Franchising a Business in Taiwan: How to Prepare a Start-up Funding Schedule Without Underestimating Working Capital

When opening an existing business in Taiwan to franchising, quoting prospective franchisees a single ‘franchise package price’ is not enough. Further cash injections may be needed between signing the lease, opening for business and reaching the point where income covers day-to-day expenses. The franchisor should prepare a verifiable start-up funding schedule that clearly distinguishes payments to the franchisor, costs payable to third parties and working capital retained by the outlet as a cash buffer. This is an important starting point for building long-term trust across the franchise network.

1. Define what ‘start-up funding’ covers

A funding schedule is neither a franchise fee price list nor a profit forecast. It should answer three questions: when will the franchisee need cash, how much will they need, and what will it be used for?

Group the requirements into four categories according to the nature of the payments:

• Joining the franchise and receiving opening support: the initial franchise fee, training fees and any separately charged opening assistance.
• Setting up the premises: the lease deposit, fit-out, equipment, signage, system installation and necessary pre-opening application costs.
• Preparing to trade: initial ingredients or materials, packaging, pre-opening recruitment and wages, and supplies consumed during the soft opening.
• Keeping the business funded: rent, wages, purchasing, system fees, royalties and other ongoing expenses after opening.

Mark each item as ‘included’, ‘payable separately’, ‘dependent on the premises’ or ‘awaiting a quotation’. If equipment is included in the package, for example, provide an equipment list and explain whether delivery, installation and electrical works are charged separately. Franchisees should not have to guess.

Although a deposit may eventually be refunded, it still ties up cash when paid. Likewise, paying for equipment in instalments does not remove the ongoing financial commitment. The funding schedule should reflect payment arrangements rather than simply reproduce the profit and loss account.

2. Use existing outlets’ records to build estimates you can explain

Franchisors with company-operated outlets can begin by gathering quotations, invoices, orders for additional works and payment records that are recent enough to remain useful. They can then assess which costs are likely to apply to a new outlet.

Do not rely solely on the outlet with the most favourable conditions. Opening costs can differ substantially between premises with a suitable existing fit-out and an empty unit requiring new plumbing and electrical layouts. Owner-occupied premises, unpaid construction help from the founder or one-off supplier discounts should not be treated as conditions generally available to franchisees.

For each estimate, record at least the following:

• The item and its specifications, such as equipment quantities or the scope of works.
• The payee and whether the item is included in the franchisor’s package.
• The amount or estimated range, stating whether tax is included.
• The quotation date, validity period and applicable conditions.
• Payment milestones and any details still to be confirmed.

Before a site has been selected, state the assumed floor area, the condition in which the premises will be handed over and the equipment configuration. Once a site is chosen, update the figures using a site survey and formal quotations. Do not present a preliminary estimate as a fixed total price.

For items that cannot yet be confirmed, explain why they remain uncertain and how they will be verified, rather than entering zero. Contingency funds should also relate to specific risks, such as changes to the works or a delayed opening, rather than appearing as an unsupported ‘miscellaneous expenses’ figure.

3. Calculate working capital from payment dates, not a fixed number of months

Working capital should not automatically be described as ‘a few months’ rent’. Payroll dates, supplier payment terms, platform settlement cycles and progress towards opening all affect an outlet’s cash shortfall.

Start by listing key payment dates before and after opening on a weekly basis, then extend the schedule month by month. Record opening available cash, expected actual cash receipts, expected payments and the closing balance separately. The date of a sale is not necessarily the date payment is received: money that has not yet reached the account cannot be treated as cash available to pay wages that day.

Compare at least the following scenarios:

• Opening as planned: fit-out works, recruitment and cash receipts all follow the original timetable.
• A delayed opening: rent and some wages have become payable, but the outlet has not yet begun generating sales revenue.
• A slower start: actual cash receipts fall below the original assumptions, while fixed expenses still have to be paid.

These are funding stress tests, not guarantees of revenue or investment payback from the franchisor. State the basis for every cash-receipt assumption. Do not assume that the outlet will generate sufficient income immediately on opening simply to make the funding requirement look smaller.

Prospective franchisees should also be reminded to budget for household living expenses separately from outlet funding. This does not mean requiring the franchisor to guarantee their personal financial security. It is about avoiding a situation in which they spend all their savings on the fit-out and have no cash left to keep the business running.

4. Align the funding schedule with Taiwan’s disclosure requirements and the contract

Taiwan has no single dedicated franchise law, but franchising is not unregulated. Franchise relationships are subject to general legislation, including the Civil Code and the Fair Trade Act. The Fair Trade Commission also has Principles for Handling Cases Involving Franchisors’ Business Practices, which provide an important basis for its handling of franchise business conduct.

The material information listed in these principles includes the amounts, or estimated amounts, of fees and expenses incurred before operations begin and during the franchise relationship. Franchisors therefore cannot disclose only the franchise fee they collect while overlooking related financial commitments for equipment, fit-out, goods or raw materials. A start-up funding schedule can help organise this information, but it does not replace the other required disclosures.

Concealing material transaction information may fall within Article 25 of the Fair Trade Act, which addresses deceptive or obviously unfair conduct capable of affecting trading order. References to Article 24 in older cases relate to the numbering before the law was amended and should not be cited as the current provision.

In practice, franchise recruitment staff, finance staff and those responsible for contracts should jointly check that the advertised package price, the items included in the funding schedule and the contractual payment obligations are consistent. ‘Other charges apply’ is no substitute for a specific explanation, nor can a signed risk acknowledgement make up for inadequate information.

Practical takeaway: Build a cost worksheet from existing outlets’ records, update quotations for the chosen premises, then test for cash shortfalls using actual payment dates. Helping prospective franchisees understand ‘what funding is needed in total’ and ‘when payments fall due’ is more valuable than offering an attractive but incomplete opening price.