Buying a Franchise in Belgium: Calculate Your Cash Buffer

Buying a franchise takes more than enough money for the initial franchise fee and fit-out. Even a profitable outlet can struggle to pay its bills when invoices fall due before customers pay. As part of a franchise network, you remain an independent business owner and bear that risk. This guide helps you answer one crucial question: how much of a cash buffer do you need to fund the opening and the initial trading period?

1. Distinguish between investment costs and cash needs

A franchise network’s investment estimate is a starting point, not proof that your funding will be sufficient. First, ask exactly what the estimate includes. Are the figures inclusive or exclusive of VAT? Does the fit-out include installation, utility connections and any necessary alterations to the premises? Has all opening stock been accounted for?

Then divide your breakdown into three groups:

• One-off expenses: the initial franchise fee, refurbishment, equipment, professional advice, training and the launch campaign.
• Tied-up funds: the rental deposit, stock and any other security deposits or collateral that will not remain freely available.
• Expenses during the initial trading period: rent, wages, insurance, energy, software, franchise fees and loan repayments while cash receipts remain insufficient.

Include your own living costs too. Discuss with your accountant how your pay or personal drawings fit into the plan, depending on your business structure. A budget that assumes you will work without an income for months is only credible if your personal savings genuinely allow it.

For each item, record who confirmed the amount, when payment is required and whether it could still change. This turns a general cost list into a useful funding document.

2. Translate franchise fees into actual payment dates

A percentage of turnover does not tell you everything about the pressure on your bank balance. Go through the calculation basis and payment terms with the franchisor. Ask, for example, whether the fee is calculated on turnover excluding VAT, how discounts and refunds are treated, and whether a minimum fee applies.

Also investigate less obvious costs:

• compulsory software and subscriptions charged per outlet or user;
• a marketing contribution on top of your own local advertising budget;
• mandatory purchases, minimum order requirements and transport costs;
• training or support billed separately;
• future equipment replacement or changes to the fit-out.

In some franchise networks, part of the fee is built into product purchase prices. So compare not just the royalty percentage, but also the gross margin left after mandatory purchases.

Do not simply divide an annual expense by twelve. That helps with a profit and loss forecast, but your cash flow forecast must show the full amount in the month you pay it. The same applies to rent paid in advance, insurance and stock bought for busy periods.

Ask existing franchisees which expenses arose earlier than expected when they opened. Use their experience as a cross-check, not a guarantee: your location, lease terms and staffing needs may differ.

3. Calculate the largest cash shortfall under several scenarios

Work with your accountant to prepare a monthly cash flow forecast, starting with the first preparatory expense and extending beyond the expected initial trading period. For a seasonal business, it should also cover a quiet period. Record each month’s opening balance, receipts, payments and closing balance.

Forecast receipts according to when you expect to receive payment, rather than relying solely on recorded sales. Include VAT payments and any refunds using realistic timings. Even recoverable VAT may need to be funded upfront. Have the applicable VAT treatment checked.

Then test three scenarios:

1. Base case: your best-supported expectations for the opening, turnover and costs.
2. Slow start: fewer customers and a longer period before the outlet generates enough cash to cover its outgoings.
3. Delayed opening: rent and other fixed costs are already running, but sales cannot yet begin.

For each scenario, calculate the largest cumulative cash shortfall before additional funding. That shortfall forms the basis of your funding requirement. Add a separate contingency allowance for uncertainties not already reflected in the scenario, avoiding double-counting.

Do not apply an arbitrary reduction to turnover without explanation. Support your assumptions with local footfall, opening hours, staffing levels and the experience of comparable outlets. A cash buffer is only convincing if you can explain why it might be needed.

4. Match funding to manageable commitments

Alongside your cash flow forecast, set out when your own funds, loans and any credit facilities will become available. Funding you have applied for is not yet money you can use. Check drawdown conditions, security requirements, personal guarantees and when repayments begin. Do not treat a potential grant as guaranteed opening finance while its approval and payment remain uncertain.

Belgium has specific pre-contractual rules for commercial cooperation agreements in Title 2 of Book X of the Belgian Code of Economic Law, Articles X.26 to X.33. For franchise agreements covered by these rules, the draft contract and pre-contractual disclosure document must be provided at least one month before the contract is concluded. Use this review period to have your cash flow forecast independently assessed.

There is no comprehensive, separate franchise law governing the performance of franchise agreements. General contract law, rules on unfair terms between businesses and competition law may all be relevant. Have any unclear payment or variation clauses reviewed by a legal adviser.

Practical conclusion: only make your decision once you know the largest expected cash shortfall and how you will fund it. An affordable entry price does not necessarily mean you can finance the franchise.