a very comprehensive document. Do not sign it unless
you are sure about what you are getting into.

WHAT QUESTIONS YOU MAY ASK TO

THE FRANCHISER AND THE
FRANCHISEES?

For the franchiser:

 How long have you been in business?

 Where is your first franchise branch?
 How much is the total investment?
 What does the investment include?
 How do I apply for the franchise?
 When do I get to see the documents for my review?
 What kind of support do I receive when I become a
franchisee?
 What niche does your company have?
 Is it possible to obtain a list and addresses of your
franchisees?
 How often do you meet with the franchisees?
 For the franchisees:

 How did you decide on getting this franchise?

 How many franchise outlets are you opening?
 What kind of support do you get from the franchiser?
 Given a chance, will you get the same franchise?
 Are you in touch with your fellow franchisees?

HOW DO I MANAGE MY FRANCHISE

BUSINESS?
Once you have secured a franchise, it is your duty to see
to it that the business runs according to the standard set
by the franchiser. You have bought a successful system,
so you cannot deviate from established procedures if
you want to succeed.

Following Tips in buying a franchise:

1. Get a good accountant to help you prepare cash flow

projections. Find out how long it takes before you can
post a profit. Determine the salary you will be able to
pay yourself.
2. Ask: What is the franchiser’s business all about and how
long has it been running?
3. Review the franchiser’s audited financial statements
over the past three years.
4. Any litigation history?
5. How much does the investment amount to? What are
the fees to be paid?
6. Must you buy supplies inventory and product from
franchiser or from certain third parties?
7. How much training will you get?
8. Will the franchise demand access to your computer
data?
9. Will you get protected territory?
10.-Must you personally handle the business or can you
hire a manager?
11. Can the franchiser abruptly terminate the contract?
12. Get the names, phone numbers, and addresses of their
franchises who have left the system.
13. See samples of past contracts.
14. Examine the details of financial aspects.