Working capital before launching your first franchise in Slovenia

A successful existing business does not guarantee that a new franchise unit will be able to meet its obligations on time. A significant cash shortfall can arise between paying for equipment, buying stock and receiving the first regular cash inflows. Before expanding into a franchise network, prepare a separate working capital plan: how much money the franchisee will need for day-to-day operations, when they will need it and where it will come from.

1. Separate the initial investment from operating funds

The initial investment usually includes fitting out the premises, equipment and other expenditure needed to open. Working capital supports operations after opening, when revenue is not yet stable or customers pay later than suppliers need to be paid. Show prospective franchisees the total funding requirement, not just the cost of opening.

For a practical plan, prepare three separate categories:

• Pre-opening expenditure: equipment, deposits, initial stock, permits, launch advertising and wages before sales begin.
• Ongoing expenditure: rent, labour, social security contributions, purchasing, energy, insurance, software and contractual payments.
• Cash buffer: funds for a slower start, late payments, breakdowns or other reasonably foreseeable setbacks.

Include each item only once. For example, you can record initial stock as pre-opening expenditure and replenishment as ongoing purchasing. A deposit is generally not an immediate expense in the profit and loss account, but it reduces available cash until it is returned. This is precisely why accounting profit is no substitute for a cash flow plan.

2. Adapt the existing business’s figures to the new unit

Use actual payments and receipts from the existing business as your starting point, not just its profit and loss account. Review bank statements, invoice due dates, stock movements and seasonal fluctuations. Also note any advantages that the new business may not have: longer payment terms, shared warehousing or better terms secured through larger orders.

Pay particular attention to the owner’s work. If you handle management, sales or administration yourself without regular pay at a comparable market rate, the existing results may mask the new unit’s actual needs. Include expected labour payments in the cash flow plan, taking account of the franchisee’s organisational structure and legal form. Assess their personal living costs separately; the business’s cash buffer must not quietly become the household budget.

For each significant item, record the assumption and the evidence supporting it. For stock, this means delivery lead times and the usual time taken to sell it; for receivables, actual payment times; and for wages, planned staffing levels. This creates a model that can be checked and adapted to each unit, rather than a general promise of success.

3. Calculate the largest cash shortfall

Prepare a weekly cash flow forecast for the initial period and a monthly forecast for subsequent operations. The planning period should cover the launch and significant seasonal fluctuations. For each period, calculate the opening balance, add expected receipts and deduct payments when they actually fall due.

Include taxes, social security contributions, loan repayments and card payment settlement times. Check the VAT treatment with an accountant, taking account of the business’s tax position. In particular, do not treat VAT refunds as cash that will necessarily be available immediately after equipment is purchased.

Then prepare a base case and an adverse scenario. In the adverse scenario, allow for slower sales growth, stock being held for longer or a delayed opening. Do not automatically reduce all expenditure in line with revenue: rent, minimum staffing levels and repayments may remain unchanged.

The lowest negative point in cumulative cash flow shows the funding gap before financing is taken into account. Add a justified safety buffer. Then check whether the franchisee’s own funds, a loan or an agreed credit facility will actually be available before the shortfall arises. A submitted loan application is not yet a secured source of funding.

4. Align the financial plan with contractual obligations

Slovenia has no dedicated franchising law, specific compulsory franchise register or legally prescribed standard franchise disclosure document for the pre-contractual stage. This does not mean there are no rules. The Slovenian Obligations Code is relevant to contractual relationships and negotiations, including the principle of good faith and fair dealing and the rules on liability during negotiations. The Companies Act and applicable tax regulations must also be taken into account.

The European Code of Ethics for Franchising is a self-regulatory framework, not Slovenian law. Whether it is binding must be assessed in light of membership and contractual commitments. The financial model should therefore not be presented as a legally prescribed form or a guarantee of returns.

Before signing, align the plan with the contract: payment start dates, mandatory initial purchases and required equipment must all be reflected in the cash flow forecast. Clearly identify which figures come from existing operations and which are estimates. The franchisee should review the plan with their own accountant and confirm that funding is available.

Practical takeaway: before launching your first franchise, prepare a plan that shows not only the cost of opening but also the largest cash shortfall, the buffer required and funding sources available in time. This gives the franchise network a financial foundation that can be verified.