Buying a franchise: planning your start-up cash flow

Joining a franchise network involves more than paying an initial franchise fee and funding a fit-out. Between the first deposits and the first regular income, your business must be able to pay its bills. Before committing to a franchise in France, draw up a cash flow forecast that shows your true funding needs, including what happens if opening or sales are delayed.

1. Identify cash outgoings, not just investments

The budget provided by a franchise brand is a starting point, not necessarily the full amount you will need. Ask what it includes, what it excludes and whether the figures include or exclude VAT. Then match each item to a quotation and a payment deadline.

Your list should include:

• the initial franchise fee, training and associated travel;
• legal and accountancy fees, insurance and financing costs;
• the deposit on the premises, initial rent payments and any agency fees;
• building work, furniture, equipment and software;
• opening stock, consumables and launch marketing;
• wages and employer contributions payable before the business generates enough income.

An expense covered by a loan is not always paid directly by the bank. Check the loan drawdown arrangements: the supporting documents required, whether funds are released against an invoice or whether you are reimbursed after paying it. A timing gap may mean you have to put up the money first.

Keep your business budget separate from your personal reserve, too. Your living costs continue even if the business cannot yet pay you. Do not count the same savings twice in your calculations.

2. Build a monthly cash flow schedule

A projected profit and loss account measures profitability; it does not guarantee that your bank balance will stay positive. A sale that has been invoiced but not paid will not cover rent or supplier bills.

Prepare a monthly spreadsheet covering the period from your first expenses through to stable trading. For each month, show the opening balance, cash receipts, cash payments and closing balance. Extend the forecast to cover a full seasonal cycle after opening.

Use actual expected payment dates. Deposits for building work may fall due before completion, while some customers pay after the service has been delivered. Sales platforms may also delay transferring receipts and deduct their commissions.

Work with your accountant to account for VAT correctly: payment and any recovery do not always follow the timing of purchases. Include deadlines for social security contributions, taxes and loan payments, including repayments of loan principal, even though these are not expenses in the profit and loss account.

Working capital requirements arise partly from stock and amounts owed by customers, less amounts owed to suppliers. They change as the business develops. Rising sales can use up cash if they require more stock or longer customer payment terms.

3. Cost the obligations specific to the franchise brand

In a franchise network, shared commitments have a direct impact on cash outgoings. Check the draft agreement for the precise royalty terms: how they are calculated, any minimum amount, payment frequency, the first due date and collection arrangements.

Also check advertising contributions, IT subscriptions, mandatory purchases, additional training and equipment replacement requirements. Ask whether you must fund local marketing on top of the network-wide contribution. Any advertised fee-free period should be confirmed in writing.

In France, pre-contractual disclosure is governed in particular by Articles L. 330-3 and R. 330-1 of the French Commercial Code, under the framework commonly known as the ‘Doubin Law’. Where the relevant conditions are met, notably where a trade mark or trading name is made available subject to an exclusive or near-exclusive commitment, the pre-contractual disclosure document and draft agreement must be supplied at least twenty days before signing or making any payment covered by these provisions.

This period neither validates your budget nor guarantees profitability. Before paying a reservation fee or deposit to the franchisor, have its basis and refund conditions checked. Your forecast must remain tailored to your premises, costs and customer base.

4. Fund the lowest cash balance and stress-test a difficult start

Identify the month in which your forecast cash balance reaches its lowest point. Your funding package must cover that shortfall, plus a justified safety buffer. There is no universal statutory percentage for the personal contribution required to buy a franchise.

Then build a downside scenario: a delayed opening, slower sales, lower margins or additional building work. Vary the assumptions and measure the effect on your bank balance. Speak to several franchisees to assess whether these assumptions are realistic, without assuming that their results will apply to you.

Present investment costs and cash flow funding needs separately to the bank. Compare borrowing costs, security requirements, the scope of any personal guarantee and the terms of any repayment deferral. Only treat financial assistance or a credit facility as available once its conditions and timing have been confirmed.

Key takeaway: before signing, insist on a documented budget, a monthly cash flow schedule and a downside scenario you can fund. If the account goes into the red without a confirmed solution, adjust the project before committing.