Franchising in Argentina: how to disclose financial performance

Before offering your business as a franchise, you need to turn its figures into information that someone else can assess. Showing rising sales or promising a quick return on investment is not enough. A clear financial information pack explains what has been demonstrated, what depends on each outlet and what remains an assumption. It provides a foundation of trust for building a sustainable franchise network.

1. Understand the pre-contract disclosure obligation

In Argentina, franchise agreements are governed by Articles 1512 to 1524 of the Civil and Commercial Code of the Nation, enacted by Law 26,994 and in force since 1 August 2015.

When preparing financial information, Article 1514(a) is particularly important: before the agreement is signed, the franchisor must provide economic and financial information covering two years of performance by units similar to the franchise being offered, which have operated for a sufficient period in Argentina or abroad.

This requires something different from a sales presentation: a track record that allows prospective franchisees to assess how the business operates. If your business has only a short trading history or has substantially changed its format, do not present estimates as historical results. Before proceeding, seek legal advice on whether you have enough information to meet the obligation.

It is also important to distinguish current legislation from legislative proposals. The bill proposing a Register of Franchisors and the provision of documents twenty days in advance must not be presented as law currently in force. Neither that deadline nor that register appears in the Code’s chapter on franchising. You can set an internal review period, but identify it as your own practice, not a requirement of that article.

2. Choose genuinely comparable units

The outlet with the highest turnover is not always the best reference point. If it operates from premises owned by the business, attracts customers because the founder is present or handles online sales for the entire brand, its results may not reflect what a franchisee can expect.

Prepare a profile for each unit used as evidence of past performance:

• Format and location: floor area, type of area and sales channels.
• Trading history: opening date, period analysed and significant changes.
• Resources: staffing levels, opening hours and the owner’s involvement.
• Special arrangements: discounted rent, exceptional purchasing arrangements or shared services.
• Comparability: similarities to and differences from the franchise being offered.

Do not combine different types of units to produce an attractive average without explaining what it includes. If you are offering a small-format franchise but only operate a large outlet, make that difference explicit and verify its operational and financial implications.

Your selection must be justifiable on the basis of similarity, not sales appeal. Include months of poor performance too: seasonality and setbacks are part of the track record.

3. Separate historical data, adjustments and projections

Organise the information pack into three clearly labelled sections.

Historical results. Present revenue, the cost of goods or service delivery, staffing costs, premises costs and other operating expenses. State the period covered, the source and the basis of preparation. Making clear whether amounts include taxes avoids misleading comparisons between sales and expenses.

Comparability adjustments. Show separately any costs that the current business does not bear but a franchised unit would incur: pay for someone replacing the founder, market rent, royalties, advertising contributions or mandatory tools and systems. Do not quietly alter the original records; explain each adjustment and its rationale.

Projections. Build scenarios with explicit assumptions about sales, prices, wages, rents, supplies and working capital. Separate the initial investment from recurring expenses and allow for the cash needed during the start-up period.

In Argentina, comparisons between periods require particular care. Identify the currency, reference date and whether figures are nominal or expressed in currency of comparable purchasing power. If you adjust figures for inflation, document the index and method used with support from an accounting professional.

A projection is not a guarantee of profitability. Nor does a general disclaimer make up for unsupported assumptions. If you estimate a payback period, explain how you calculated it and which variables could change it.

4. Establish a documented disclosure process that can be reviewed

Assign responsibilities: the administration team gathers supporting records, an accounting professional checks consistency and a legal adviser checks the disclosure process and its relationship to the agreement. The sales team must use the same version, without making additional promises.

A practical procedure includes:

1. Preparing a contents list, a cut-off date and a version number.
2. Protecting sensitive information through appropriate confidentiality undertakings, without using them to withhold legally required information.
3. Providing the pack before signing and allowing reasonable time for questions and independent advice.
4. Recording the documents provided, the recipient, the date and answers to material questions.
5. Updating the material if costs or the terms offered change substantially.

An acknowledgement of receipt proves that the documents were provided, but it does not substitute for accurate content or remove liability.

Putting this into practice: before recruiting prospective franchisees, compile an information pack that allows every figure to be traced back to supporting evidence. If you cannot explain where a result comes from, it is not yet ready to support your franchise offering.