Franchise Glossary
Working Capital
The funds needed to cover ongoing operating expenses during the initial period before the franchise becomes profitable.
Working capital is the cash reserve that keeps the business running during the ramp-up phase when revenue may not yet cover expenses like rent, payroll, utilities, inventory, and marketing. Item 7 of the FDD typically includes a working capital line item covering the first three to six months of operations. Many franchisees underestimate their working capital needs, which is one of the most common causes of early-stage business failure. Having a financial cushion beyond the FDD's estimates is strongly recommended.
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