Buying a franchise: calculate your working capital

The amount needed to open an outlet is not necessarily enough to keep it running. Prospective franchisees need to distinguish between the initial investment and working capital: the money that covers day-to-day commitments until receipts can reliably support the business. The crucial check before buying is simple: when do you pay, when do you receive money, and how large does the gap between the two become?

1. Separate opening costs from cash requirements

Start with two separate schedules. In the first, record your set-up costs: the initial franchise fee, fit-out work, equipment, deposits, opening stock and pre-opening expenses. In the second, record actual cash receipts and payments from the preparation stage until operations stabilise.

Opening stock needs particular attention. If it is already included in the opening investment, it should not be counted again as an additional funding requirement. Subsequent orders, however, create new payments, often before all the previous stock has been sold.

Ask the franchisor to clarify in writing what the quoted ‘total investment cost’ includes. Does it include cash to run the business, or only what is needed up to opening day? Are the figures inclusive or exclusive of VAT? Do they include expenses payable before sales begin?

Working capital is not whatever money is left after the fit-out. It is a separate requirement that must be calculated before you decide whether you can fund the proposed investment.

2. Build a cash flow timetable, not just a sales forecast

A profit forecast does not always show whether there will be money in the bank on the day a payment falls due. Work with your accountant to prepare a weekly cash flow forecast for the start-up period and a monthly forecast thereafter, covering a full seasonal cycle where necessary.

For each period, record:

• Receipts when the money is actually expected to become available, not simply when the sale takes place.
• Supplier payments based on deposits, credit terms and payment due dates.
• Rent, payroll, social security contributions, energy and other operating expenses.
• Ongoing royalties, marketing contributions and other contractual charges.
• Tax liabilities and finance repayments on their actual due dates.

VAT needs separate treatment: it is not always a final cost, but it affects cash flow. Your accountant should reflect the timing of payments, offsets and any refunds, without treating an expected refund as immediately available cash.

Calculate the cumulative cash balance for each period. Its lowest point reveals the funding gap before adding a safety buffer. Do not rely solely on the annual total: a year with positive cash flow can still include a month in which you cannot meet your commitments.

3. Check your assumptions against documents and experience

Ask for details of ordering cycles, payment terms, settlement schedules for partner platforms and the dates on which contractual fees are charged. Compare the information in the presentation with the agreement and suppliers’ terms. A verbal mention of credit is not enough to underpin your cash flow plan.

Where possible, speak to existing franchisees whose outlets are similar in size and operating model. Ask when they faced the greatest cash pressure, whether they needed to replenish stock earlier than expected and which payments they had underestimated. Their experiences provide useful pointers, not a guarantee for your own business.

In Greece, there is no dedicated law providing a unified framework for franchising, nor is there a mandatory standardised pre-contractual disclosure document specifically for franchises. The general provisions of the Greek Civil Code apply, including Articles 197 and 198 on negotiations and pre-contractual liability, and Article 288 on performance of obligations in good faith. These provisions do not, however, provide any automatic guarantee that your capital will be sufficient.

Keep a written record of the financial information provided and ask a lawyer to review the commitments on which your forecasts depend.

4. Stress-test your plan before committing funds

Repeat the calculation with a delayed opening, slower receipts, lower initial sales or shorter supplier credit terms. Test a combination of difficulties too. The aim is not to predict every problem, but to establish how much additional cash is needed when payments continue and receipts are delayed.

Alongside the largest funding gap, note which funding is genuinely available. Do not treat a discussion with a bank or an expected grant as equivalent to approved funds you can access in time. Keep your personal living-expense reserve separate from the outlet’s cash as well.

Practical takeaway: before signing, ask for a checked cash flow forecast showing the largest expected shortfall, a safety buffer and a specific source of funding to cover it. If that funding remains uncertain, the investment is not yet financially ready to proceed.