Working capital

What it means

Working capital is operating cash, not setup cash. Where establishment cost builds the business, working capital keeps it running through the ramp-up period when sales are still building but bills, wages and franchise fees are already due.

New outlets rarely cover their costs from day one. Working capital bridges the gap until the business reaches breakeven, and running short of it is one of the most common reasons otherwise viable franchises fail early.

Many franchisors provide a working capital estimate as part of the establishment information in the disclosure document, but the amount you truly need depends on how quickly your specific site ramps up and how much of the early trading you can fund from sales.

In practice

Size working capital against a realistic ramp-up, not a best case. Assume sales build gradually and that some early months run at a loss, and hold enough cash to cover the shortfall plus a buffer.

Keep working capital separate from your establishment budget and from your personal living costs. Franchisees who spend their working capital on fit-out overruns often find themselves undercapitalised the moment they open.

A real example

A new outlet opens with monthly running costs of around $35,000 but only covers about half of that from sales in its first three months. The franchisee needs roughly $50,000 to $60,000 in working capital to fund the shortfall and hold a buffer until the outlet reaches breakeven, on top of the money spent getting open.

Working capital, FAQs