Franchising in Canada: checking revenue claims

An attractive turnover figure proves neither a franchise’s profitability nor its suitability for your target market. Before joining a franchise network in Canada, check how the revenue figures presented were calculated, which outlets they represent and what assumptions underpin them. The aim is not to secure a guarantee of success, but to make a decision based on verifiable data.

1. Define exactly what the figure measures

A sales presentation may refer to ‘average sales’, ‘annual potential’ or ‘owner income’. These terms are not interchangeable. Ask for a written definition of each measure before comparing brands.

For sales figures, establish in particular:

• whether the amounts include sales taxes;
• whether refunds, discounts and cancellations have been deducted;
• whether orders placed through third-party platforms are counted before those platforms’ commissions are deducted;
• whether the period covers a full financial year or a projection based on just a few months;
• whether the results relate to one outlet or several units operated together.

For any profit figure presented, check which expenses have been deducted. A figure calculated before the owner’s remuneration, interest, tax or depreciation does not represent money personally available to you.

Always ask for a detailed breakdown showing how sales translate into the profit figure presented. Your accountant can assess whether a realistic allowance has been made for the owner’s work.

2. Examine the sample behind the average

A national average can conceal significant differences. A handful of high-performing outlets may push it up, while most achieve lower sales. Also ask for the median, the spread of results and the number of outlets included, where these data are available.

The make-up of the sample matters as much as the result. Ask whether it includes newly opened outlets, units that closed during the period, company-owned outlets and those run by franchisees.

A network that only presents figures for units that have been open for several years does not necessarily show what a new buyer can expect during the start-up phase. Similarly, a location with exceptionally high footfall may offer little basis for comparison with your proposed business.

Ask why any outlets were excluded. An exclusion may be justified, but it should be explained. If only the best-performing units are shown, treat those figures as examples of success, not as a representative forecast.

3. Test whether the figures are plausible in your local market

Next, turn the annual figure into assumptions you can check. One simple method is to multiply the number of daily transactions by the average transaction value and the number of trading days. For an appointment-based business, use the number of services provided and their average price instead.

Check each component:

• Can the local customer base support the expected level of demand?
• Are the proposed prices consistent with local purchasing power and competitors’ offerings?
• Do the premises, equipment and team have the capacity to handle this volume?
• Have opening hours and seasonality been properly factored in?

For a business relying on repeat custom, also examine customer acquisition rates and retention. Selling subscriptions does not necessarily mean retaining that revenue throughout the year.

Work with your accountant to develop a conservative scenario and a central scenario. Their purpose is to test the commercial credibility of the proposed business, not simply to reproduce the franchisor’s forecast.

4. Assess the claims against the provincial legal framework

In Canada, franchise-specific rules are set at provincial level. A revenue claim made during the sales process can have legal significance: appearing in a presentation rather than the contract does not make it legally inconsequential.

In Ontario, the Arthur Wishart Act (Franchise Disclosure), 2000 requires, subject to applicable exceptions, a disclosure document to be provided at least 14 days before a franchise-related agreement is signed or any payment is made. Its regulation sets requirements for earnings projections that are provided, including their assumptions, reasonable basis and access to supporting information. This does not require the franchisor to promise a return.

In Quebec, no franchise-specific legislation imposes the same regime. However, the Civil Code of Québec, particularly its rules on good faith and consent, applies to pre-contractual dealings and the contract itself.

Keep emails, presentations and meeting notes. Have any inconsistencies reviewed by an independent lawyer: obligations and remedies depend on the province and the facts.

5. Set a decision rule before signing

Create a table listing each claim, its source, the period covered, the supporting evidence received and any outstanding questions. Ask for a written response to significant discrepancies. A general disclaimer stating that results are not guaranteed is no substitute for an explanation of the calculations.

If the revenue figures crucial to your decision rest on unverifiable data, put your commitment on hold rather than filling the gaps with optimism.

Key takeaway: do not buy an average. Buy only once you understand the data, have tested their relevance to your local market and have had your advisers check the claims that matter to your decision.