To execute all of these aims successfully, franchisor’s business requires at least some professional planning.First, we recommend lying the foundation for franchisor’s business by establishing its business vision, mission and long-term goals.When calculating the franchise fees, the franchisor should bear in mind that their payment should not cause the franchisee’s return on investment period to extend unreasonably or lead the franchisee’s business to incur losses.
It shows that the financial model is not customized according to a specific franchisee, but serves as a universal model showing the general financial aspects of any franchisee’s business.
However, when preparing the financial model of a typical franchisee, the franchisor should retain the possibility to easily alter the assumptions, so that the model could be used to forecast financial results of the specific franchisees in specific markets.
You must start with development of the typical franchisee’s financial model that will serve as a basis for calculating the franchisor’s income and expenditure.
The financial model of a typical franchisee helps to anticipate the financial outcomes of a franchised unit.
After the typical franchisee’s financial model is finished, you can move to designing franchisor’s financial model.
When developing franchisor’s financial model you must take into account all strategic decisions and assumptions that were made earlier in the process of the franchisor’s business planning.These might include expected growth rate of the franchise network, preliminary franchise fees, elements of the franchise infrastructure to be created, scope and frequency of the provision of services to franchisees, etc.The last step of development of the financial models is harmonizing typical franchisee’s and franchisor’s financial models.We also call it the development of the franchise concept that is comprised of these interconnected parts: There are two financial models that have to be prepared – franchisee’s and franchisor’s.These financial models must reflect the anticipated income, capital expenditures and operating expenditures as well as the assumptions upon which these forecasts were based.We recommend structuring all long-term plans under two main strategic programmes – franchise network development and franchisor’s business development.Under the franchise network development programme you must define long-term goals and actions related to franchise marketing, recruiting franchisees, opening new franchised units and ensuring successful operations of the existing franchised units, etc.Generally, all strategic decisions that lay a foundation for a long-term action plan has been already made during the previous steps of the planning process.Therefore, you only need to describe all long-term plans in a concise and integrated manner.This model is most often based on the historical data of the franchisor’s own units.The financial model is defined as dedicated to “typical” franchisee for a reason.