Estimating Sales Before Franchising: Why Company-Owned Store Results Are Not a Promise

When turning an existing business into a franchise, one question needs particular care: “How much could I sell at this location?” The results of a company-owned store run by the founder for years reflect established customers, operational expertise and distinctive location advantages. Presenting those results unchanged as a new franchise’s expected sales can distort investment decisions. Building a healthy franchise community starts with a defensible estimation process, not impressive numbers. Before the first consultation, decide which evidence you will use and what you will explain.

1. Distinguish mandatory sales estimate statements from voluntary explanations

In South Korea, the Fair Transactions in Franchise Business Act governs the information franchisors provide. Article 9 prohibits false, exaggerated and deceptive information. Being a small franchisor does not mean you can freely make unsupported sales projections. These prohibitions also apply to small franchisors exempt from some other provisions of the Act.

A statutory sales estimate statement is required from franchisors that do not qualify as small or medium-sized enterprises, or that had at least 100 franchisees at the end of the preceding financial year. These franchisors must provide a written range of expected sales and the basis for its calculation when entering into a franchise agreement. The calculation must follow the Enforcement Decree, so an in-house business plan spreadsheet should not be used as a substitute for the statutory document.

Even if you are not required to provide the statutory statement, supplying sales or earnings information calls for care. Check the requirements under Article 9 to provide information in writing and to keep supporting calculation records available for inspection. Avoid giving figures only verbally during consultations or sending a single number through a messaging app.

The requirements for registering and providing a franchise disclosure document are also separate from those relating to sales estimates. Average sales figures for existing outlets in a disclosure document do not amount to an explanation of expected sales at a particular proposed site. Equally, providing sales estimates does not fulfil your disclosure document obligations. Before recruiting franchisees, it is prudent to ask a qualified franchise transaction specialist or solicitor familiar with Korean franchise law to review your position, taking account of your business’s size and the information you intend to provide.

2. Identify conditions in company-owned store data that may be difficult to replicate

Start with verifiable source records, not your best month’s sales. Cross-check point-of-sale data, delivery platform settlement records, refunds and trading-day records. Use consistent definitions: do sales include VAT, have cancelled orders been excluded, and are figures stated before or after delivery commissions? Averaging figures calculated on different bases produces results that may look credible but offer no meaningful comparison.

Record each month’s operating conditions alongside its sales figures. Flag non-recurring events such as opening promotions, television coverage, large group orders, temporary closures or nearby construction work. Do not discard data simply because it produces an inconvenient result; record why each item was included or excluded.

For a store run directly by the founder, check the following in particular:

• Did the founder’s personal reputation or existing customer relationships influence orders?
• Did the store have more seating or better parking than a typical franchise outlet?
• Did free assistance from head office staff increase the volume of orders it could handle?
• Did it sell products or services that other outlets would not offer?

These conditions are not merely footnotes: they determine how widely the data can be applied. If a new franchise outlet is unlikely to reproduce them, explain the differences explicitly. If you have only one company-owned store, the key is not to imply that its results have been replicated across several trading areas.

3. Match comparable outlets to the proposed site’s conditions

For internal analysis, prioritise outlets with conditions similar to the proposed site rather than those with the highest sales. Compare floor area, opening hours, seating capacity, delivery share, residential and workplace demand, and time since opening. When preparing a statutory sales estimate statement, keep this internal comparison separate: it must not replace the calculation criteria in the Enforcement Decree.

In your comparison table, record the performance period and the reason for selecting each outlet. If you exclude any outlets, document why. Avoid excluding stores merely because sales are low, or presenting peak-season figures as representative of ordinary trading. A small sample size is itself relevant information for anyone assessing the figures.

Any adjustment for differences at the proposed site needs supporting evidence. Do not apply an arbitrary uplift to company-owned store sales simply because footfall appears higher. Check the times observed, the nature of local demand, competing outlets and actual order-handling capacity. Separate unverified assumptions from confirmed findings.

For example, a company-owned store may receive most of its orders at weekday lunchtimes, while the proposed site mainly attracts weekend visitors. Comparing monthly sales totals alone can obscure differences in staffing needs and sales mix. Examine order patterns by time of day to judge whether the same operating model is suitable.

4. Explain sales projections and franchisee profitability in separate documents

Expected sales are not the money the franchisee will take home. Alongside the sales explanation, provide a separate profitability assessment showing major costs such as ingredients or materials, rent, wages, delivery-related charges and royalties. Do not allow this assessment to be confused with the statutory sales estimate statement.

Make it clear if the figures assume the franchisee will work in the business. Excluding payment for the owner’s labour from costs may make the cash balance look comfortable while giving a different picture of the actual return on investment. It is also sensible to examine cash outflows that operating profit alone does not capture, such as loan principal repayments and tax, as separate items.

For internal review, also calculate scenarios involving lower sales or a slower-than-expected start after opening. The assumptions used are conditions for assessing risk, not figures that guarantee forecast accuracy. If you share these scenarios with prospective franchisees, clearly distinguish assumptions from actual results and explain the basis for each condition.

Adding “sales are not guaranteed” does not make inaccurate information acceptable. Table headings, the adviser’s explanation and the figures highlighted must all convey the same message. Check, too, for situations where a written range is provided but only the highest figure is repeatedly mentioned in consultations.

5. Manage calculation files and records of information provided together

Before recruiting your first franchisees, appoint someone to approve sales information. Have one person prepare the calculations and another check them against the source records, then use only approved versions in consultations. Keeping the preparation date, data cut-off date, proposed site, comparable outlets, formulas, assumptions and reviewer details together makes it easier to trace the reasons for revisions.

Record which documents were given to each prospective franchisee and when. If the proposed site or operating conditions change, review the information rather than simply reusing it. Mark what has changed in each revised version and why, and clearly explain that it replaces the previous material. Your retention procedures must also reflect the statutory requirement to keep copies of mandatory sales estimate statements for five years.

After opening, compare actual results with the original assumptions. If there is a discrepancy, examine the assessment of the trading area, trading days, sales mix and head office support arrangements before attributing responsibility to the franchisee. These records will help you give more accurate information to the next prospective franchisee.

Practical takeaway: Before your next consultation, link your company-owned store source data, comparison table, calculation evidence and records of information provided. Trust starts with refusing to promise sales you cannot substantiate and strengthening the evidence where it is insufficient.