Turnover reporting in franchising: rules for Croatia

When preparing an existing business for franchising, setting the fee percentage is not enough. You need to know which data will be used to calculate the fee and how you will check its accuracy. Clear reporting rules protect the franchisor’s income, make life easier for franchisees and reduce misunderstandings across the franchise network. Put them in place before signing the first agreement, while you can still test the system using your own business data.

1. Define precisely what franchisees must report

The term ‘total turnover’ can mean different things to different people. One person may count invoices issued, another amounts collected, and a third the payments received after a delivery platform has deducted its commission. If the franchise fee is linked to turnover, that difference directly affects contractual obligations.

You therefore need to define the contractual fee calculation base, rather than simply name a column in a spreadsheet. Specify how VAT, refunds, discounts, advance payments, gift cards, online orders and sales through intermediaries are treated. The contractual calculation base does not have to match every accounting category of revenue, but any difference must be understandable and applied consistently.

For example, for sales through a delivery platform, clarify whether franchisees should report the value of the sale to the customer or the amount remitted after commission. For gift cards, specify when the value enters the calculation base so that it is not counted twice. These are contractual decisions to be agreed in consultation with an accountant, not left implicitly to software settings.

For each item, record the data source and the period to which it relates. Pay particular attention to goods returned in the month after the sale: the franchisee must know which report should show the adjustment and which document should support it.

2. Create a single template and test it in practice

Before asking franchisees for a monthly report, try compiling one yourself using data from your own outlet. If the process involves manually copying figures, combining unrelated files and repeatedly asking the owner for explanations, it is not yet ready to roll out.

A basic template could include:

• the franchisee and outlet identifiers, and the reporting period;
• sales by agreed channel;
• VAT shown separately, along with agreed deductions;
• refunds and adjustments relating to previous periods;
• the final fee calculation base;
• a note explaining discrepancies and confirmation from the person responsible.

Alongside the template, prepare brief instructions with examples of borderline cases. Specify the submission deadline, accepted format, where to submit the report and how to replace an incorrect version. The original report should not disappear once it has been corrected: retain an audit trail showing the change, the reason for it and the date it was confirmed.

Run a trial calculation for a closed reporting period. Ask the outlet manager and the person responsible for finance to prepare it independently. Any differences will reveal where definitions are unclear. Check how long the process takes, too, as an administratively demanding system creates costs for both parties.

The aim is not to collect as much data as possible, but to obtain comparable, verifiable data that franchisees can provide regularly without unnecessary effort.

3. Agree verification rights within Croatia’s legal framework

Croatia has no dedicated franchising law or statutory franchise reporting template. The contractual relationship is governed by the Civil Obligations Act, including the principles of good faith and fair dealing and the rules on fulfilling obligations. Accounting and tax records are governed by the relevant general legislation, depending on the business’s legal status and activities.

A report to the franchisor is therefore no substitute for statutory business records or tax returns. The agreement should link reported amounts to supporting documents against which they can be checked, without creating a parallel system that contradicts official records.

Do not reduce verification rights to a statement that the franchisor ‘may inspect everything’. Define the purpose, scope, notice arrangements, authorised persons, confidentiality safeguards and allocation of costs. In particular, set out the conditions for appointing an independent expert and the procedure to follow if a discrepancy is found.

Where documents contain personal data, the General Data Protection Regulation and Croatia’s Act on the Implementation of the General Data Protection Regulation apply. Aggregate data or documents stripped of unnecessary customer identifiers will often be sufficient to verify turnover. A contractual right of oversight does not, in itself, provide unlimited access rights.

4. Distinguish errors from deliberate concealment

An inaccurate report may result from an incorrect data export, a different interpretation of refunds or the deliberate omission of sales. The verification process should allow the cause to be established before conclusions are drawn.

Set out a clear sequence: notification of the discrepancy, provision of an explanation and supporting documents, reconciliation of the data and, where necessary, adjustment of the fee calculation. The agreement should specify reasonable deadlines and the consequences of repeated failures to meet obligations, subject to legal review of their lawfulness and proportionality.

Do not automatically treat a late report as equivalent to an unpaid fee. These are related but distinct obligations. If you intend to use a provisional fee calculation until the data arrives, specify in advance how it will be calculated and subsequently reconciled.

Practical takeaway: before offering your first franchise, define the fee calculation base, prepare a standard reporting template and agree a verification procedure. If two people arrive at the same result from the same data, you have laid a sound foundation for reliable reporting.