Buying a Franchise in Australia: Budget for Working Capital

A franchise can have customers and still struggle to pay its bills. The problem is often timing: wages, supplier invoices and franchise fees may fall due before customer payments clear. Before joining Australia’s franchising community, calculate the working capital needed to keep the business operating, rather than treating the purchase price as your complete funding requirement.

Separate the purchase budget from operating cash

Your acquisition budget covers what it takes to buy and establish the business. Working capital planning asks a different question: how much accessible cash will you need to meet obligations while money moves through the business?

Prepare two separate schedules with your accountant. The first should list acquisition and establishment payments. The second should track operating receipts and payments from the point you take responsibility for the business.

Do not count the same money twice. A sum earmarked for equipment or a security deposit is not also available to pay next month’s bills. Likewise, opening stock is an asset, but it cannot pay wages until it sells and the proceeds reach your account.

Ask the franchisor what any advertised working capital allowance includes. Does it cover only business expenses, or does it assume that you can support yourself without drawings? What trading conditions and payment terms underpin it?

Treat an unexplained allowance as a starting point for investigation, not a personalised funding recommendation.

Map when money actually arrives and leaves

Build a weekly cash-flow forecast for the initial operating period, then extend it across a full trading year to capture seasonal changes. Use receipt and payment dates rather than the dates on which sales or expenses appear in the accounts.

For incoming cash, establish:

• Whether customers pay immediately, in advance or on credit.
• How long card processors, delivery platforms or other intermediaries take to settle payments.
• Whether the franchisor collects customer payments before passing money to you.
• How refunds, chargebacks and disputed invoices affect available cash.

For outgoing cash, record actual due dates for supplier invoices, payroll, rent, franchise fees, subscriptions, loan repayments and tax obligations. Ask your accountant to show GST and other tax payments correctly rather than treating all cash received as freely available.

If the franchisor controls settlement, request a written explanation of the process. Check what can be deducted, whether amounts can be withheld, and who handles payment errors. A sales report is not evidence that the corresponding money is available in your bank account.

The useful output is the lowest projected cash balance, not simply the year’s estimated profit.

Connect the forecast to the franchise documents

Australia specifically regulates franchising through the mandatory federal Franchising Code of Conduct, enforced by the Australian Competition and Consumer Commission. The current Code commenced on 1 April 2025. The Australian Consumer Law and general contract law also apply.

The disclosure document and proposed franchise agreement are essential inputs to your cash plan. Use them to identify payment obligations, then ask the franchisor to clarify anything that lacks a clear amount, calculation method or due date.

Create a payment checklist showing:

• The obligation and the relevant document provision.
• Who receives the payment.
• When payment becomes due.
• Whether it is fixed, sales-related or variable.
• What may trigger an additional payment.

Ask your solicitor to check whether the agreement permits direct debits, deductions from customer receipts or changes to payment arrangements. Your accountant can then model the cash consequences of those provisions.

Disclosure requirements do not make a franchisor’s budget a guarantee that your cash reserve will be sufficient. Equally, a profitable-looking forecast does not override a contractual payment deadline. Resolve inconsistencies before signing rather than assuming that informal flexibility will continue once you are operating.

Stress-test the reserve before committing

Run a base case and a downside case. In the downside case, test slower customer receipts, lower sales and earlier supplier payments. Keep the assumptions explicit so your accountant can challenge them.

Include your minimum personal drawings where necessary, but distinguish them from business expenses. A business forecast that works only because you take no income needs to be matched against your household finances.

Calculate how much additional cash would be needed to keep the projected balance above your chosen minimum. Then identify where that money would come from. Do not treat an unapproved overdraft, hoped-for supplier credit or a possible family contribution as committed funding.

Finally, agree practical warning signs: overdue customer payments, a falling bank balance or repeated use of the reserve for routine bills. These help you respond before a temporary shortfall becomes persistent.

Practical takeaway: Before buying, obtain a payment timetable, build a cash-flow forecast and test a downside scenario. Commit only when you understand both the cash required and how it will remain available.