What to look for in a prospective franchisee’s business plan

Franchisors looking for solid business partners must carefully assess a prospective franchisee’s business plan for a number of essential criteria

What to look for in a prospective franchisee's business plan

There’s a common misconception that only entrepreneurs of independent start-ups need to create business plans. This is far from the truth. Franchisees must prepare business plans, too. And a franchise owner must sift through the noise to find their ideal business partner. The reasons for this are simple: the right business partner means a stronger brand, better customer service, greater customer loyalty and satisfaction and it positively impacts the bottom line. As such, a franchisee’s business plan must be carefully crafted to ensure future success. But as a franchise owner, do you know what the key factors in a business plan are and how to evaluate them?

Understanding the franchisee’s vision

It is vital to ensure that the prospective franchisee’s vision, values and goals align with a franchisor because such alignment yields a consistent brand experience, leads to effective collaboration and long-term growth, operational efficiency and mutual motivation. To assess a franchisee’s long-term goals, their business plan should set out the clarity of their vision, what their market analysis contains and what strategies they plan to implement in terms of marketing, operations, sales and customer service. Other areas to consider include their financial projections, growth milestones, adaptability, operational efficiency, commitment to marketing and branding, risk management and alignment with the franchise model. 

Financial viability

Franchisors must assess if the franchisee has the initial investment and capital to cover the initial franchise fee, setup costs, equipment and working capital requirements. Apart from this, operational costs should be considered as should revenue projections and anticipated profit margins that must be in line with industry standards and with the franchisor’s expectations. Also important is the break-even analysis, financing and debt management in addition to the franchisee’s growth and expansion plans.

Market research and target audience

The significance of understanding local markets is critical because that’s precisely where the franchisee will be operating. In terms of market research and target audience, a franchisee must prove they have performed an accurate analysis of their customer base in their local area to ensure business viability. 

Operational expertise

Although many franchisors do not require previous experience in managing a business or running a former franchise enterprise, it’s important that a franchisee has some operational experience. Examples of skills that should be emphasised in a franchisee’s business plan include leadership and management.

Franchisee’s commitment

The franchisor should further evaluate the following elements in a business plan: adherence to brand standards, showcasing dedication to maintaining the consistency expected by the franchise system; long-term vision, including emphasising the commitment to the system’s success and expansion; plans to invest in ongoing training and development for staff by strengthening their skills; evaluating a franchisee’s anticipated engagement with the local community through local marketing campaigns; and strategies for continuous improvement in operations, customer service and profitability, expressed through a sustainable growth strategy.   

Compatibility with the brand

A franchisor should look for clear references to the brand values, mission and USPs in the business plan. This is a clear signal that the franchisee understands and embraces the brand. After this, the subsequent marketing strategies should align with these core brand values, indicating a commitment to maintaining brand consistency. The franchisee’s business plan should also emphasise a dedication to meeting the parent brand’s quality and service standards. 

Legal and compliance considerations

Finally, a franchisor must look at how a franchisee aims to comply with local and national regulations, while showing an understanding of the legal environment. Furthermore, it’s important that the business plan addresses the franchisee’s use of the franchisor’s intellectual property. Also, a franchisee should acknowledge the terms and conditions as outlined in the franchise agreement and indicate ways in which they plan to adhere to them to maintain a transparent and trustworthy business relationship.

Concluding remarks

A quality business plan drafted by a franchisee presented to their franchisor is an important step in the start of a successful business relationship. Franchisors should evaluate a number of factors simultaneously to ensure they select the right business partner. A well-structured business plan is essential for franchisee selection and should not be overlooked because it gives insights into the franchisee’s intentions and serves as a blueprint for success.


Dani Peleva
Dani Peleva