Preparing Sales Projections Before Franchising: How to Separate Actual Results from Forecasts

When turning a successful business into a franchise, one question calls for particular care: “How much can I expect to sell?” The sales achieved by the owner may be real, but they do not prove what someone else can achieve at a different location. Building a healthy franchise network means explaining where the figures come from and what their limitations are, rather than simply presenting impressive numbers. This article focuses on how an existing business can verify and manage the sales information it gives prospective operators of its first franchise outlets in South Korea.

1. Check the legal obligations governing sales projections first

Franchising in South Korea is governed by the Fair Transactions in Franchise Business Act. Article 9 prohibits providing prospective or existing franchisees with false or exaggerated information, or misleading them by omitting material facts. This is why you need to manage not only formal proposals, but also presentations at information sessions, statements made during consultations and sales figures shared by text message.

If a franchisor provides information about expected future earnings, such as projected sales or profits, it must do so in writing. It must also keep the supporting calculation records available and be ready to respond to inspection requests made under the Act. Simply adding “for reference only” does not resolve the problem of an unsupported forecast.

In addition, 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, must provide a sales projection statement when entering into a franchise agreement. The statement must follow the calculation methods and parameters prescribed by law and be retained for five years from the date the agreement is signed. Even a small business newly moving into franchising remains subject to the obligations governing any earnings projections it chooses to provide.

Ask a qualified franchise transaction specialist or lawyer to confirm whether these requirements apply to you and how to prepare the documents under the latest legislation and enforcement decree. Do not assume that an internal reference spreadsheet automatically replaces the statutory statement.

2. Turn company-owned outlet results into verifiable records

The first task is to organise past results, not predict the future. Align the reporting periods for point-of-sale system records, delivery platform settlement statements, card sales and cash transactions. When combining sources, check the transaction channels to ensure the same sale is not counted twice. You should be able to explain any differences between these records and your tax filings.

Recording the following details alongside each source will reduce confusion when making comparisons:

• The reporting period, actual trading days, and any days when the outlet was closed or operated reduced hours
• Whether figures include VAT and how cancellations and refunds are treated
• Whether figures show sales before discounts or the amounts actually paid
• The split between in-store and delivery sales, and the difference between settlement payments and sales revenue
• Any opening promotions, one-off bulk orders or special-event sales

In particular, do not describe orders generated by the owner’s personal reputation, or purchases by personal contacts, as ordinary customer demand. Rather than arbitrarily removing these transactions, show total results and identify their impact separately.

Sales and profit must also be kept distinct. An outlet with a high proportion of delivery orders may generate substantial revenue, but commissions and packaging costs can change how much it retains. If you use the term “net profit” alongside a sales table, explain separately which costs have been deducted. Any unpaid work done by the owner must also be disclosed when explaining profitability.

3. Distinguish comparable outlets from those that are not

The success of one company-owned outlet does not mean every outlet under the same brand can achieve the same sales. Customers visit an outlet near a railway station for different reasons from one in a residential neighbourhood. Likewise, a spacious sit-down venue differs from a takeaway-focused operation. Select comparable outlets because their conditions have a clear, explainable relationship to the proposed outlet, not because their results look good.

In practice, prepare an outlet comparison table showing floor area, local trading environment, opening hours, seating capacity, delivery area and length of time in operation. A comparison table devised by the franchisor is a supporting explanatory document. Where a statutory sales projection statement is required, the prescribed legal criteria must take precedence.

Record why any outlets have been excluded. Omitting only low-performing outlets while selecting high-performing ones can give a misleading impression of overall results. If an outlet is difficult to compare—for example, because it was closed for an extended refurbishment—set exclusion criteria in advance and apply them consistently.

If you have only one company-owned outlet, start by stating that limitation openly. Do not present limited data as an average that can be replicated anywhere in the country. If customer demand at the proposed location has not yet been established, list the unconfirmed conditions separately and avoid definitive sales forecasts until further research has been completed.

4. Show actual results, assumptions and forecasts in separate columns

Materials given to prospective franchisees must not blur verified facts with the franchisor’s judgement. For example, monthly sales at an operating outlet are actual results. The premise that the proposed outlet will maintain the same opening hours is an assumption. Future sales calculated on that basis are a forecast. Even if all three appear in one table, give them clearly separated columns and headings.

Your explanatory materials should answer the following questions:

• Which outlets and reporting periods supplied the data?
• How do their conditions differ from those of the proposed outlet?
• What calculations produced the result?
• Which assumptions remain unverified?
• What factors could materially change the result?

Providing a sales range does not automatically make a projection safe. Both the lower and upper limits need a reasonable basis, and where a statutory statement is mandatory, the prescribed calculation criteria must be followed. Avoid relabelling an internal sales target as an objective sales forecast.

Adding an investment payback period to a sales forecast also amounts to a separate explanation of expected returns. The result will change with assumptions about initial investment, rent, staffing costs, financing costs and other expenses. Do not simply divide the investment by sales revenue and present the result as a payback period. Leave out any claims you cannot substantiate.

5. Share only approved materials and retain the supporting evidence

Even a sound spreadsheet loses its value if a different story is told during consultations. Assign responsibility for preparing, reviewing and giving final approval to sales-related materials, and allow only approved versions to be used. In a small franchise business, one person may perform several roles, but it is still advisable to record the review date and what was checked.

Mark externally shared materials with their preparation date, reference period and version number. Staff handling consultations should record which materials were given to each prospective franchisee. They should also retain any numerical answers to follow-up questions together with their supporting evidence. Apply the same standards to anyone recruiting franchisees on your behalf.

The records you retain should include source sales data, reasons for selecting comparable outlets, formulae, a list of assumptions, approval history and the versions actually supplied. Retain statutory statements for the legally required period. For other materials, establish a retention policy that considers both potential disputes and personal data protection.

If an error is discovered, do not quietly replace the existing file. Identify the affected recipients, explain the correction and its reason, and record delivery of the revised version. If lease terms or operating arrangements change significantly, reassess whether the previous forecast is still suitable for use.

Action summary: Before your first consultation, select one set of sales materials and label the actual results, assumptions and forecasts separately. Remove or recheck any figure whose source or calculation you cannot explain. Trust within a franchise network begins with verifiable evidence, not promises of strong results.