Franchise disclosure: a guide for new franchisors in Finland

When you turn an established business into a franchise network, your first prospective franchisee needs more than a compelling presentation of the concept. They must be able to assess the investment, the work involved and the contractual risks. A written pre-contract information pack makes recruitment more consistent and reduces misunderstandings. It is particularly important for a new network whose track record still rests on the founder’s own outlets rather than the experience of independent franchisees.

1. Understand the Finnish legal framework

Finland has no dedicated franchising act, statutory register of franchise networks or specific legislation governing franchise disclosure documents. Nor is there a general statutory cooling-off period applicable to franchising. This does not, however, mean that prospective franchisees may be given incomplete or misleading information.

General principles of contract law and the Finnish Contracts Act apply to the formation of an agreement. Fraudulent inducement or material misrepresentation, for example, may affect whether an agreement is binding, and unreasonable terms may be adjusted. The Finnish Unfair Business Practices Act prohibits, among other things, false or misleading statements that may affect demand for or supply of goods or services, or harm another business.

Contract terms are also subject to the Finnish Competition Act and EU competition rules. The use of the concept’s branding is governed by the Finnish Trademarks Act, the protection of confidential know-how by the Trade Secrets Act, and the processing of applicants’ personal data by the EU General Data Protection Regulation and the Finnish Data Protection Act. A business agreement with a franchisee is generally not a consumer contract.

The Finnish Franchising Association’s code of ethics is industry self-regulation, not legislation. It emphasises providing material information in writing well before any commitment is made. Obligations arising from membership, and any incorporation of the code into the agreement, must be assessed separately. Do not present the association’s practices as statutory requirements.

2. Build the information around the franchisee’s decision

A pre-contract information pack is not simply a sales brochure, nor is it the same as an operations manual. Its purpose is to explain what the franchisee is buying, what they are committing to and what is actually known about the business. Include at least the following:

• The contracting party: company name, Finnish Business ID, ownership, key people responsible and the background to its franchising activities.
• The concept’s track record: where and how the model has been tested, how long it has been operating, and which outlets are company-owned and which are franchisee-operated.
• Rights granted: which brand assets and know-how the franchisee may use, and the basis on which the franchisor holds rights to them.
• Division of responsibilities: training, opening support and ongoing support provided by the franchisor, alongside the franchisee’s own responsibilities.
• Financial obligations: initial investment, joining and ongoing fees, system costs, marketing contributions and any compulsory purchases.
• The agreement’s lifecycle: duration, renewal, termination, sale of the business and obligations when operations cease.

Also explain material restrictions, such as those relating to territory, online sales and the choice of suppliers. State clearly whether the franchisee receives territorial exclusivity. An area marked on a map does not, by itself, explain the scope of those rights.

Describe the support in concrete terms. If you promise opening support, specify whether this means remote advice, on-site assistance or both. Explain what is included in the fees and what is charged separately. This also helps you assess whether your own organisation can deliver on its promises.

3. Separate actual figures from forecasts

Strong results from an existing business do not, in themselves, demonstrate that a future franchise outlet will be profitable. The founder may work long hours without taking a market-rate salary, own the premises or benefit from exceptionally strong local recognition. You cannot assume that these advantages will transfer to a new franchisee.

Present actual figures separately. State the period covered, the outlet’s operating environment and what the calculations include. Clarify, for example, whether turnover is shown excluding VAT and whether costs include an allowance for the franchisee’s work, rent, franchise fees and systems. Do not describe a margin as the franchisee’s personal earnings.

Prepare a separate forecast for the proposed outlet. Set out its key assumptions: customer numbers, average transaction value, staffing requirements, premises costs and how quickly trading is expected to build up. Also consider lower sales and a delayed opening. A turnover target alone does not show how much working capital will be needed.

If the network does not yet have actual performance data from franchisees, say so plainly. Do not imply that results from company-owned outlets constitute evidence of franchisee performance. A disclaimer will not remedy misleading calculations: the assumptions behind forecasts must themselves be understandable and justifiable.

Ask the candidate to prepare their own funding and cash-flow projections with an accountant or another adviser. The franchisor’s calculations are information to support a decision, not a promise of a particular return.

4. Make disclosure a controlled process

Decide in advance at what stage of recruitment the information pack will be provided. A non-disclosure agreement may be used to protect confidential information, but it should not be used to conceal material information about risks. The candidate must have a genuine opportunity to assess the proposal as a whole before signing a binding agreement or committing to a payment.

Provide the current draft agreement and its material schedules at the same time. If the operations manual sets out significant obligations, give the candidate a proper opportunity to review them. In particular, check that the sales brochure does not promise more extensive support or stronger territorial protection than the agreement provides.

Keep a record of the version supplied and the date it was sent. Address questions in writing and promptly correct any errors identified. If fees, investment requirements or other material terms change, provide updated information and allow sufficient time for it to be assessed. An acknowledgement of receipt provides evidence that the material was delivered, but does not remove responsibility for its accuracy.

Practical summary: prepare a single, version-controlled pre-contract information pack, separate facts from forecasts and have it checked for consistency with the agreement. Only begin taking binding commitments from prospective franchisees once you can substantiate every material promise in writing.