For how long must a Flowerama franchisee maintain adequate reserves and working capital?
Flowerama Franchise · 2024 FDDAnswer from 2024 FDD Document
- (7) Additional Funds. 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 their Flowerama Center. This requirement extends for a minimum period of at least 3 months. The FDD specifies that the estimates for "Additional Funds" in the initial investment include payroll and other miscellaneous expenses incurred during the first 3 months of operations. However, these estimates do not include a salary or draw for the franchisee.
This 3-month period is considered the "initial phase" of the business, as defined by disclosure laws. While the disclosure allows for a longer period if deemed "reasonable for the industry," Flowerama states that it is not aware of any established longer period for the floral and gift industry. Therefore, the 3-month disclosure period is what Flowerama uses.
Prospective Flowerama franchisees should carefully consider this requirement for maintaining adequate reserves. They should factor in not only the estimated additional funds but also their own salary or draw, which is not included in the estimate. Additionally, franchisees should be aware that various factors, such as management skills, local economic conditions, and competition, can impact their expenses during this initial phase. Reviewing these estimates with a business advisor is recommended to ensure sufficient capital is available to sustain the business during its early months.