Franchises in Guatemala: negotiate minimum sales targets

A brand may present a sales target as a commercial benchmark while also including it in the contract as an obligation. Before buying a franchise in Guatemala, make sure you understand the distinction: falling short of a forecast should not automatically be treated as a breach of contract. In franchising, clear targets help align expectations without passing on risks that the buyer has not assessed.

1. Distinguish a forecast from an enforceable obligation

Look for every reference to minimum sales, performance quotas, commercial targets and mandatory volumes. Do not limit your review to the financial provisions: these requirements may appear among the franchisee’s obligations or the grounds for breach of contract.

A forecast estimates what an outlet might sell under certain assumptions. A management target guides the team’s work. A contractual sales obligation may trigger agreed consequences if it is not met. Even if they use the same figure, they serve different purposes.

Ask the franchisor to confirm in writing which category each target falls into. If a sales presentation describes a target as a guideline, but the contract allows the relationship to be terminated for failing to meet it, you need to resolve that contradiction before signing.

Also ask whether the requirement measures sales to end customers or purchases from the franchisor. Buying stock to meet a quota is not the same as selling it: it can tie up cash and leave you with unsold products.

2. Define a formula that both parties can verify

A clause requiring “satisfactory sales” leaves too much room for interpretation. It is better to replace it with a verifiable formula and a clearly defined measurement period.

At a minimum, agree on the following:

• Unit of measurement: revenue in Guatemalan quetzales, units sold or another clearly defined measure.
• Calculation basis: how VAT, returns, discounts, cancellations and credit sales are treated.
• Period: monthly, quarterly or annual, specifying whether each period is assessed separately or cumulatively.
• Attribution: how online orders, home deliveries and transactions shared with other outlets are counted.
• Evidence: which reports will be used to verify results and how errors will be corrected.

If the target is expressed in a foreign currency, define the exchange rate and conversion date. Otherwise, exchange rate movements could affect whether you meet the target even if the underlying business activity remains unchanged.

Also ask how the target will be updated. An annual review should not mean that one party can raise it without previously agreed criteria. Request a methodology and establish what happens if the parties cannot agree on the new figure.

3. Match the requirement to actual operating conditions

Do not assess only whether the target seems achievable when everything runs smoothly. Consider what would happen during the launch phase, in quieter months or when obstacles arise beyond your control.

Negotiate an initial settling-in period and, where appropriate, phased targets. A newly opened outlet will not necessarily have the customer base or capacity of an established operation. Ask why the proposed timetable is considered appropriate for your outlet.

Next, review situations that could distort the measurement: shortages of essential products, ordering system outages, mandatory closures or interruptions to essential services. Do not assume that these circumstances automatically remove the obligation. The contract should specify which circumstances allow the target to be adjusted or suspended, how they must be documented and who must be notified.

Work with your accountant to model scenarios in which sales fall below expectations. The aim is not to validate a sales promise, but to determine whether trying to meet the quota through discounts or additional purchases would damage margins and cash flow. An outlet can meet a target and still suffer financially.

4. Agree proportionate consequences under Guatemalan law

Guatemala has neither a specific franchise law nor a specific mandatory pre-contractual disclosure regime for franchise agreements. The relationship falls under general legislation, including the Commercial Code, Decree 2-70, the Civil Code, Decree-Law 106, and, for trade marks and other protected rights, the Industrial Property Law, Decree 57-2000.

Do not therefore assume that there is a special statutory period in which to remedy a failure to meet a franchise target. Have the agreement reviewed by a local legal adviser and expressly negotiate a sequence of steps: documented notice, verification of the calculation, analysis of the causes and an opportunity to implement a corrective action plan.

Distinguish an isolated shortfall from repeated failures. Also check whether a single shortfall triggers several consequences at once, and avoid accepting penalties you do not understand. Any agreed adjustments should be documented; informal tolerance is no substitute for a clear contractual amendment.

In practice: before signing, summarise each target in a brief record covering its formula, measurement period, exceptions and consequences. If any of these elements remains unresolved, you still have a significant financial obligation to negotiate.