Franchising in Canada: Presenting Earnings Without Making Promises

Your outlet’s profitability attracts prospective franchisees. But its results do not automatically predict those of a future franchisee. Before turning your business into a franchise network, establish clear rules for presenting your figures. The aim is to support an informed decision without turning actual experience into an earnings promise.

1. Separate historical results from forecasts

Start by distinguishing three categories: actual results achieved, assumptions used to build a budget, and projections intended to illustrate a future operation. A presentation that mixes these categories can give a misleading impression, even if every figure comes from an accurate calculation.

For each historical result you share, specify:

• the outlet concerned and the period covered;
• how long it has been operating and its opening days;
• the definition of the metric presented;
• which costs are included and which are excluded;
• any exceptional circumstances that influenced the result.

Turnover is neither the business’s profit nor the franchisee’s personal income. Similarly, a result before the owner-manager’s remuneration does not establish how much a prospective franchisee will be able to ‘pay themselves’.

Present the limitations alongside the figure, not just in a note elsewhere. If your outlet belongs to the founder and pays no royalties, make this clear. A model incorporating future fees must be labelled as such, rather than presented as a result already achieved.

2. Build a genuinely representative comparison

Your best-performing location alone is rarely a sufficient basis for presenting the potential of the entire network. A long-established outlet with favourable rent and a loyal customer base may have little in common with a new opening.

If you have only one outlet, say so. Avoid referring to a ‘network average’ or implying that the results have already been shown to be replicable. If you have several outlets, explain which ones you have selected and why. Excluding weaker-performing units without disclosing this can distort the picture.

Prepare a comparison sheet covering floor area, catchment area, opening hours, length of operation, staffing levels and the owner’s role. Also check for advantages that are difficult to replicate: personally owned premises, unpaid family labour or the founder’s particular reputation.

For a projection, document the assumptions rather than simply providing a final figure. Customer numbers, average spend, seasonality and payroll costs should be open to separate discussion. Present contrasting scenarios without describing the downside scenario as a guaranteed minimum income.

Prospective franchisees should be able to adjust these assumptions with their accountant, particularly to account for their financing arrangements and cash flow needs.

3. Align the figures with provincial requirements

In Canada, franchise-specific rules are set at provincial level. There is no single federal pre-contractual disclosure regime. Before sharing an earnings estimate, have the requirements checked for the province in which the outlet will operate: compliance involves more than adding a disclaimer that results are not guaranteed.

In Manitoba, The Franchises Act and the Franchises Regulation govern, among other things, the disclosure document. This must generally be provided at least 14 days before signing or payment, subject to the applicable exceptions. Where an earnings projection is provided, the regulation requires, among other things, a reasonable basis for it, disclosure of its assumptions and information substantiating the projection.

A misrepresentation may give rise to a claim for damages. Missing or deficient disclosure may also lead to remedies, including rescission of the agreement, depending on the circumstances. Figures presented verbally or in a brochure must therefore not be treated as separate from the legal documentation.

In Quebec, no specific franchise legislation requires a comparable disclosure document. However, the Civil Code of Québec applies, particularly in relation to good faith, consent and liability. The absence of a mandatory form does not permit misleading statements.

Ask a specialist lawyer to review your financial tables, their supporting evidence and the way they are addressed in the pre-contractual documents together.

4. Control all financial communications

Appoint someone to approve financial data intended for prospective franchisees. They should retain the source, calculation method, approved version and review date.

Apply this discipline to presentations, emails, webinars and communications with intermediaries. Prohibit improvised extrapolations: ‘you will make at least as much’ or ‘you will quickly recoup your investment’ do not become acceptable simply because they are spoken rather than written.

Also keep a record of the documents given to each prospective franchisee. When information becomes outdated or a material change occurs, stop using the relevant material and seek advice on any corrections or additional disclosures needed before proceeding.

Key takeaway: before presenting potential earnings, make sure you can explain where the figure comes from, its limitations and its relevance to the future franchisee. Verifiable documentation does more to safeguard trust than an enticing promise.