Potential franchisees heading for a hospitality business face financial challenges in the initial stages of set-up, according to a recent report.

A lack of working capital and start-up cost blowouts remain the greatest challenge to new business owners, according to the latest Hospitality Industry Success Index (HISI).

The latest HISI report, which sources information from nearly 6,000 hospitality businesses and 202 detailed surveys, was released at the Fine Foods expo in Sydney.

The report showed the vast majority (83 percent) of hospitality business owners agree that starting a hospitality venture cost more than anticipated.

These cost blowouts often lead to a shortage of cash with respondents citing a lack of working capital as the most difficult aspect of starting a new business.

The HISI report, now in its fourth year, is commissioned by ASX-listed equipment finance company Silver Chef.

Silver Chef CEO Charles Gregory said access to capital remained the lifeblood of small business, particularly in the hospitality industry.

“Time and time again we see businesses underestimating the capital requirements of establishing a new business…  there are countless hidden costs which stack up and have the potential to turn your dream into a nightmare,” he said.

More than one-in-four businesses also cited difficulty in getting funding from banks or other traditional lenders as the most difficult aspect of starting a new business.

“Small business needs to be increasingly innovative in the way they meet the early capital requirements of their business,” Gregory said. “Drawing equity from a home or borrowing from family and friends will only get you so far.

“It is important you do your research early and understand your options. A cash crunch can come on very quickly and can sometimes put your entire venture at risk.”

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