It’s exciting to start your franchise. You’ve chosen a proven brand, secured a great location, and maybe even hired your opening team. But amid the whirlwind of to-do lists, permits, and equipment orders, many first-time franchisees miss one of the most important prerequisites which most franchisors don't tell you to take into consideration — working capital.

Working capital is the financial lifeline that keeps your business running — and neglecting it is one of the most common (and costly) mistakes franchisees make in their early days.

Table of Contents

1. Why Working Capital Should Be Part of Your Starting Investment?

2. Are Early Losses Really Losses?

3. What Happens When You Underestimate?

4. Planning for Working Capital is Non-Negotiable

5. Even Successful Businesses Need Working Capital

6. How Much Is Enough?

7. Final Thought: Don’t Let Your Business Run on Empty

Why Working Capital Should Be Part of Your Starting Investment? 

Very few businesses — franchised or not — turn a profit from day one. Before you cross over to the Break-Even Point (BEP) or see real profits, you’ll be faced with real bills: rent, payroll, opening inventory, utilities, marketing costs, and more.

These are not optional costs. They are the price of opening your doors.

And that’s where working capital comes in.

Working capital refers to the funds you have on hand to cover day-to-day operating expenses until your business becomes self-sustaining. It bridges the gap between your launch date and your profit date — and the size of that gap varies for every business.

Are Early Losses Really Losses?

On paper, those first few months may show a financial loss. But if you’ve planned ahead and you’ve included your opening operating funds in your financial model and initial business plan, then those “losses” are actually strategic investments.

You’re not bleeding money. You’re deploying capital — money you’ve set aside specifically to keep the lights on until revenue ramps up.

It’s the difference between being caught off guard and being confidently prepared.

That’s why smart entrepreneurs include working capital in their startup plan, right alongside their franchise fee, build-out budget, and initial inventory. Without it, even a promising business can find itself with real financial challenges and won’t be able to manage their cash flow correctly.

What Happens When You Underestimate?

Imagine this: you’ve invested heavily into launching your new franchise. The signage is up, the staff are trained, and customers are trickling in. But suddenly, it’s month two, and you’re struggling to cover payroll or rent.

You didn’t budget enough working capital. Now what?

Unfortunately, many franchisees in this situation start cutting corners — reducing staff hours, pulling back on marketing, or using funds earmarked for taxes or suppliers. Very often, they take another loan from the bank, resulting in now having to pay back two loans rather than one. These short-term reactions to not having enough working capital to start with, results in long-term instability.

The worst thing a young franchisee should do, is to take on emergency loans or tap into personal credit to stay afloat.

Planning for Working Capital is Non-Negotiable

Here’s what your startup financial plan should include:

• 3–6 months of rent
• Payroll for all staff, including yourself
• Opening inventory
• Marketing and advertising
• Utilities and overheads
• An extra budget for unexpected costs

By building working capital into your launch plan, you avoid financial panic and give yourself the space to focus on what matters, which is to deliver exceptional customer service and grow your sales.

Even Successful Businesses Need Working Capital

Working capital isn’t just for startups. Once you’re operational, you’ll still face:

• Seasonal slowdowns
• Unexpected equipment repairs
• Late-paying vendors
• Delays in royalty settlements or reimbursements

A smart business owner keeps ongoing working capital reserves available. It provides breathing room, and helps you avoid short-term borrowing. So during the positive months of trading, don’t draw everything out of your business. Always keep a minimum amount of spare funds in your business bank account to keep your ship afloat during slower periods.

How Much Is Enough?

There’s no one-size-fits-all number. But here’s a good rule of thumb:

✅ Set aside enough to cover the next 3–6 months of your operating costs.

This includes rent, wages, utilities, insurance, and supplier payments. The actual figure depends on your location, business model, and industry. Food-related businesses, for example, often require higher working capital than a service-based business.

Final Thought: Don’t Let Your Business Run on Empty

Launching a franchise takes courage, planning, and investment. But don’t let all that hard work and risk be jeopardized by a lack of cash during your first year in business.

Working capital is not optional, and it’s not an afterthought. It’s a vital component of your franchise’s financial health.

So before you launch — or even if you’re already operating — take a hard look at your financial reserves. Ask yourself:

• Do I have enough working capital to cover three to six months of expenses?
• If sales drop this month, do I have enough reserves to comfortably cover my rent and salaries?

Your business doesn’t just need funding to open, it needs funding to operate. And the sooner you embrace that reality, the stronger, more stable, and more scalable your franchise will become.