Development Plans

Most franchise development plans are written once, in the months before the first franchisee is appointed, and then quietly filed. The spreadsheet said 12 franchisees by the end of year two and 40 by year five. Eighteen months later the network has six, two of them struggling, and nobody has opened the plan since the bank saw it.

Ken Rostron has spent close to fifty years on both sides of that spreadsheet. He helped grow Prontaprint from a handful of franchisees to an international group of nearly 300, floated it in 1985, and has advised new franchisors at The Franchise Company since 2001. We recorded a conversation with Ken about development plans in August. His view of what a plan is for is simpler than most: it should show the franchisor how growing the network grows their income, and it should be built on numbers that came from real trading rather than hope.

This article takes the second half of that conversation, the part about what happens when the plan meets reality, and turns it into something a head office can act on. What should be in the plan, where the numbers come from, which warning signs appear first, and why none of it works without proper monitoring.

What belongs in the plan

Ken’s phrase is that a development plan “doesn’t have to be War and Peace”. The core of it is three things:

A 24-month cash flow forecast. Month by month, for the franchisor’s own business. Not the franchisee’s business, which is a separate document, but head office: fee income as franchisees join, the cost of recruiting them, the cost of training and supporting them.

An operating statement. Income and expenditure, excluding drawings, depreciation and loan repayments. This is the plain view of whether the franchising operation pays for itself at each stage of growth.

The support programme. Induction training, which in Ken’s experience commonly runs four to six weeks and has to cover the theory of the business, the reporting systems the franchisee will use, and a practical stretch at a company-owned outlet. Then the hands-on support in the first three months of trading, which should be whatever it takes for the new franchisee to feel confident and to feel they made the right decision.

The plan itself typically covers three to five years, with the first 36 months in detail and the rest extended from there. Everything after year three is a projection of what the first three years turn out to be.

Where the numbers should come from

The first thing Ken looks for is whether the sales forecast in the plan can be backed by actual sales performance. A franchise is meant to be a tried and tested business model, and he would normally want to see 18 to 24 months of real trading before that model is packaged for others. If you franchised earlier than that, the honest answer is that the plan contains more guesswork than it should, and the first few franchisees are the test.

His first red flag is the opposite case: sales figures inflated to arrive at a bottom line that will help sell the franchise. He is sympathetic about how it happens. A new franchisor has paid for consultants, lawyers and systems, and is anxious to see a return. The temptation is to make the numbers look a little better and the candidate a little more suitable than they are. We covered the second half of that temptation, granting a franchise rather than selling one, in a previous article. The point here is that a plan built on inflated numbers cannot be monitored, because nothing that happens afterwards will ever match it, and the franchisor learns to stop looking.

The recruitment rate in the plan should also come from evidence rather than ambition. Ken’s example is a client who came to him with 10 or 12 franchisees, each paying a monthly fee of a couple of hundred pounds, and who reached just short of 100 franchisees three to four years later. That growth was possible because the foundation was sound: the first few franchisees were trading well and became the evidence every later candidate asked to see. The rate a network can grow at is set by the quality of that base and the resources head office has to support each new arrival, not by the number that makes the five-year column look good.

The support cost test

One line in the interview is worth turning into a rule. When a franchisor is going through the growth period, Ken says, the income from the franchise start-up package should cover the whole cost of supporting those new franchisees, rather than dipping into the management fee.

Put another way: the initial fee pays for recruitment, induction training and the first months of hands-on support. The monthly management fee is what the franchisor’s business actually earns. If the plan only works because management fees from existing franchisees are subsidising the cost of bringing on new ones, the network is borrowing from its future to fund its growth. It never works out perfectly, as Ken admits. But it is the budget line that decides whether new franchisees get the support they were promised, and it is the first thing to check when the plan starts to slip.

The warning signs, in the order they appear

Ken is careful not to be dramatic about this. Most problems in most businesses can be remedied if they are seen early. The difficulty is that a franchisor without a monitoring habit tends to see them late. The signs, roughly in the order they surface:

Recruitment behind plan. Sometimes this is simply that the funds set aside for advertising were not enough, which is a budget problem. Sometimes it is that the enquiries are coming but the candidates are not suitable, which is a channel problem. The two need different responses, and you can only tell them apart if enquiries and their sources are being recorded.

