Franchise Working Capital in Lebanon: A Test Before Expansion

Your existing business may be profitable, but it may not yet be ready for expansion through franchising if its operations depend on repeated injections of your personal funds or credit terms that a new franchisee could not obtain. Before offering the opportunity, separate two questions: does the outlet make a profit, and does it have enough cash to keep operating until sales turn into available funds? This guide explains how to test working capital requirements, rather than how to set franchise fees or assess operational quality.

1. Separate accounting profit from available cash

Working capital concerns the funds needed to bridge the gap between paying operating expenses and collecting sales proceeds, taking account of stock and amounts owed to suppliers and by customers. Shop fit-out, equipment purchases and set-up fees should appear in a separate budget, so that opening costs are not confused with the liquidity needed afterwards.

Start with your business’s actual records, not the founder’s memory. Gather figures for sales, receipts, purchases, wages, rent, energy, maintenance, taxes and recurring expenses over a period that reflects normal seasonal patterns. Then track when money actually comes in and goes out, not just when invoices are issued.

Next, adjust for anything that might conceal the true need for cash:

• The founder working without pay, even though a franchisee would need a paid manager.
• Use of a warehouse or vehicle owned by the parent company without charging the outlet for it.
• Centralised stock purchasing, with the cost charged to the outlet only later.
• Favourable supplier terms based on your personal relationship that are not guaranteed for a new investor.

These adjustments are not about inflating costs, but about presenting a model that can be replicated. If you cannot separate the outlet’s accounts from the rest of your business, put the records in order before building forecasts for others.

2. Build a cash flow schedule around payment dates and currencies

Use a weekly schedule during the opening phase, then switch to monthly once operations stabilise. For each period, record the opening balance, expected receipts, payments and closing balance. Calculate the funding needed to stop the balance falling below the minimum cash level the outlet needs to operate.

Do not treat all sales as immediate receipts. Separate cash received directly from card payments, transfers from delivery platforms and sales to customers on credit. Include actual settlement dates and deductions, and do not treat money held by a payment intermediary as cash available to pay wages today.

In Lebanon, clarity about currencies and payment methods is essential. For each cash flow, specify the pricing currency, the currency in which payment is received or made, and the conversion mechanism where they differ. Avoid combining balances in different currencies without a documented conversion basis. Nor should you assume that all bank balances are available on the same terms: check whether the funds can be used and what conversion and withdrawal costs apply.

Link stock to cash, too. Buying in bulk may lower the unit price, but it ties up cash the outlet may need for rent. Record minimum order quantities, how long stock is held, the risk of spoilage and supplier payment dates. Include tax liabilities following an accountant’s review, rather than treating those sums as available to spend.

3. Stress-test the forecast and secure funding before committing

Create a base-case scenario grounded in your records, a conservative scenario that tests a slower path to expected sales, and a stress scenario combining related pressures. Choose assumptions that reflect the business itself, rather than generic percentages borrowed from other ventures.

A food service outlet might face delayed transfers of delivery revenue at the same time as rising energy costs and a supplier demanding payment in advance. A shop might be left with higher levels of unsold stock after its peak season ends. The aim is not to predict every event, but to identify where cash runs out and what action could be taken beforehand.

For each scenario, identify three things:

• The lowest cash balance and when it occurs.
• The additional funding needed to avoid disruption to operations.
• The corrective action, who must approve it and how long it will take to implement.

Distinguish between funds that are genuinely available and a hoped-for loan or an uncommitted contribution from a partner. If funding includes borrowing, include repayments and interest in the cash flow forecast. Do not assume that the franchisor will fund any shortfall unless there is a clear commitment to do so.

The decision to expand becomes more realistic when operations remain fundable under the conservative scenario. If keeping the business going routinely requires delaying wages or other payments that are due, the problem lies in the financial model, not merely in an insufficient reserve.

4. Document assumptions and clarify legal responsibilities

Lebanon has no standalone franchise law or franchise-specific disclosure regime prescribing a standard format for financial forecasts. The relationship is governed by general legal rules, principally the Code of Obligations and Contracts and the Code of Commerce. Other laws apply according to the nature of the business, including intellectual property, consumer protection and competition laws.

Whether Legislative Decree No. 34 of 1967 on commercial representation may apply also requires legal assessment based on the nature of the relationship. Its application should neither be assumed nor ruled out simply because the agreement is called a franchise agreement.

Present the cash flow forecast as an estimation tool, not an income guarantee. Include the data sources, the date the forecast was prepared, its assumptions and the differences between your existing business and the proposed outlet. Ask a lawyer to clarify responsibility for funding operations in the contract, and an accountant to review the cash flow and tax treatment. A disclaimer that results are not guaranteed does not justify presenting misleading figures.

Practical takeaway: Before awarding a franchise, prepare a separate opening budget, a cash flow forecast covering several scenarios and a documented funding plan. If the source of funding for a shortfall remains unclear, postpone the commitment and fix the model first.