Inventory uses cash before it becomes a sale

Map the purchasing process

List what the business needs to buy, who approves the supplier, how orders are placed and when payment is due. Include consumables and replacement stock as well as merchandise for sale. Ask the franchisor which purchasing restrictions and required arrangements apply to the offered model.

For a proposed site, identify minimum orders, delivery schedules, storage capacity and the consequences of shortages. Treat any suggested opening stock list as a document to investigate rather than proof that demand will absorb every item quickly.

Follow the cash cycle

A purchase may be paid for before the customer pays the business. Build a simple calendar showing ordering, delivery, expected use or sale, and collection. This is a planning exercise, not an earnings projection. Its purpose is to reveal when funds are tied up in the operating cycle.

Ask how damaged goods, spoilage, returns and obsolete stock are handled. Determine which risks remain with the franchisee and whether replacement orders create additional cash demands. A discount on a larger order is only useful in the context of demand, storage and cash constraints.

Plan for exceptions

Investigate how the system handles a supplier outage or a sudden increase in demand. Ask whether substitutions require approval and what the owner can do while waiting. Keep supplier responsibilities and the owner’s continuity plan visible in the budget; purchasing rules affect everyday operations long after opening day.

Put it on paper

• Document supplier approval and payment terms.
• Map the gap between purchasing and collection.
• Ask about shortages, waste and approved alternatives.

Continue with the franchise research checklist, our FDD guide, and the research directory.