Franchisees not achieving the forecast. This is the one most franchisors notice, because it shows up in the fee income. The useful question is not “how far behind” but “why”. Ken’s example is cost of sale: if a franchisee is not hitting the model’s cost of sale, either they are being wasteful or they are not charging enough at the top. Because the business model was proven before it was franchised, the franchisor should be able to say which, and deal with it directly.

A struggling franchisee nobody has spoken to. Ken’s observation is that a franchisee problem, left alone, drifts from being a problem to being confrontational. The franchisor who has not seen the numbers, or has seen them and hoped, ends up managing a dispute instead of a business. The first-year support pattern matters here: the first three to six months are when a struggling franchisee is easiest to help and most willing to be helped.

Head office firefighting. The final sign is on the franchisor’s side. When unsuitable franchisees have been appointed, or suitable ones have been under-supported, the franchisor’s time goes on issues that should have been dealt with at induction. Recruitment slows because nobody is doing it. The plan slips further. Ken’s word for the result is that the network “stalls”.

Two mistakes that were not in anyone’s plan

Ken offered two cautionary tales at the end of the interview, and both are planning failures in the sense that matters: something was assumed and never checked.

The first was a small franchise that had reached 10 or 12 franchisees, and whose franchisor had let the consultant choose them. The consultant ran recruitment, presented each candidate as a good one, and the franchisor signed. Within about 18 months the network had fallen apart and he was left with one. The lesson is not about consultants. It is that the person who will live with the franchisee for the next five years has to own the decision, and the plan should say so.

The second was a franchisor that was, in Ken’s word, flying. Strong reputation, fast recruitment, everything looking right. To help new franchisees secure premises, head office had been taking on the leases, a contingent liability that appeared nowhere in the growth numbers. When the market turned, franchisees could not pay their fees or their rent, and the franchisor had to be wound up. They knew the risk and took it. The plan had a column for growth and no column for what growth had been guaranteed against.

What monitoring actually looks like

None of this is complicated in principle. Ken’s point is that having everyone in the network use the same systems, increasingly the same accounting system too, is one of the underrated benefits of franchising, because it lets head office compare like with like. A franchisor who can see each franchisee’s sales, cost of sale and margin against the model, and against each other, can find the problem before the franchisee does.

In practice that means a short monthly check against the plan, in three parts:

1. Recruitment against plan. Enquiries, by source. Candidates at each stage. Awards this month and this year against the number the plan assumed.
2. Franchisees against the model. Each franchisee’s sales and cost of sale against the proven figures, with the newest franchisees looked at most closely. Anyone drifting gets a conversation, not a letter.
3. Head office against its own forecast. Fee income, support cost per new franchisee, and whether the start-up package is still covering it.

If those three checks take most of a day because the numbers have to be collected by email and re-keyed into a spreadsheet, they will not happen every month. Our benchmarking article goes into how to compare franchisees without turning the exercise into a demoralising league table. The point for the plan is narrower: the comparison has to be routine, and routine depends on the data already being in one place.

Where a system earns its keep

Franchise 360’s head-office reporting exists for exactly the monthly check above. Every franchisee works in the same system, so their sales, jobs and invoicing arrive as comparable numbers without anyone collecting them. Performance dashboards show each location against the others, and trend reporting makes a franchisee who is drifting visible before the fee income says so. On the recruitment side, the candidate pipeline records every enquiry, its source and its stage, so the awards-against-plan figure is a report rather than a reconstruction.

A development plan written on sound numbers and then checked monthly against real ones is a different document from the same plan filed in a drawer. Ken’s client went from a dozen franchisees to a hundred because the foundation was right and the franchisor could see it was right. That visibility is the part most plans leave out.

Want to check how your own head office is set up to monitor the network? Our Franchise Management Checklist covers reporting, support and recruitment alongside the rest of head-office operations.

Or book a 45-minute demo and we’ll show you how Franchise 360 puts the plan, the pipeline and every franchisee’s numbers on the same screen.