Franchising

FRANCHISE SPECIFIC BUSINESS PLAN GUIDELINES

In constructing the business plan, the following information is mandatory to ensure the evaluation process is accelerated.

Applications for either wholesale finance, funding to franchisees directly, or for expansion into SADC or the rest of Africa should include the following information:

Application letter from the entity requesting financial assistance from the IDC specifying;

the name of the entity that will be borrowing the finance (including relevant company or close corporation details);
the amount required to be borrowed, as well as;
the contribution from shareholders/members (in unencumbered (i.e. not borrowed) cash);

Details of the shareholders/members for the borrowing entity together with the shareholding structure including:

full names and identity document numbers;
detailed CVs;
a letter of consent to perform credit checks on all individuals; and related entities and
personal balance sheets for all shareholders/members

Profile and description of the franchise business including an analysis of current and projected market conditions (including detailed description of products on offer; status of development, roll out plan; any past failures as well as reasons for them; description of any relevant technology employed; intellectual property; patents; royalties; competitive advantages; SWOT analysis)
Written confirmation from the franchisor confirming approval as a franchisee;
A copy of the disclosure document and franchise agreement;
Financial forecasts for at least 3 years, which include the budgeted balance sheet, income statement and cash flow statement. For wholesale applications, the same as above for a typical operation of the franchise based on existing outlet figures.
In the budgeted operating and other expenses, as well as for salaries and wages, ensure that the forecast escalations are relevant to expected price increases and note that these increases may be greater than general inflation in certain instances. Supply details for all assumptions including forecast revenues and expenses.
Financials of related enterprises owned by the shareholders/members;
Highlight critical risks and mitigating considerations for the franchise, the market and the site.

Market demographics relevant to the franchise including profile of customers, market share, market trends and information on the size and growth of the markets which are to be served
Analysis of competitors including products, barriers to entry, customer base and site which may include relevant research by the franchisor or a third party
Marketing strategy and budget for both the franchisor and franchisee (including overall marketing strategy; pricing; advertising and promotion; sales tactics; distribution)
Detailed motivation for the forecast revenues in the sales budget, allowing for an initial uptake in sales over the start up period. Adjust the revenue forecasts for seasonality over the budgeted period
Details of selling expenses including all fees payable to the franchisor;

Description of upfront and ongoing training provided by the franchisor
Details of the franchisor's aftercare program such as monitoring of franchisees accounts and monthly store visits
Copy of lease agreement or alternatively an offer to lease document. Include detail on any other material contracts or agreements
Total capital layout for the franchise including a detailed list and cost of;

plant and equipment,
furniture and fittings,
leasehold improvements and
any other items of a capital nature necessary for the franchise to operate

The number of people to be employed, their categories and related wage or salary. Include the CVs of key staff.

For wholesale applications attach audited financial statements of the franchisor for the past two years as well as latest management accounts not older than two months;

For buy-in or takeover of an existing franchise business, by a BEE group, in addition to the above, please provide the following:

results of the due diligence carried out, motivating the purchase price proposed for the business,
the shareholding to be purchased providing other relevant details.
detailed historical financial statements for at least two years as well as latest management accounts (not older than two months) for the relevant business;

The IDC will require that the shareholders of the franchise business to be financed invest an amount that is at least acceptable to both the franchisor and IDC as unencumbered cash for the total investment required.

Who to contact

For more information on the Franchise SBU, please click here to contact us,or call us on 086 069 3888 or + 27 11 269 3677. Alternatively, email our call centre at callcentre@idc.co.za