Buying a Franchise: Clarify Minimum Turnover Requirements

An attractive franchise network may have clear expectations for your business’s performance. But there is a significant difference between an ambitious budget and a contract requiring a specific minimum turnover. Before buying a franchise in Denmark, check which performance requirements you are taking on, how they are measured and what happens if sales fall short of expectations.

Distinguish between a target and a binding obligation

Turnover requirements may appear in several places: the franchise agreement, an appendix, a development plan or an operations manual. Start by finding every provision relating to sales targets, minimum turnover, growth and performance requirements. Also check which documents the agreement makes binding.

A budget can be a planning tool without guaranteeing a particular result. Conversely, wording stating that the franchisee ‘must achieve’ a certain turnover may create a contractual obligation. The label alone does not settle the matter; the wording and context need to be assessed.

Ask the franchisor to place each requirement in one of three categories:

• Indicative target: Used for planning and discussion, with no penalty triggered solely by missing it.
• Review trigger: Leads, for example, to a meeting or a joint action plan.
• Binding minimum requirement: May have agreed financial or contractual consequences.

In particular, clarify whether approving next year’s budget also means accepting a new binding minimum. A routine budget discussion should not inadvertently extend your obligations.

Understand Danish rules and the importance of the agreement

Denmark has no specific franchise law, no franchise-specific registration scheme and no statutory standard disclosure package that must be provided before signing. General requirements, such as business registration, still apply.

Franchise agreements are assessed under the Danish Contracts Act and general principles of Danish contract law. Freedom of contract is the starting point, but legislation including the Danish Competition Act and Marketing Practices Act may also be relevant. There is no specific Danish franchise rule setting a permissible minimum turnover level or automatically granting you a start-up period.

The absence of specific disclosure requirements does not mean that a franchisor is free to withhold material information. Depending on the circumstances, general duties of good faith and disclosure may require material information to be provided during negotiations. Misleading information can have legal consequences, but this depends on the particular situation.

Your practical protection therefore lies primarily in clear, realistic contractual terms. Ask a lawyer to assess whether the performance requirements are unambiguous and what consequences failing to meet them could actually have. Do not assume that a demanding sales target is automatically unenforceable.

Make measurement clear and realistic

A turnover figure alone is not precise enough. The agreement should explain what counts towards it, when sales are recorded and who can check the calculation.

Get answers to these questions:

• Is turnover measured including or excluding VAT?
• How are discounts, returns and cancelled orders treated?
• Do sales through the network’s website count when your outlet supplies the goods or services?
• When are gift cards, advance payments and longer-term customer contracts included?
• Is turnover measured monthly, by calendar year or over a rolling period?
• Which system provides the underlying data, and how are recording errors corrected?

The measurement period matters greatly. A seasonal business may fall below a monthly requirement even when its total annual sales are satisfactory. For a new outlet, the parties should also consider agreeing to assess performance from its actual opening date rather than over a full accounting period.

Turnover is not the same as a financially healthy business. Ask your accountant to calculate whether the target can be achieved with a sustainable profit after the cost of goods, staffing and other expenses. A requirement may be problematic if you can only meet it through discounts or extra capacity that make sales unprofitable.

Agree on reviews and consequences in advance

Read the performance requirement alongside the clauses setting out its consequences. Do lower sales simply trigger a discussion, or could they affect your rights or lead to termination of the agreement? Also look for minimum payments due regardless of actual turnover.

A practical starting point for negotiations is a staged process: a joint review of the figures, an analysis of the causes and then a specific plan allocating responsibilities and setting deadlines. This is a suggested contractual arrangement, not an automatic statutory right.

Also agree on how circumstances beyond your control will be handled. These might include a delayed opening, prolonged supply failures or outages in shared ordering systems. Specify whether such events allow for an adjustment and what evidence is required. Avoid leaving the entire issue to the franchisor’s sole discretion.

Practical takeaway: Only sign when you can explain the minimum requirement in your own words: what is measured, over which period, with what exceptions and with what consequences? A successful franchise network needs shared ambitions, but it also needs transparent ground rules.