How to write a franchise business plan for a bank loan

• Lenders usually want your business plan before they approve a loan, plus identification, financial forecasts, lease agreements and your personal financial information (business.gov.au).
• Build the budget on the all-in cost: franchise fee, fit-out, equipment, stock, advice, training and working capital, not the headline fee.
• Treat the disclosure document as your starting point, not your forecast. Any projection in it must state its assumptions, and you need to test them.
• Show what happens if sales come in 10% or 20% below forecast. That's the scenario a lender worries about.
• Write the summary last and don't ask for more than you need, as business.gov.au advises.
• Free help exists: the government's Self-Employment Assistance program includes business plan development.

Each lender sets its own criteria, but business.gov.au's guide to applying for a business loan points to the same core areas. Prepare evidence for each one.

• Your finances: income, expenses, debts and cash flow, and the maximum repayment you can afford.
• A business plan showing how much money you have now, how much you need, and how much you expect to make in the near future.
• Security: something of value, such as property or business inventory, that the lender can take if you don't repay. An asset you're buying, like a vehicle or equipment, can often secure its own loan.
• A guarantor, if the loan needs one, and who that will be.
• Documents: proof of identity, financial forecasts, lease agreements, your personal financial information, and financial reports if the business already trades.
• Sometimes a loan interview. business.gov.au suggests bringing a business adviser or accountant if you aren't confident answering financial questions.
• A legitimate lender. Check an unfamiliar finance company on the ASIC register, and remember that real lenders don't contact you about a loan you haven't applied for.

business.gov.au offers a free, detailed business plan template for people seeking finance. For a franchise, adapt it into these sections, in this order.

1. Summary, written last: what you're buying, where, the all-in cost, your own contribution, the loan amount and term, and how it will be repaid. Keep it to one page.
2. About you: your work history, management and industry experience, and why this franchise suits you. This is your personal statement.
3. The franchise system: how long it has operated, how many franchisees it has, what its Franchise Disclosure Register profile shows, and the training and support included in the price.
4. The site or territory: lease terms or territory boundaries, local demand and competitors, and why you expect customers.
5. Operations and staffing: opening hours, the roster, award wages and who runs the business when you're away.
6. Marketing: what the franchisor's marketing fund pays for, what local marketing you'll fund, and how you'll win your first customers.
7. Financials: start-up budget, funding table (your money versus borrowed money), 12-month cash-flow forecast, 3-year profit and loss, break-even and downside scenarios.
8. Risks and responses: slow sales, a key staff member leaving, cost increases and interest rate rises, with what you'd do in each case.
9. Appendices: disclosure document extracts, the lease or heads of agreement, supplier quotes and your personal statement of assets and liabilities.

The disclosure document is the best source of franchise-specific numbers, but a lender knows the seller wrote it. Use it the way a credit analyst would.

• Earnings information is optional. If the franchisor gives it, it must be in or attached to the disclosure document. If it doesn't, the document must say the franchisor can't estimate earnings for a particular franchise.
• Any projection must set out its facts and assumptions, the period covered, and whether it includes depreciation, a salary for the franchisee and the cost of servicing loans. Add whatever is missing before you use it.
• Call current and former franchisees, whose contact details are in the disclosure document, and ask whether the earnings they were shown matched reality. The ACCC's information statement suggests exactly this check.
• Include every ongoing payment. Royalties, levies and fund contributions can be based on turnover rather than profit, so they're payable in a loss-making month.
• Check whether the franchisor will require significant capital expenditure during the term, such as a refit, and put it into your 3-year forecast.
• Read the franchisor's solvency statement and its financial reports for the last 2 completed financial years. A lender may ask about the franchisor's own strength.
• Don't budget from sector averages. The last broad survey (Griffith University, 2016) put the median start-up cost at $95,000 excluding GST, with retail at $287,500 and non-retail at $59,750, and those figures are a decade old.
• Show your adjusted figures, not the franchisor's, and explain every change you made.

Lenders focus on whether cash covers the repayments. This illustrative example shows the three numbers to include. Every figure is an assumption made for the example, not a benchmark for any franchise.

• Assumptions: forecast sales of $600,000 a year, a 62% gross margin, a 7% royalty and a 2% marketing levy on sales, fixed costs of $230,000 a year and loan repayments of $30,000 a year.
• Contribution margin: 62% minus 7% minus 2% leaves 53 cents of each sales dollar to cover fixed costs, repayments and your pay.
• Break-even: ($230,000 + $30,000) ÷ 0.53 is about $490,566 of sales a year before you can pay yourself anything.
• At forecast: $600,000 × 0.53 = $318,000, less $230,000 of fixed costs and $30,000 of repayments, leaves $58,000 a year for you, before tax.
• 10% below forecast ($540,000): $26,200 is left for you. A 10% sales miss cuts your pay by more than half.
• 20% below forecast ($480,000): the business is about $5,600 short before you take anything, so the gap comes out of working capital.

Put a table like this in your plan, then explain your response to each scenario: a smaller draw, fewer rostered hours or a working capital reserve. The break-even and loan calculators linked below run the same sums with your own figures.

A lender is backing you as much as the brand. A one-page personal statement should answer these questions plainly.

• What have you done that's relevant: managing staff, running a budget, selling, or working in this industry?
• Why this franchise, this location and this timing, and what alternatives did you consider?
• How much of your own money are you putting in, and where did it come from?
• Will you work in the business full time, and what will you live on until it can pay you?
• Who is advising you: an accountant, a franchise lawyer, and anyone else joining you in the business?
• What will you do if trading is slower than planned, and how many months could you keep going?
• What training will you complete before opening, including the franchisor's program and any licences you need?

• A forecast copied straight from the franchisor, with no adjustments and no evidence from franchisees.
• No working capital line, or a budget that assumes a profit from the first month.
• Asking to borrow almost the whole cost, with little of your own money in the business.
• A downside test that only moves sales by a token amount, or no downside test at all.
• Gaps a lender will notice: an unsigned lease, missing quotes, or costs that don't match the disclosure document.
• Unchecked personal credit. Look at your own credit report before you apply so there are no surprises.
• Asking for more than you need. business.gov.au suggests being realistic about the amount.

• The all-in cost matches the disclosure document, supplier quotes and the lease.
• The funding table shows exactly how much is your money and how much is borrowed.
• The cash-flow forecast runs month by month for at least 12 months and includes loan repayments, GST and tax.
• Break-even and at least two downside scenarios are shown, with your response to each.
• You've had independent legal advice on the franchise agreement, and your accountant has reviewed the numbers.
• You've spoken to current and former franchisees and recorded what they said.
• The summary fits on one page and states the loan amount, term and security offered.
• You've compared at least two lenders' rates, fees and security requirements.