Tips From Pingu English Franchise Business Plan

The creation of your education franchise business plan is also essential if you need funds from any third-party source if you want to own an international school franchise. Let’s see how to make a franchise business plan.

In completing the plan you will be considering all of the financial aspects of developing your Licence, from the most effective way of acquiring the requisite equipment to the cash flow implications of alternative staffing levels and various other costings. Overstaffing in the early days in anticipation of rapid growth may seem sensible, but is not. The reality is that in the early days cash will be flowing out as you build your business client base and consumer presence, but remain encumbered by overheads and set up costs.

The following example demonstrates how break-even calculations can be applied for a school of English:

• Your Cost of Sales is: 20 % of sales
• Franchise/Licence Fee is: 12 % of sales
• Your bad debts are: 1 % of sales

Total Variable Costs: 33 %

In this case, for every £1 you earn in sales costs you expend 33 pence in variable costs, leaving 67 pence as a contribution to cover fixed costs and profit – i.e. your gross margin is 67%.

Now suppose your fixed costs are as follows:

• Finance costs £15,000
• Establishments costs £50,000
• General administration costs £15,000
• Staff costs £70,000
Sub-Total £150,000
• Less Local Promotion Reclaim £4,000
Total Fixed Costs £146,000

In order to cover your fixed costs exactly, and so break even, you must achieve sales of: £146,000/67 pence = £217,910

A reduction in your profit margin can have a dramatic effect.

Suppose that your Cost of Sales rises to 25%, so that for every £1 of sales you are incurring variable costs of 38 pence (Cost of Sales plus Franchise/Licence Fee and bad debts, as previously) and earning a contribution of only 62 pence. To break even now, you must achieve sales of:£146,000 /62 pence =£235,484 – an increase of £17,574 or 8 % in sales.

This kind of calculation can also highlight the effect of taking on extra costs. Assume again that you are earning a contribution of 67 pence for each £1 of sales, and that you are thinking of taking on a new staff member at a cost of £15,000 per year.

You must achieve sales of:£146,000 + £15,000/67 pence= £240,298 – an increase of £22,388 over the original level.

The break-even calculation for a school of English must therefore be viewed as a key performance indicator within the business and must be constantly monitored and assessed.

Managing cash
Apart from making a profit, the most visible sign of prosperity is a healthy bank account. But cash has a cost! An overdraft will cost interest. Money on deposit will earn interest. If there is a credit balance on your account, without earning interest, you are missing an opportunity to maximize your profits. If you don’t minimize your overdraft, by collecting debts and reducing stock levels, you will pay unnecessary interest.

Your aims should be to maximize the return on your money and reduce charges, and to know and plan your cash needs to avoid the need to arrange emergency short-term (and usually expensive) financing.

Forecasting
You should always monitor your monthly accounts and estimate your cash requirements over the next few months, knowing as you will your normal cash flow cycle. This cash flow forecast should include all sources of payments and receipts. It will allow you to calculate your monthly cash requirements over the short-term. You will therefore be able to control your cash flow and your international English franchise more effectively.

The cash flow forecast should be a formal exercise, which should receive careful consideration. It must be based on accurate historical information, and any future assumptions must be reasoned and honest. By adjusting forecasts regularly to take account of changes that have occurred you can spot future problems and opportunities and manage them. You will therefore be able to plan appropriate action to avoid putting unnecessary strain on your cash resources.

Management information
To make a franchise business plan, you will need as much accurate information as you can get in order to produce a realistic forecast. Therefore your own management accounts are a prime source of such information. In addition though you will need to have considered other aspects of your teaching franchise business such as:

• Sales (trends and fluctuations)
• Your outstanding order book
• The gross margin you are currently earning
• Price changes in the pipeline from suppliers, landlords etc.
• Bad debts being written off
• Overheads – periodic payments due e.g. rates, rents etc.
• Cash flow and bank balance
• The length of your working capital cycle

Pingu’s English offers ongoing marketing and business development assistance to all its worldwide partners . As an international education franchisor, it also guides entrepreneurs interested to open a network of English school for kids in their country, to create a winning business plan.