How to Check a Franchise Prospectus Before Buying

A franchise offering prospectus is more than a marketing document. It helps prospective franchisees assess who is offering the business opportunity, examine their track record and check whether sales claims are supported by evidence. In Indonesia’s franchise sector, transparency before signing lays the foundation for a healthy relationship. Here is how to review a prospectus systematically, so that your decision to buy rests on more than an appealing presentation.

1. Understand the purpose of the prospectus and when it must be provided

Indonesia regulates franchising specifically through Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. Be cautious, therefore, about sales materials or sample contracts that still rely solely on the old regulation.

Government Regulation No. 35 of 2024 requires franchisors to provide an offering prospectus to prospective franchisees at least 14 calendar days before the franchise agreement is signed. The prospectus must be in Indonesian. Use this interval to carry out checks, rather than simply waiting for the signing date.

The core information covers the franchisor’s identity and legal status, business history, organisational structure, business system, financial statements, number of business premises, list of franchisees, and the parties’ rights and obligations. Intellectual property should also be checked using relevant information and supporting documents.

Ask for the complete document, with a date or version number. Keep the delivery email as evidence of when you received it. If you are given only a brochure with prices and profit estimates, ask in writing when the official prospectus will be available.

2. Cross-check identities, registration and trade mark rights

Start with a simple question: who exactly will be entering into the contract with you? The brand name on an outlet’s sign is not necessarily the same as the legal name of the franchisor’s business. Any difference needs explaining, but is not automatically a problem.

Compare the business name in the prospectus, legal documents, draft agreement and details of the account receiving payment. If different parties are involved, ask for evidence of their authority. Do not transfer funds to a salesperson’s personal account simply because they ask you to do so by text message.

Also check the franchise registration certificate, known in Indonesia as the Surat Tanda Pendaftaran Waralaba, or STPW. Government Regulation No. 35 of 2024 sets out STPW requirements for businesses operating under the franchise system. Ask for the franchisor’s certificate and verify the identity details through available official channels. An STPW does not guarantee profitability or replace a business viability assessment.

For trade marks, check the owner’s name, protection status and the categories of goods or services covered. If the franchisor does not own the trade mark, ask for an explanation and evidence that it is authorised to grant you the right to use it. Have a legal adviser review any unclear chain of authorisation.

3. Distinguish the company’s financial health from outlet profitability

The franchisor’s financial statements and the projections for a prospective franchisee’s outlet answer different questions. The franchisor may earn revenue from initial fees, royalties or raw material sales, while individual outlets face high rent and staffing costs.

Government Regulation No. 35 of 2024 sets out requirements for demonstrating that the business has been profitable, including through financial statements for the past two years. The requirement for an audit by a public accountant includes an exemption for franchisors classified as micro or small businesses. Do not, therefore, assume that a missing audit report means non-compliance without checking the rules applicable to that franchisor.

To assess the offer commercially, ask the following questions:

• Are the sales figures drawn from actual outlets or merely assumptions?
• Are the example outlets operated by the franchisor or by franchisees?
• Do the profit figures account for royalties, marketing, depreciation, tax and remuneration for the owner’s work?
• Do the calculations include the initial period when sales have yet to stabilise?

If detailed data is confidential, ask whether you can obtain an anonymised summary or carry out a review under a confidentiality agreement. A refusal does not automatically prove fraud, but limitations in the available evidence should be factored into your risk assessment.

4. Check the outlet list through direct conversations

Use the franchisee list to choose several people to speak to, rather than relying only on contacts at top-performing outlets supplied by the sales team. Try to speak with both new franchisees and those who have moved beyond the initial operating period.

Ask whether opening costs matched the offer, how often supplies arrive late and how the franchisor handles complaints. When discussing financial figures, respect their confidentiality and do not press them for private documents.

Also ask about outlets that have closed or changed ownership. Outlet numbers alone do not indicate the health of the network. Closures can have many causes; what matters is whether the franchisor explains them consistently and openly.

Record the dates of your conversations and distinguish each person’s own experience from verified facts.

5. Use your findings to guide the decision

Create a simple table with four columns: sales claim, supporting evidence, unanswered questions and follow-up action. Prioritise discrepancies concerning identity, mandatory costs, operational support and the basis for profit projections.

Make sure important promises in the prospectus or presentation are reflected in the agreement or a binding annex. Do not assume that the prospectus automatically overrides the contract terms. Seek legal and financial review if the commitment is substantial or the documents are complex.

Practical rule: do not sign simply because an offer is about to expire. Obtain the prospectus, cross-check the evidence, clarify discrepancies and decide only once you can clearly explain the obligations and risks in your own words.