Franchises in Argentina: how to verify a brand’s financial figures

A sales presentation can show attractive revenue figures without explaining how much cash is left over. Before investing in a franchise in Argentina, you need to check which results support the proposal and whether they are comparable to those of your planned outlet. This guide focuses on that financial due diligence: what to request, how to organise the documentation and when to put the decision on hold.

1. Know your right to information before signing

In Argentina, franchise agreements are specifically governed by Articles 1512 to 1524 of the national Civil and Commercial Code. They should not be assessed as though they depended solely on commercial practice or whatever the brand chooses to include in its contract.

Article 1514(a) requires the franchisor to provide, before signing, economic and financial information covering two years of performance for units similar to the one being offered, which have been operating for a sufficient period, either in Argentina or abroad.

Three points are worth clarifying:

• The information must be provided in advance: receiving it after you have committed does not allow you to assess the investment properly.
• It must relate to similar units: a flagship outlet does not necessarily represent the format you will be operating.
• The track record may come from abroad: if it does, you will need to analyse differences in costs, taxes and consumer habits compared with Argentina.

This article does not prescribe a mandatory disclosure document in a particular format or a fixed deadline of twenty or sixty days. Nor should proposed legislation be confused with rules already in force. Agree on enough time to review the documentation with your accountant and solicitor before signing.

2. Request a financial information pack that can be verified

The legal obligation is the starting point. To turn the information into a useful assessment, request a monthly breakdown for the two years covered, together with an explanation of the sources and methods used.

As a practical checklist for your analysis — not a list expressly required by the Code — include:

• Monthly sales, specifying whether they include VAT and how discounts and returns are treated.
• Direct costs and gross margin.
• Rent, service charges, utilities and maintenance costs.
• Wages, employer social security contributions and remuneration for the owner if they work in the business.
• Royalties, advertising, systems and other recurring charges.
• Operating results and significant cash movements.
• Opening date, location, floor area and format of each reference unit.

Ask for historical figures to be clearly distinguished from projections. A spreadsheet of expected sales for your outlet is no substitute for the financial track record of comparable units.

Also ask what documentation supports the totals: management reports, accounting records or tax returns, as appropriate. You do not need access to customers’ or employees’ personal data; anonymised documents and confidentiality agreements can be used. What matters is that your adviser can check the consistency of the figures, rather than simply read a sales summary.

3. Adjust the comparison to your planned outlet

Two units trading under the same brand can have very different financial profiles. Before using another outlet’s results in your budget, prepare a comparison sheet covering location, floor area, opening hours, length of time trading, staffing, sales channels and rent levels.

Ask whether the reference outlet is company-owned or franchised. A company-owned outlet may not record royalties as an internal expense; your projection must include the charges you would actually pay under the proposed agreement.

In Argentina, comparing peso amounts from different months without adjustment can also be misleading. Ask your accountant to put the figures on a consistent basis and explain the method used. Supplement nominal sales figures with indicators such as transaction numbers, units sold and percentage margins.

Separate three concepts that are often confused:

• Turnover: how much the business sells.
• Profit or loss: what remains after the expenses included in the calculation.
• Available cash: the money left after allowing for receipts, payments, taxes, capital expenditure and any debt commitments.

If the profitability figures presented exclude pay for the person managing the business, include reasonable remuneration for that role. Working unpaid may make a spreadsheet look better, but it does not demonstrate that the investment is profitable.

4. Turn your findings into a documented decision

Create a table with four columns: figure presented, supporting evidence received, adjustment needed and outstanding question. Send your questions in writing and keep the replies alongside the version of the proposal you reviewed.

Check the assumptions with existing franchisees: ask about seasonality, omitted expenses and the time needed for operations to settle into a steady pattern. Their experiences complement the documentation but do not replace the franchisor’s disclosure obligation.

Missing evidence, inconsistencies and pressure to sign are all reasons to pause the assessment. Also bear in mind that Article 1518 states that the franchisor is not responsible for the profitability of the franchised system: receiving information does not mean you have a guarantee of profit.

Practical conclusion: before signing, insist on historical financial information, check that it is comparable and recalculate the results using your own costs. If a material question remains unanswered, do not turn it into a favourable assumption.