Sample cash flow forecast
in association with Lloyds TSB
The following cash flow example is not intended to represent any given franchise system, but is to illustrate the timing and extent of the finance that might be needed when launching a new system. A ‘worst-case’ scenario has also been included to convey an indication of the additional finance that would be needed to allow the system to continue until it reached ‘break-even’.
At the outset, it has been assumed that the owners invested £100,000 in the system and also obtained a 5 year loan of £150,000. If everything goes as expected, then a peak borrowing requirement of a further £199,000 will be needed. Alternatively, if the ‘worst-case’ outcome materialised, then the peak requirement will rise to £345,000.
- Franchisee initial fee £8,500 plus VAT.
- Franchisee ongoing fees (management service fees) 7% of turnover.
- Franchisee sales turnover:
- Year 1 = £100k
- Year 2 = £120k
- Year 3 = £140k
- Year 4 = £155k
- Year 5 = £165k
- Year 6 = £175k
- Year 7 = £185k
- All franchisees open at the start of each year, rather than the usual phased openings.
- Variation for worst case, income –10%; costs +10% from Year 2 onwards. No franchisee opened in Year 1.
- Two year capital repayment holiday on 5 year bank loan.
- No failures of franchisees.
- All figures rounded to nearest £1,000 for clarity.
|Expected Scenario||Set-up period||Year 1||Year 2||Year 3||Year 4||Year 5||Year 6||Year 7|
|Franchise fees (initial)||-||£10k||£40k||£80k||£130k||£150k||£110k||£80k|
|Management service fees (from franchisees)||-||£7k||£15||£99k||£208k||£348k||£476k||£591k|
|Owners’ share capital||£100k||-||-||-||-||-||-||-|
|Bank loan (5 year term)||£150k||-||-||-||-||-||-||-|
|Total receipts (A)||£250k||£17k||£55k||£179k||£338k||£498k||£586k||£671k|
|Franchisee recruitment costs||£3k||£20k||£24k||£39k||£45k||£33k||£24k||£24k|
|Loan repayments (24 month capital repayment holiday)||-||-||-||£50k||£50k||£50k||-||-|
|ACT (Advance Corporation Tax)||-||-||-||-||-||-||-||£20k|
|Total payments (B)||£188k||£79k||£144k||£278k||£349k||£403k||£376k||£548k|
|Net cash flow (A) – (B)||£62k||(£62k)||(£89k)||(£99k)||(£11k)||£95k||£210k||£123k|
|Bank balance credit (overdraft)||£62k||£0k||(£89k)||(£188k)||(£199k)||(£104k)||£106k||229k|
|Worst Case Scenario
(see accompanying notes for explanation)
|Total receipts (C)||£250k||-||£50k||£161k||£304k||£448k||£527k||£604k|
|Total payments (D)||£188k||£80k||£156k||£305k||£381k||£439k||£410k||£436k|
|Net cash flow (C) – (D)||£62k||(£80k)||£106k)||(£144k)||(£77k)||£9k||£117k||£168k|
|Bank balance credit (overdraft)||£62k||(£18k)||(£124k)||(£268k)||(£345k)||(£336k)||(£219k)||(£51k)|