Buying a franchise in Belgium: calculate your working capital needs

The initial franchise fee and fit-out costs are only part of the financial picture when buying a franchise. After opening, you still need to pay suppliers, wages and taxes, while income may arrive later. Within a franchise network, each independent business owner remains responsible for their own cash position. Before you buy, work out how much working capital your outlet will need: the money tied up in day-to-day operations, plus a buffer for setbacks.

1. Distinguish between profit and available cash

A profit and loss forecast shows whether revenue covers costs. A cash flow forecast shows when money actually comes in and goes out. This distinction is essential: you may have paid for stock before selling it, while business customers may not pay their invoices until after delivery.

Prepare a separate cash flow forecast alongside your investment budget. Start with your first preparatory expenses, not just opening day. Then cover at least a full year of trading so that quiet periods and annual payments are visible. Around the opening and during periods when cash is tight, use weekly figures if necessary.

Divide your forecast into three parts:

• One-off expenditure: fit-out, deposits, opening stock and start-up costs.
• Recurring cash flows: receipts, supplier payments, rent, wages, fees and loan repayments.
• Reserve: money for delays and unexpected expenses.

Avoid double counting. If opening stock is already included in your investment budget, do not add the same payment again as an extra funding requirement. Subsequent stock replenishment should, of course, be included in your cash flow forecast.

2. Examine the franchise model’s payment cycle

Do not simply ask the franchisor how much an average outlet sells. More importantly, ask how long money remains in transit or tied up. A model in which consumers pay immediately has a different cash cycle from one that serves customers on credit.

For your prospective outlet, establish:

• When must orders be paid for: in advance, on delivery or afterwards?
• How much stock is needed, and how quickly does it usually sell?
• When do payment providers and any sales platforms transfer receipts to you?
• When are royalties, marketing contributions and other recurring charges collected?
• Who funds customer refunds, and when are these settled?

Ask for actual payment terms and seasonal patterns at comparable outlets, where that information is available. An annual total may conceal a substantial stock purchase ahead of a busy sales period. Also check whether favourable supplier terms apply to new businesses straight away or only once they have established a payment history.

Ask your accountant to schedule VAT, social security contributions and taxes according to their actual payment dates. VAT collected is not money you can freely spend. Loan repayments also reduce your bank balance, even though they do not appear in the profit and loss account in the same way as operating expenses.

3. Make targeted use of Belgium’s disclosure requirements

Belgium has no standalone law governing the entire franchise agreement. However, Title 2 of Book X of the Belgian Code of Economic Law (WER) contains specific rules on pre-contractual disclosure for commercial cooperation agreements, including franchise agreements that fall within the statutory definition. General contract law also applies, among other rules.

Under Article X.27 of the WER, you must receive the draft agreement and a separate pre-contractual disclosure document, commonly known in Belgium as the PID, at least one month before entering into the agreement. Article X.28 sets out the required contents of that document, including important contractual provisions and socio-economic information.

Use these documents to check all payment obligations against your cash flow forecast. Compare amounts, due dates and payment frequencies with what you were told during sales discussions. Request written clarification if, for example, an annual fee is mentioned but its payment date remains unclear.

The PID is not a substitute for a cash flow forecast for your own outlet. Nor should you treat the disclosure requirement as a guarantee that your buffer will be sufficient. Your location, stock choices and payment arrangements also affect how much money you need.

4. Fund the lowest cash balance, not just the opening

Calculate your lowest cumulative cash balance before additional financing. That shortfall shows how much money you will need at the most difficult point. Add a justified safety margin; there is no universal buffer amount suitable for every franchise model.

Then test individual setbacks: a delayed opening, slower customer payments or stock taking longer to sell. Adjust not only turnover but also the timing of receipts and payments.

Discuss with your finance provider which funds will actually be available when the shortfall arises. Applying for a credit facility does not mean it has been approved. Check drawdown conditions, costs, the term and any provisions allowing the facility to be reviewed. Keep your personal cash reserve separate from business funds as well.

Practical conclusion: only buy once you can explain when your cash position will be at its lowest, why that will happen and which confirmed sources of funding will see you through that period.