For a Flowerama franchise, for how many months must I maintain adequate reserves and working capital?
Flowerama Franchise · 2024 FDDAnswer from 2024 FDD Document
You must, at all times, maintain adequate reserves and working capital sufficient for you to fulfill all of your obligations under your Franchise Agreement and to cover the risks and contingencies of your Flowerama Center for at least 3 months.
The estimates for "Additional Funds" include payroll expense and any other miscellaneous expenses that you may incur during the first 3 months of operations, but do not include a salary or draw for you.
You may have additional expenses depending upon other factors such as your management skill and experience, local economic conditions, prevailing wage rates, competition, whether you have followed our methods and procedures and your level of sales during the initial period.
The disclosure laws require us to include this estimate of all costs and expenses to operate your Franchise during the "initial phase" of your business, which is defined as a 3-month period or longer period if "reasonable for the industry." We are not aware of any established longer "reasonable period" for the floral and gift industry, so our disclosure covers a 3-month period.
Source: Item 7 — ESTIMATED INITIAL INVESTMENT (FDD pages 19–29)
What This Means (2024 FDD)
According to Flowerama's 2024 Franchise Disclosure Document, franchisees must maintain adequate reserves and working capital to cover obligations under the Franchise Agreement and potential risks for at least 3 months. These additional funds are meant to cover payroll and other miscellaneous expenses incurred during the first 3 months of operation. However, these funds do not include a salary or draw for the franchisee.
Flowerama notes that additional expenses may arise based on factors such as the franchisee's management skills, local economic conditions, prevailing wage rates, competition, and adherence to Flowerama's methods and procedures, as well as sales levels during the initial period. The disclosure laws require Flowerama to include an estimate of all costs and expenses to operate your franchise during the "initial phase" of your business, which is defined as a 3-month period or longer period if "reasonable for the industry."
Flowerama states that they are not aware of any established longer "reasonable period" for the floral and gift industry, so their disclosure covers a 3-month period. Prospective franchisees should carefully consider these factors and plan accordingly to ensure they have sufficient capital to sustain the business during its early stages.