Buying a franchise: working capital in Argentina

Having enough money to open a franchise does not mean you have enough to keep it running. Between paying the first expenses and collecting enough sales revenue, a cash shortfall can put an otherwise viable business at risk. Before entering the Argentine franchise market, calculate the working capital your future outlet will need: the resources required to sustain operations while receipts and payments are not yet in balance.

1. Separate opening costs from operating cash

Budgets often focus on the initial franchise fee, fit-out and equipment. But these outlays do not tell you how much cash you will need once you open your doors. To avoid confusion, organise your budget into three categories:

• Opening outlays: payments needed to get the outlet ready, such as alterations, equipment and initial expenses included in the proposal.
• Working capital: resources to bridge the gap between operating receipts and payments, including wages, rent, utilities and stock replenishment.
• Contingency reserve: money set aside for circumstances not covered by your main forecast.

Check where initial stock has been included: if it already forms part of the opening investment, do not count it again as an outlay. Subsequent stock replenishment, however, must appear in your operating cash flow schedule.

Keep your personal expenses separate too. If you need to draw money from the business to live on from the first month, include those drawings in your cash flow calculation, without treating them as an operating cost or guaranteed profit.

2. Ask for historical figures to help estimate the start-up period

Argentina specifically regulates franchise agreements under Articles 1512 to 1524 of the Argentine Civil and Commercial Code. Article 1514(a) requires the franchisor, before signing, to provide economic and financial information covering two years of performance for outlets similar to the one being offered, which have operated for a sufficient period in Argentina or abroad.

This obligation provides a starting point for assessing the business, but it is neither a sales guarantee nor a legally prescribed working capital figure. Nor does it mean that every outlet presented will be comparable to your location and format.

To estimate your initial trading period, also request monthly figures from the start-up phase of similar outlets. Make this additional request explicit: an established operation does not necessarily reveal the cash needs of a newly opened one.

Ask how long those outlets took to achieve steady sales, which payments started before opening, and how their actual opening dates differed from the planned dates. If you receive only annual averages, do not automatically spread them evenly across twelve months: they may conceal seasonality and difficult months.

3. Build a schedule of receipts and payments

Prepare a spreadsheet covering the period from the first outlay until operations become stable. Use weekly intervals during the start-up phase if payment deadlines are clustered together; you can switch to monthly intervals later.

The key distinction is simple: a sale does not always turn into cash on the same day. Record receipts when you expect the money to be available, allowing for settlement times and fees deducted by payment providers. On the payments side, enter each obligation on its due date, not when it would be convenient to pay it.

Include:

• Available cash receipts from sales and other income you genuinely expect to receive.
• Supplier payments based on their actual terms.
• Rent, wages, employer social security contributions, utilities and payments due to the franchisor.
• Taxes and payment deadlines established with your accountant.
• Personal drawings, where applicable.

Calculate the cumulative cash balance for each period. The largest negative balance, before adding capital contributions or financing, indicates the shortfall you would need to cover under those assumptions. Add a carefully assessed reserve: ending a week with a zero balance leaves no room for delayed payment settlements.

4. Test delays before committing your capital

Do not assume that a fixed number of months will suit every business. The amount required depends on each outlet's sales trajectory, payment deadlines and collection terms.

Test a delayed opening, lower initial sales and earlier-than-expected supplier payments separately. Then combine those scenarios. In Argentina, also review how cash outlays change in nominal terms: holding costs constant throughout the forecast may underestimate the cash required.

Establish which funds will actually be available and when. A future asset sale or a loan that has not yet been approved is not the same as cash already set aside. If the more demanding scenario exceeds your resources, review the scale of the investment before signing.

Practical conclusion: do not just ask how much it costs to open. Request historical figures, assign a date to every receipt and payment, and check that you can cover the largest projected shortfall without using up your personal reserve.