Franchising in Colombia: how to substantiate your sales figures

Before offering an established business as a franchise, it is worth answering one question: can you substantiate every figure you present to a prospective franchisee? A supporting financial file helps distinguish actual results from adjustments and projections. Within the franchise community, this transparency supports informed decisions and prevents sales enthusiasm from turning into a promise that cannot be kept.

1. Define what information you will provide and on what terms

In Colombia, a franchise agreement is an ‘atypical’ contract: there is no specific legal framework governing its content comprehensively. Colombia’s Ministry of Justice explains this in its guidance on these agreements. The general provisions of the Commercial Code and, where applicable, the Civil Code apply, alongside relevant rules on industrial property, competition and other matters.

There is no specific general obligation to provide a franchise offering circular in a prescribed statutory format or within a prescribed statutory timeframe. This does not mean that withholding relevant information is acceptable: Article 863 of the Commercial Code requires good faith free from fault during the pre-contractual period and provides for liability for losses caused by a breach of that duty.

Nor should regulatory proposals be confused with legislation in force. The period of twenty working days mentioned in documents relating to proposed regulation should not be presented as a generally applicable legal requirement.

As an internal practice, prepare an information document before asking a prospective franchisee to make financial decisions. Include a financial annex with a date, a named person responsible and a version number. Do not describe it as a certification of profitability or a mandatory official form.

2. Build a verifiable evidence base using pilot data

Choose a period that shows the business’s normal trading performance and seasonal variations. Avoid selecting only the best months. If the pilot operation has not yet run long enough to assess those variations, state that limitation explicitly.

Compile a file of supporting records that can be reconciled with one another:

• Sales: point-of-sale records, invoices, returns and discounts, clearly stating how VAT is treated.
• Direct costs: purchases, stock, wastage and platform or payment processing fees.
• Operating expenses: rent, payroll, utilities, maintenance, insurance and local marketing.
• Initial investment: fit-out, equipment, deposits, opening stock and pre-opening expenses.
• Cash flow: customer and supplier payment terms, working capital requirements and financial obligations.

A common mistake is to show the profit of an outlet where the owner works without pay. To assess an operation that someone else could run, include the cost of replacing that work. Do the same if the pilot operates from owner-occupied premises without recording a comparable occupancy cost.

Keep two columns: the recorded accounting result and the result adjusted for the franchise assessment. Every adjustment must have an explanation and supporting evidence. Never alter the original figures retrospectively to make the offer more attractive.

3. Separate historical results from scenarios for prospective franchisees

One successful outlet does not demonstrate that every location will produce the same results. Identify the pilot’s circumstances: city, length of time in operation, floor area, opening hours, sales channels and the founder’s involvement. Explain which of these might differ at a new outlet.

Present the figures in three clearly labelled sections:

1. Historical information: what actually happened in the identified operation.
2. Comparability adjustments: costs or conditions needed to represent a franchised outlet.
3. Scenarios: estimates that depend on assumptions, not guaranteed results.

Scenarios must include franchise-specific payments: the initial franchise fee, royalties, advertising contributions and any other planned charges. State the basis for calculating each payment, and avoid deducting it twice or leaving it out of the profitability figures shown.

Prepare scenarios with different sales levels, costs and opening timescales. Distinguish operating profit from cash flow: making a profit does not mean the cash is immediately available to recoup the investment. If you show an estimated payback period, explain the method, the investments included and the assumptions used.

A ‘results not guaranteed’ disclaimer does not remedy false data or material omissions. The main safeguard is the quality of the information.

4. Control information sharing and sales promises

Appoint someone to approve the figures used in presentations, conversations and documents. The sales team should not improvise margins or payback periods that differ from those supported by the evidence file.

Provide enough information for an independent review and allow questions before proceeding. You can protect sensitive documents through confidentiality agreements and controlled access, without using those measures to prevent a reasonable assessment.

Record which version each prospective franchisee received, when they received it and what clarifications were provided. If you discover a material error, communicate it in writing and update the affected documents. A record of delivery proves that information was communicated; it does not remove liability for inaccurate information.

Practical conclusion: before marketing your franchise, link every figure in the offer to supporting evidence, an assumption and a person responsible. If you cannot explain where a figure comes from, it is not yet ready to be presented.