Franchises in Guatemala: checking projected profitability

A presentation showing attractive sales figures does not prove that your future franchise will be profitable. Before entering Guatemala’s franchise market, you need to understand where the figures come from and what conditions must be met to achieve them. This review is not about asking for a promise of profits, but about turning a sales projection into a model you can verify and discuss with your accountant.

1. Identify what the figures represent

Ask the franchisor to distinguish between historical results from existing outlets, budgets for outlets that have not yet opened and estimates for your proposed location. These are not equivalent: actual results can provide a benchmark, whereas estimates depend on assumptions that have yet to be tested.

For each significant figure, ask for the period it covers, its source and the calculation method. If average monthly sales are quoted, ask how many outlets were included and whether they all traded throughout the full period.

Also clarify:

• Whether the data relates to company-owned or franchised outlets.
• Whether it includes recent openings or only established businesses.
• Whether outlets that closed, relocated or made losses were excluded.
• Whether sales figures include taxes and account for returns or discounts.
• Whether the results relate to the same format you would be buying.

An average without context can hide significant differences. Where possible, request the median and range of results as well as the average. If the brand cannot share identifiable information about other outlets, suggest reviewing aggregated or anonymised data. Confidentiality does not make an unsupported figure sufficient evidence.

2. Check whether the outlets are comparable

A profitable franchise in another city does not prove that your outlet will perform in the same way. Compare size, opening hours, time in business, footfall, nearby competition, sales channels and customer profiles.

Separate factors inherent to the franchise system from those that depend on an exceptional location. An outlet with a captive customer base or particularly favourable rent may not be a representative benchmark.

Create a comparison sheet with three columns: the benchmark outlet’s figures, the assumptions for your outlet and the reasons for any differences. If similar sales are expected with less space or fewer staff, ask what evidence supports that level of productivity.

Pay particular attention to the start-up period. Do not automatically apply an established outlet’s sales figures from your first month. Request a month-by-month forecast that distinguishes the learning curve, seasonality and sustained growth.

Where local evidence is missing, make that limitation explicit in the model. Uncertainty should be reflected in the scenarios, not hidden behind a precise figure.

3. Reconstruct the profit forecast and test its limits

Ask for a spreadsheet with visible formulae, not just a presentation. Start by breaking down revenue into the number of transactions, average transaction value and trading days. Check whether the premises have the capacity to handle the expected volume.

Next, establish what ‘profit’ means in the proposal. It may refer to earnings before certain expenses, rather than money available to the owner. Check with your accountant whether the forecast includes royalties, advertising, payment processing fees, wastage, maintenance, insurance and remuneration for whoever will manage the business, even if that is you.

Distinguish accounting profit from cash flow. Loan principal repayments and asset replacement affect available cash differently from ordinary expenses. Nor should you confuse recovering your investment with making a profit for a few months.

Prepare a base-case and a downside scenario, changing specific assumptions: fewer transactions, a lower average transaction value or higher costs. You do not need arbitrary percentages; use ranges supported by quotations, observations and available data.

Calculate the break-even point and specify which obligations it covers. A business may cover its operating expenses without generating enough cash to meet debt repayments, taxes and the owner’s financial needs.

4. Document claims within Guatemala’s legal framework

Guatemala has no specific franchise law or special mandatory pre-contractual disclosure regime for these arrangements. Franchise contracts are governed by the Commercial Code, with the Civil Code applying where supplementary provisions are needed. The Industrial Property Law, Decree 57-2000, regulates matters such as trade marks and their licensing, but does not certify financial projections.

Do not therefore assume that an official format exists to validate advertised earnings. Keep copies of each version of the proposal, the spreadsheets and written answers about their assumptions.

Ask a Guatemalan lawyer to review how these claims relate to the contract, particularly if it contains clauses excluding earlier projections or representations. An estimate does not automatically amount to a guarantee; any commitment concerning results requires specific legal review.

Practical conclusion: before investing, insist that every figure critical to your decision has a source, an understandable assumption and a sensitivity test. If you cannot explain how the business would achieve its projected profitability, you do not yet have a sufficient basis for deciding.