Buying a Franchise in Lebanon: Scrutinising Sales Forecasts and Break-Even Figures

A brand may look attractive because its financial presentation promises a quick return on investment, but strong sales at one outlet do not prove that your location will achieve the same results. Before buying a franchise in Lebanon, turn forecasts into assumptions you can test. This scrutiny helps prospective franchisees choose a brand that suits their financial capacity, rather than one that simply presents convincing figures on paper.

1. Understand what the figures represent

Start by asking what each figure represents: actual results from an existing outlet, an average across several outlets, or an estimate prepared by the sales team? Ask what period it covers, where it comes from, and whether it includes taxes, discounts and returns. Do not compare gross sales in the franchisor’s presentation with net sales in your business plan.

Also ask for franchisor-operated outlets to be separated from those run by franchisees. The costs allocated to them, or the way management services are charged, may differ. If you are given a network average, ask how many outlets it covers, why any were excluded, and how long each has been operating. Excluding closed or struggling outlets can make the picture look more optimistic than it really is.

Lebanon has no comprehensive franchise-specific law, nor a general franchise-specific framework requiring a pre-sale disclosure document or registration of a franchise agreement as such. The relationship is governed primarily by the Code of Obligations and Contracts, the Commercial Code and other relevant rules, depending on the issue. Do not therefore assume there is a mandatory legal format for earnings forecasts or an automatic, specific right to inspect the network’s accounts.

This does not mean that providing misleading information is permissible; liability is assessed under general legal rules and the facts of each case. Keep dated copies of presentations and correspondence, and ask a Lebanese lawyer to review disclaimers relating to forecasts, particularly if those forecasts underpin your investment decision.

2. Check whether comparable outlets are relevant to your location

The most useful benchmark outlet is not necessarily the one with the highest sales, but the one whose circumstances most closely resemble your proposed business. Where necessary, ask for aggregated or anonymised data to protect confidentiality, alongside enough explanation to make the comparison meaningful. If sufficient evidence cannot be provided, treat the forecast as an unproven assumption, not a financial fact.

Create a comparison table covering:

• Location type, footfall and opening hours.
• Outlet size, seating capacity or service capacity.
• How long the outlet has been operating and how established its customer base is.
• The proportion of sales made in-store, through delivery and via other channels.
• Local pricing, competition and seasonal patterns.

Next, break forecast sales down into their components: daily transaction numbers, average transaction value and trading days. Ask how each was estimated, then test it by observing the location on different days and at different times, reviewing competitors’ offerings and assessing the outlet’s operating capacity.

Forecast sales may be theoretically possible yet require more orders than the kitchen or service team can handle. Test peak periods separately from daily averages, and do not assume that everyone passing the premises will become a customer.

3. Calculate break-even using the outlet’s own economics

Do not simply subtract the cost of goods from sales and call the result profit. Ask an accountant to prepare an operating statement that separates costs that vary with sales from fixed expenses, and explains how mixed costs, such as electricity and overtime, are treated.

Items worth examining include materials and packaging costs, delivery commissions, payment collection fees and sales-linked charges. Rent, basic wages, insurance and subscriptions should be classified according to their nature and the terms under which they become payable. Include realistic pay for managing the outlet, even if you plan to do the job yourself; ignoring the value of your work can make the business look more attractive than it is.

Contribution margin is net sales minus variable costs. In a simplified model, break-even sales are calculated by dividing fixed expenses by the contribution margin ratio, provided that ratio is positive. This is a starting point, not a guarantee, because changes in the product mix or sales channels will affect the margin.

Ask for separate calculations of operating break-even and cash requirements. Depreciation is not a monthly cash payment, whereas loan principal repayments use cash without being operating expenses in the same way. Reaching break-even also does not mean you have recovered the initial franchise fee, fit-out costs or invested capital.

4. Turn the forecast into a clear funding decision

Build a base-case scenario and a conservative scenario, rather than a single spreadsheet that assumes everything goes well. Test lower transaction numbers, a fall in average spend, increased wastage or a higher share of delivery sales. Adjust related assumptions together: higher sales may require additional staff or more stock.

Prepare a monthly cash-flow forecast showing when receipts and payments fall due, stock purchases, debt servicing and tax obligations appropriate to the business’s circumstances. Identify the largest cumulative cash shortfall, then discuss a suitable contingency reserve with your accountant. Do not treat an unapproved loan or an undocumented contribution from a business partner as available funding.

Set your decision criteria before committing: can you fund the conservative scenario without compromising your essential personal spending? Does the outlet’s success depend on a sales volume that is not supported by verifiable evidence? If the answers remain unclear, renegotiate the scale of the investment or postpone the decision.

The practical takeaway: Before making any non-refundable payments, compile a file containing the sources behind the sales forecasts, location comparisons, break-even calculations and a conservative cash-flow forecast. Buy on the strength of your own business’s ability to withstand setbacks, not the best result achieved by another outlet.