Buying a Franchise in Australia: Plan Your Working Capital

A franchise can look affordable on the purchase price alone, yet leave its owner short of cash before trading settles. Working capital pays for everyday operations while customer receipts catch up with outgoings. Before joining Australia’s franchising community, build a funding plan that separates the cost of opening from the cash needed to keep operating.

1. Separate opening costs from operating cash

Start with two budgets. The first covers getting the doors open: the franchise fee, equipment, initial stock, professional advice, deposits and other establishment payments. The second covers the money needed to trade after opening.

Your operating cash budget should include:

• Wages, superannuation and other employment costs.
• Rent, utilities, insurance and software subscriptions.
• Stock replenishment and delivery charges.
• Royalties and other recurring franchise payments.
• Loan repayments and equipment finance instalments.
• Tax payments and a realistic allowance for your own living needs.

Record when each payment actually leaves your bank account. Annual insurance paid upfront has a different cash impact from monthly instalments, even if the total expense is similar.

Avoid counting the same item twice. Initial stock belongs in the opening budget; subsequent purchases belong in the trading forecast. Deposits may be recoverable eventually, but they are not available cash while held by someone else.

Ask the franchisor exactly what its quoted investment range includes. In particular, establish whether any working capital allowance includes owner drawings, tax and borrowing costs, or assumes these will be funded separately.

2. Forecast the cash gap, not just profit

A profit forecast cannot show every funding pressure. You may pay suppliers before selling stock, wait for business customers to settle invoices, or repay loan principal that does not appear as an operating expense in the profit calculation.

Prepare a weekly cash-flow forecast for the opening months, then a monthly forecast covering at least a full trading year. Begin with the cash left after all establishment costs have been paid.

For each period, add actual expected receipts and subtract payments due. Do not treat an invoice issued as money received. Check settlement times for card payments, delivery platforms and business accounts where relevant.

Ask your accountant to model GST consistently and schedule expected tax payments. Money collected for tax should not be mistaken for a spare operating buffer.

Build three versions:

• Base case: sales and costs supported by evidence relevant to your proposed operation.
• Slower start: customer numbers build more gradually than expected.
• Combined pressure: slower receipts coincide with higher costs or an opening delay.

Identify the lowest cash balance in each version. The additional funding needed to prevent a shortfall, plus a contingency chosen with your accountant, is more useful than a generic recommendation to hold several months’ expenses.

Also prepare a separate household budget. Otherwise, apparently adequate business cash can disappear when you need to pay personal bills.

3. Check the assumptions against Australian disclosure rules

Australia specifically regulates franchising through the mandatory Franchising Code of Conduct under the Competition and Consumer Act 2010. The Australian Competition and Consumer Commission (ACCC) regulates compliance. The Australian Consumer Law also prohibits misleading or deceptive conduct, including in franchise sales representations.

A new Code commenced on 1 April 2025, with some additional requirements applying from 1 November 2025. Have a franchise lawyer confirm which provisions apply to your proposed agreement, especially when buying an existing business.

Use the disclosure document and proposed agreement to check payment amounts, calculation methods and due dates. Your cash model should reflect contractual obligations, not just a sales brochure’s headline costs.

Where the franchisor supplies financial projections or a working capital estimate, request the assumptions in writing. Does the estimate relate to a new outlet or an established one? Does it assume you work unpaid? Does it reflect local wages, trading hours and seasonal demand?

Disclosure obligations do not make an estimate a guarantee of sufficient funding. Keep copies of representations and ask your independent advisers to investigate material inconsistencies before you commit.

4. Arrange funding before the shortfall arrives

Match finance to the need. Long-lived equipment and short-term cash gaps may require different facilities. Discuss the structure with an accountant and lender rather than assuming one loan should cover everything.

For any proposed facility, check:

• When funds become available and what conditions must be met.
• Interest, fees and repayment timing.
• Whether the limit can be reduced or the facility reviewed.
• Whether seasonal drawings and repayments are permitted.

An undrawn facility is only useful if it will actually be available when needed. Do not rely on unapproved borrowing, a future grant or hoped-for supplier credit.

Practical takeaway: before signing, know your opening cash balance, your forecast cash low point and the confirmed funding available to bridge the gap. If those figures do not reconcile, revisit the plan before committing.