Buying a franchise: testing projected turnover

An attractive turnover figure is not enough to justify buying a franchise. You need to understand how it was calculated, which outlets it relates to and whether it is achievable at your proposed location. Joining a franchise network depends on trust, but your decision must also rest on verifiable assumptions. Here is how to test projected sales before you commit.

1. Establish what the quoted figure represents

In your initial discussions, ask the franchisor to clarify what each figure represents: actual recorded sales, a network average, a sales target or a forecast specific to your project. These are not interchangeable.

An average can conceal substantial differences between outlets. Sales at a long-established outlet do not necessarily reflect what a new opening can achieve. An outlet operated directly by the franchisor may also benefit from particular advantages: an established location, an experienced team or local brand recognition.

For each figure, ask for a breakdown specifying:

• the period covered and how long the outlets concerned have been trading;
• the number of outlets included and the selection criteria;
• whether the figure includes or excludes VAT;
• the channels included: in-store sales, delivery, online sales or business customers;
• any temporary closures, promotions or exceptional events.

Look for comparable outlets rather than spectacular results. A location similar to yours in size, customer base and trading environment will generally provide a better benchmark than a flagship site.

2. Build sales estimates from local evidence

Do not start solely with an annual sales target. Build the figure from the way the business actually operates. For a retail business, you might use: daily transactions × average transaction value excluding VAT × trading days. For a service business, look instead at the number of services delivered, their prices and the capacity available.

Every assumption needs supporting evidence. Count footfall outside the premises across several representative time slots. Observe shopping habits, access, competitors and differences between weekdays and weekends. A busy street does not guarantee that passers-by are your target customers.

Next, check operational capacity. Are the projected sales achievable with the proposed seating capacity, workstations, opening hours and staffing levels? A theoretically full appointment diary does not account for cancellations, administrative tasks or quiet periods.

Meet several franchisees, with their agreement and with due respect for confidential information. Ask about their start-up period, seasonality and the gap between their initial assumptions and actual results. Always distinguish observed facts from personal opinions. These conversations supplement your local market research; they do not replace it.

3. Understand the legal significance of forecasts

In France, pre-contractual disclosure is governed in particular by Article L. 330-3 of the French Commercial Code, introduced by the legislation known as the Doubin Law, and Article R. 330-1. These rules apply when a business makes a trading name, trademark or brand available while requiring an exclusive or near-exclusive commitment for the activity concerned.

Where these conditions are met, the pre-contractual disclosure document and draft contract must be provided at least twenty days before signing or, where applicable, before any advance payment, notably to reserve a territory.

This obligation does not, in itself, require the franchisor to provide a tailored profit and loss forecast. The overview of the general and local market required by the legislation is not a guarantee of turnover. Prospective franchisees remain responsible for assessing the financial viability of their project.

However, if the franchisor supplies forecasts, these must not be misleading and must have a sound basis. A gap between forecast and actual results does not, on its own, establish fault: the assumptions, information available and operating conditions must all be examined.

Keep presentations, emails, spreadsheets and successive versions of the forecasts. Ask in writing for the sources of the data and any associated qualifications. If you identify a significant inconsistency, have a lawyer review the material before making any commitment.

4. Turn your checks into a purchase decision

With an independent accountant, build three scenarios: base case, cautious and adverse. Vary the factors identified through your local research, such as footfall, average transaction value or the rate of customer acquisition, rather than applying an arbitrary reduction to the final figure.

For each scenario, check whether the business can cover its operating costs, your intended remuneration and its financial commitments. High turnover may still be insufficient if sales generate low margins or require more staff.

Finish with a simple table: assumption, available evidence, uncertainty and action required. Any critical assumption that remains unverifiable warrants further investigation, or even postponing the decision.

Key takeaway: before buying, ask for an explanation of the projected sales, test it against local conditions and have your assumptions scrutinised. A useful forecast is not a promise: it is a line of reasoning you can verify.