Buying a Franchise in Lebanon: Test Your Cash Flow Before Seeking Finance

You may be able to pay the franchise fee and fit out the premises, but can you fund the business until its income stabilises? When entering Lebanon’s franchise market, showing that a business is profitable on paper is not enough. The more important test is knowing when money goes out, when revenue becomes available to use, and who will cover the gap between the two. This guide focuses on one decision: establishing how much finance the outlet can sustain before signing up to a commitment you may struggle to fund.

1. Separate start-up costs from the operating cash shortfall

Start with three separate lists: pre-opening payments, operating expenses and a cash reserve. The first includes fit-out work, systems, licences, professional services and initial contractual payments. The second covers wages, energy, maintenance, insurance, accounting and the other payments needed to keep the business running. Do not treat the reserve as whatever is left after spending; define it as part of the business’s funding requirement.

Obtain dated quotations and record the due date, recipient and refundability of each payment. Also distinguish between a non-refundable expense and a refundable deposit: both use up cash when paid, even if their accounting treatment differs.

Do not overlook your personal expenses. If you are leaving a job to manage the outlet, make a realistic allowance for your living costs, either outside the operating budget or within your management salary, without counting them twice. A business that appears fundable only because its owner works without an income needs reassessing.

2. Build a cash flow forecast around the outlet’s actual activity

Create a monthly forecast covering the set-up period and at least the first year of trading. Use a weekly forecast around the opening date, when payments fall close together. Start with your available cash balance, then add expected receipts and subtract payments according to when the money moves, rather than when it is recognised in the accounts.

Build sales estimates from assumptions you can check: daily transaction numbers, average transaction value and trading days. Ask the franchisor to explain the assumptions behind its estimates, and compare them with conditions at an outlet of similar size serving a similar customer base. Do not simply apply a successful outlet’s results to your own location, or assume you will reach steady trading levels from day one.

Pay attention to the difference between making a sale and receiving the money. Card payments or delivery platform settlements may take time to arrive, while wages and expenses fall due on fixed dates. Ask service providers about their actual settlement times and deductions, and check whether the terms of your accounts allow you to use the funds held in them. A displayed balance does not always mean cash is immediately available.

The core funding gap is the largest cumulative cash shortfall in your forecast, not the total losses shown in the profit and loss account. Add a reserve with a clear rationale, and do not count an unapproved credit facility as guaranteed funding.

3. Test opening delays and weak sales together

Prepare both a cautious forecast and a stress scenario. In the cautious version, assume slower sales growth or increases in some expenses. In the stress scenario, combine an opening delay with lower cash receipts and a rise in an essential operating cost. The aim is not to predict a particular crisis, but to measure the business’s ability to withstand one.

For each test, answer three questions:

• What is the lowest cash balance, and when does it occur?
• Can the outlet pay wages, meet essential commitments and service its debt on time?
• What action would address the shortfall, and is it genuinely within your control?

Do not rely on deferring a payment to the franchisor or reducing opening hours if the contract does not allow it. Nor should you write down ‘additional funding’ without identifying its source and terms. Discuss with the franchisor in advance whether the fit-out could be phased or some payments linked to documented milestones, and put any agreement in writing. A cash flow stress test is useful when it changes a decision, not when it merely makes a loan application look more convincing.

4. Match the loan to the outlet’s repayment capacity

Compare finance offers by their total cash outflows, not just the interest rate. Request a written breakdown of fees, security requirements, the repayment schedule, early repayment and late payment terms, and how any variable interest rate will be adjusted. Check whether a grace period defers only principal repayments while interest remains payable or continues to accrue.

Include loan repayments in your stress scenario. Short-term finance that falls due before the outlet has stabilised can turn an otherwise viable business into a repayment crisis. Similarly, do not fund expenditure that delivers benefits over the long term through a facility that can be withdrawn or called in at short notice without understanding that risk.

Assess any personal guarantee separately from the outlet’s viability. Which obligations does it cover? Is it capped, and does it have a time limit? When will you be released from it? Do not assume that setting up a limited liability company protects your personal assets if you sign a separate personal undertaking. Seek legal advice before providing security that puts your home or family savings at risk.

5. Make your commitment conditional on clear financing approval

Lebanon has no comprehensive law specifically governing franchise agreements, nor a franchise-specific statutory disclosure regime. The relationship is governed primarily by the Code of Obligations and Contracts and the Commercial Code, with other laws applying according to the business activity. Do not therefore assume that you have an automatic right to cancel the contract and recover payments if a bank refuses finance.

Depending on how the relationship is legally characterised, Legislative Decree No. 34/1967 on commercial representation may also be relevant. This is a matter for a Lebanese lawyer, not an automatic protection for every franchisee. The Lebanese Franchise Association’s Code of Ethics, meanwhile, is a professional framework, not a generally applicable law guaranteeing finance or profits.

Negotiate a clear clause making your commitment conditional on securing specified finance within an agreed period, and setting out what happens to payments if that condition is not met. The practical takeaway: do not sign on the strength of a verbal promise of a loan. Sign when you know your largest cash shortfall, how it will be covered, and the limits of your liability if results fall short of expectations.