Buying a Franchise in Croatia: Planning Your Working Capital

Joining a franchise network involves more than paying the initial fee and fitting out your premises. The business needs cash for wages, stock and bills before customer payments become sufficient to cover its regular commitments. Before buying a franchise, draw up a separate working capital plan: how much money you need, when you need it and where it will come from.

1. Separate the initial investment from cash for day-to-day operations

The initial investment covers expenditure such as the initial franchise fee, fit-out, equipment and launch costs. Working capital needs arise from the gap between when you must pay your bills and when you receive money from customers. This gap can exist even when the business is profitable on paper.

Prepare two linked lists. Put one-off payments before opening on the first, and regular cash outflows after opening on the second. Record opening stock only once, but include subsequent stock replenishment in your payment plan. A refundable deposit on the premises also ties up cash temporarily, although it is not the same as a rental expense.

Include the following in regular outflows:

• wages and associated taxes and statutory contributions;
• rent, utilities, insurance and accountancy fees;
• goods, consumables and delivery;
• ongoing franchise fees and software subscriptions;
• tax liabilities, interest and loan principal repayments.

Repaying loan principal reduces available cash, even though it is not an expense in the profit and loss account. Conversely, depreciation is an expense, but does not represent a further payment for equipment. Check these distinctions with your accountant so that your plan neither overestimates nor underestimates the cash buffer you need.

2. Calculate your lowest cash balance, not just the monthly average

Prepare a monthly forecast for your first year of trading, with a weekly breakdown for the period immediately before and after opening. For each period, show the opening cash balance, realistically expected receipts, payments due and closing balance. The simple formula is: opening balance plus receipts minus payments equals closing balance.

Do not automatically treat sales revenue as money in the bank. For sales to business customers, allow for agreed payment terms and possible delays. For card payments or sales through third-party platforms, check payout schedules, any funds withheld and fees. If your location is seasonal, forecast receipts according to actual seasonal patterns rather than spreading them evenly across the year.

Clarify the impact of VAT with your accountant as well. Depending on your tax position and transactions, the timing of supplier payments, input VAT recovery and settlement of tax liabilities may create an additional need for cash. Do not forecast a tax refund as a guaranteed receipt on an unconfirmed date.

The largest cumulative shortfall in your forecast shows the funding gap you need to cover. Add a safety buffer tailored to the risks of the business. There is no universal period of cash cover that is sufficient for every franchise: a longer set-up period, seasonality and delayed customer payments require a different approach from an outlet where customers pay immediately every day.

3. Check whether your funding can withstand a delayed opening

Add a downside scenario to your base forecast. Assume a later opening, slower customer payments or higher initial outgoings. Retain costs that arise regardless of sales, such as rent and wages you have already committed to paying. The aim is not to predict every difficulty, but to identify when you could run out of cash.

Then assign an availability date and conditions of use to each source of funding. Distinguish between your own funds that are already available and a loan that has yet to be approved. For a loan, check its permitted purpose, drawdown conditions, fees, repayment start date and whether any grace period defers only principal repayments or other payments too.

Be wary of covering a longer-term need with short-term funding that the bank may refuse to renew. A credit facility can help with temporary fluctuations, but it is no substitute for sustainable funding of the initial shortfall. If you are relying on a grant or other financial support, check the programme's current terms, eligible costs and payment timing; do not assume it will fund the franchise purchase upfront.

Before signing, set your own limit on how much additional money you are prepared to invest. If the downside scenario exceeds that limit, scale back the investment, negotiate payment terms or postpone your decision.

4. Protect your cash-flow assumptions in the contract

Croatia has no specific franchise law or dedicated statutory regime requiring pre-contractual disclosure for franchises. The contractual relationship is governed by the general rules of Croatia's Civil Obligations Act, including the principle of good faith and fair dealing and rules on liability during negotiations. Depending on the nature of the relationship, competition, intellectual property and tax rules also apply.

Do not therefore assume that you have an automatic right to a refund of the initial fee if the bank turns down your loan application. Negotiate a clear clause setting out what happens if funding is not approved by a specified date: whether obligations end, whether your payment is refunded and which costs, if any, are retained.

Be equally precise about when ongoing fees start to accrue and whether any minimum payments apply before opening. Record all agreed deferrals in the contract or a signed addendum, not just in your financial spreadsheet.

Practical takeaway: plan your franchise purchase around your lowest expected cash balance. Sign only when you know how you will fund the initial investment, the period until customer receipts stabilise and a reasonably adverse scenario.