Keeping Promotional Claims in Franchise Offers Under Control

When an established business begins franchising, promotional materials are often the first place where exaggerated promises appear. Phrases such as “guaranteed profits” or “just sit back and collect the returns” can create expectations that do not reflect a franchisee’s responsibilities. In franchising, trust needs to be built from the very first offer. Business owners therefore need to keep marketing claims under control before brochures, presentations and sales messages are circulated.

1. Distinguish legal obligations from marketing messages

The main legislation governing franchising in Indonesia is Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. It sets out the criteria for a franchise, including a business system, a business that has already generated profits, recorded or registered intellectual property, and ongoing support.

These criteria do not justify claiming that every new outlet is certain to succeed. Evidence of the franchisor’s business success is not the same as a guarantee of results for prospective franchisees. Location, rent, management capabilities and demand can all lead to different outcomes.

Government Regulation No. 35 of 2024 also requires the Franchise Offering Prospectus to be provided at least 14 calendar days before the Franchise Agreement is signed. At a minimum, the prospectus must cover identity details, the business’s legal status, its history, organisational structure, business system, financial statements for the previous two years, the number of outlets, a list of franchisees, and intellectual property documents.

A marketing brochure is no substitute for this prospectus. Nor should a short presentation be used to obscure important information. Use the prospectus and draft agreement as reference points when reviewing promotional materials, rather than checking that they match only after a prospective franchisee has agreed to proceed.

2. Separate facts, projections and promises

Before publishing an offer, place each statement into one of three categories. This is a recommended internal control measure, not a mandatory format prescribed by Government Regulation No. 35 of 2024.

• Historical facts: information about what has actually happened and can be supported by evidence, such as the number of outlets operating on a particular date.
• Projections: calculations based on assumptions, such as estimated cash flow at a given level of sales.
• Service commitments: actions the franchisor will actually take, such as providing training for the opening within the agreed scope.

For historical facts, record the source, period and scope. Figures from one top-performing outlet must not be presented as though they represent the whole network. Also distinguish company-owned outlets from franchised outlets so that readers understand the context.

For payback projections, show the basis of the calculation: initial investment, working capital, turnover, material costs, wages, rent, royalties and other relevant expenses. Explain whether the figures shown represent accounting profit or cash flow. The two do not necessarily produce the same payback period.

Include scenarios in which sales are lower or costs are higher. Avoid presenting projected results as certainties. The phrase “based on the following assumptions” is more useful than small print that merely says results may vary without explaining why.

3. Establish a review process before publication

Create a list of claims across every channel used to promote the offer: websites, social media, exhibition brochures, presentations, chat messages and sales call scripts. Do not limit checks to official advertising; promises often arise in staff members’ spontaneous replies to prospective franchisees.

For each claim, keep a record of four things: the wording, supporting evidence, the person responsible for reviewing it, and the circumstances that would require an update. For example, a change in equipment prices should trigger a fresh review of claims about the total investment required.

Allocate review responsibilities clearly. The finance team checks figures and assumptions. The operations team confirms that promised services can actually be delivered. The person responsible for legal matters assesses consistency with the offering documents and agreement. The business owner gives final approval once any discrepancies have been resolved.

Apply a simple rule: do not publish claims that lack evidence or promises you cannot deliver. If support is available only online, do not advertise it as unlimited in-person assistance. If the package excludes rent and working capital, do not describe its price as the full amount needed to open the business.

4. Manage sales conversations and correct mistakes

Give the sales team approved answers to sensitive questions, particularly those about profits, payback periods, the owner’s level of involvement and operational support. Teach them to say that something needs to be confirmed rather than offer unfounded assurances.

When prospective franchisees ask for a profit guarantee, explain the difference between the business’s track record and projections for their own outlet. Encourage them to assess cost assumptions and management requirements independently, seeking advice from an adviser where necessary.

If an incorrect claim has already been made, stop using it and send a written correction to the prospective franchisees who received it. Keep a record of the correction and answers to follow-up questions. Do not assume that quietly amending the website resolves misunderstandings created in earlier conversations.

Practical step: before launching the franchise offer, bring all promotional materials together in a single review checklist. Make sure every figure has a basis, every projection states its assumptions, and every service promise is consistent with both your ability to deliver and the agreement.