Pilot unit: how to test your business before franchising

A profitable business is not automatically ready to be franchised. Before inviting entrepreneurs to join your franchise network, you need to check whether someone else can replicate the operation, with realistic costs and clearly defined support. That is the purpose of a pilot unit: to turn the founder’s experience into a model that can be tested, documented and transferred.

1. Define what the pilot unit needs to prove

The pilot should not simply be a well-run outlet to show prospective franchisees. It needs to answer a specific question: does the business work when it is managed by someone who was not involved in creating it?

An existing company-owned unit can serve this purpose, provided it represents the format you intend to offer. An outlet with an exceptional location, unusually low rent under a longstanding lease or borrowed equipment will require adjustments to the analysis. These advantages may not be available to a future franchisee.

Before testing, record the assumptions you want to check:

• Can a trained manager carry out routine tasks without constant intervention from the founder?
• Can the planned team meet demand without regularly working overtime?
• Can suppliers maintain quality, delivery times and availability?
• Can the financial performance cover the costs that a franchised unit will incur?
• Can the necessary support be provided across multiple units?

Also define your success criteria. Use indicators relevant to the business, such as waste, rework, service times, product availability and cash generation. There is no universal threshold: what matters is setting criteria before reviewing the results, rather than approving the pilot on enthusiasm alone.

2. Test the operation without the founder’s constant presence

Choose someone to run the unit and provide the training you intend to offer franchisees. Supply written instructions for opening, closing, purchasing, customer service, financial control and dealing with common problems.

Then gradually reduce the founder’s involvement. This does not mean abandoning the team, but separating local operations from support provided by the future franchisor. If the owner needs to negotiate every purchase or resolve every complaint, essential knowledge has yet to be transferred.

Keep a simple issue log with four fields:

• Situation faced by the team.
• Guidance available in the procedure.
• Additional help requested.
• Changes needed to the training or manual.

Observe periods with different operating conditions: busier and quieter trading, stock replenishment, financial period-end closing and the absence of key staff. The test should last long enough to assess the business’s relevant cycles; one good weekend does not prove that the model can be replicated.

When updating a procedure, ask someone else to follow it. A manual is only validated when it guides work in practice, not when it looks complete to its author. Keep dated versions so you can identify which guidance produced each result.

3. Rework the figures as though the unit were franchised

The outlet’s historical results may conceal unpaid work by the owner, expenses covered by another company or personal discounts. Recalculate the figures to include appropriate remuneration for management, premises costs, staffing, taxes, maintenance, systems, losses and working capital.

In the simulation, also include the proposed franchise charges, such as royalties and advertising contributions. Keep actual results separate from simulated results. A projected fee should not appear as an expense actually paid by the company-owned unit.

On the franchisor’s side, calculate the cost of support: training, visits, remote assistance and updates to materials. If a single unit requires daily attention from several people, the support structure may struggle to keep pace with expansion.

Test scenarios involving lower sales, higher costs and a slower launch. The aim is not to promise profitability, but to identify weaknesses before transferring the model.

Compile a report covering the observation period, the unit’s characteristics, expenses included, interventions by the founder and limitations. When a target is missed, record the corrective action and repeat the relevant test. Do not let averages conceal failures.

4. Link the evidence to the franchise offering

In Brazil, Law No. 13,966/2019, known as the Franchise Law, governs franchising and requires the provision of a franchise disclosure document, the Circular de Oferta de Franquia (COF). It must be written in Portuguese, in clear and accessible language, and contain the mandatory information specified by law.

The law does not set a general minimum operating period for a pilot unit, nor does it require a year of operation before franchising. Operational validation is a responsible preparatory step, not legal authorisation to sell franchises.

Testing helps substantiate the investment estimates, training needs and support structure described in the offering. It does not replace the other COF requirements or turn projections into guarantees.

The COF must be provided at least ten days before the signing of a contract or preliminary agreement, or the payment of any fee by the prospective franchisee to the franchisor or to an associated person or company. Plan how to present the results without collecting payments prematurely.

Putting it into practice: choose a representative unit, test its ability to operate independently, adjust the figures and document the limitations. Only move forward when you can explain, with evidence, what someone else will be able to replicate and what support they will need.