Month five, and the business is working
You did everything right. The training went well, the launch brought in your first customers, and the franchisor says your numbers look normal for this stage.
Then the monthly fee invoice lands on the same morning a customer asks for longer to pay. You open your banking app before the kettle has boiled, and you feel something you did not expect to feel this early: fear.
Nothing is wrong with the business. What is wrong is the cushion underneath it. Working capital is the cash that keeps you trading, and keeps your household paid, between opening day and the month the business can fund itself. It is the line in a franchise budget that buyers most often guess, and they usually guess low.
Why buyers get this number wrong
The brochure price and what franchisees actually spend are two different figures. In the 2018 bfa NatWest Franchise Survey, franchisors put the average start-up cost of a new unit at £56,500, while franchisees reported investing around £100,000. A large share of that gap is the money needed to keep going after the doors open.
Three things push the real figure up.
- The ramp takes longer than the forecast. The same survey found 85% of units held for up to two years were profitable, rising to 92% at three to four years and 98% at five years or more. Put the other way, roughly one newer unit in seven was not yet making a profit.
- Your own salary is missing from the budget. Buyers cost the van, the fit-out and the launch marketing. Far fewer cost the mortgage, the council tax and the weekly shop for the months before the business can pay them.
- The problem is timing, not totals. Fees go out monthly. Some customers pay late. Tax arrives as a lump: if you trade as a sole trader, your first Self Assessment bill usually includes the full year’s tax plus a payment on account worth half of it again, due on the same day.
A business can be profitable on paper and still run out of cash in the gap between those dates. That is why the cushion needs its own calculation, not a round number added at the end.
How to work out your own number
You can size your cushion in one evening with a spreadsheet and six steps. Rules of thumb vary too widely to rely on: one franchise adviser suggests adding three to six months of working capital, while a former head of franchising at HSBC notes that reaching sufficient profit can take 18 to 24 months.
- List your fixed monthly costs at zero sales. Vehicle or premises, insurance, software, phone, any minimum management service fee, minimum marketing spend and loan repayments.
- Add what your household needs each month. Not what you would like to draw. The figure your mortgage, bills and food actually require.
- Build a month-by-month sales ramp from franchisees, not the brochure. Ask three existing franchisees what they took in months one, three, six and twelve.
- Subtract and keep a running total. Sales minus costs minus drawings, month by month. The lowest point that running total reaches is your starting working capital figure.
- Run it again with every sales figure arriving three months late. Even if the franchisor’s forecast shows you covering costs by month six, plan for the version where it takes nine. Use this lower point, not the first.
- Add tax and a contingency. Put aside money for your first tax bill, VAT if you register, and at least one extra month of costs and drawings.
A worked example
The figures below are illustrative, for a home-based service franchise. Running costs include monthly fees, which rise with sales. The owner needs £2,000 a month to cover household bills.
|
Months |
Planned sales per month | Planned running total | Sales arrive 3 months late | Late running total |
|---|---|---|---|---|
| 1 to 3 | £1,500 | −£5,700 | £500 | −£8,400 |
| 4 to 6 | £3,500 | −£6,300 | £1,500 | −£14,100 |
| 7 to 9 | £5,000 | −£3,000 | £3,500 | −£14,700 |
| 10 to 12 | £6,000 | +£3,000 | £5,000 | −£11,400 |
On plan, the cash low point is £6,300 at month six. With sales three months late, it is £14,700 at month nine, more than double, and still £11,400 down at the end of year one. Add one month of costs and drawings as contingency and this owner needs around £19,000 of working capital before tax, three times what the plan suggested.
Funding the cushion
The best time to raise working capital is at the start, inside your main funding. Ask for it later and you are applying with thinner numbers, under pressure, often at a higher rate. The alternative is the call nobody wants to make: asking a relative to cover the mortgage while you wait for invoices to clear.
- Include it in your bank application. For an established franchise, the major banks will typically lend up to 70% of start-up costs, falling to around 50% for newer brands. Make sure the total you present includes your step 6 figure, not just the franchise package.
- Keep some savings out of the deposit. Putting every pound into the upfront cost can leave you with a loan approval and nothing in reserve. Cash you hold back is the cheapest working capital you will ever have.
- Spread the cost of vehicles and equipment. Asset finance or leasing turns a large upfront payment into monthly instalments, leaving more cash free for the ramp period.
- Know the Start Up Loans rules. The government-backed scheme lends up to £25,000 per director as a personal loan, repayable over one to five years. The fixed rate rose from 6% to 7.5% on 6 April 2026, and businesses trading for up to five years can now apply, so it can also top up a cushion after launch.
For a full comparison of lenders and schemes, see our guide to how to finance a franchise in the UK. Before you commit, an accountant with franchise experience can test your ramp and tax assumptions in a single meeting.
Six questions that reveal the real figure
The franchisor can tell you what the model costs. Existing franchisees can tell you what it cost them. Ask both.
Ask the franchisor:
- How much working capital is included in your total investment figure, and how was it calculated?
- Is there a minimum monthly management service fee, and when is the first payment due?
- How long do customers in this sector typically take to pay?
Ask existing franchisees:
- How many months did it take before you could draw what your household needed?
- What was the lowest your business bank balance reached in year one?
- Which cost caught you out that was not in the forecast?
If the answers to the second set are noticeably worse than the first, trust the franchisees and size your cushion to their numbers.
Get the number right before you sign
A well-sized cushion buys you three things: the calm to follow the system instead of chasing any sale, the time for your marketing to build, and a conversation with your bank that starts from strength rather than need.
Pick two franchises you are considering on Franchise Planet, take the total investment figure from each listing, and spend one evening running the six steps above before your next discovery day. If the late-sales version of the numbers still works, you are ready to talk to a lender.
Sources
- UK Franchise Finance Statistics 2026, Funding Agent, June 2026 (summarises 2018 bfa NatWest Franchise Survey figures)
- How to raise funds to start a franchise, Raconteur (bank lending ratios; 18 to 24 months to sufficient profit)
- Easy money: making borrowing from banks a breeze, Elite Franchise (three to six months of working capital)
- Startup and growth support: from a single source, Small Business Commissioner (Start Up Loans changes from April 2026)
- Understand your Self Assessment tax bill: payments on account, GOV.UK
