Buying a Franchise in Lebanon: How to Verify Profit Claims

A brand may look like an excellent opportunity because its pitch promises a quick return on your investment. Yet an attractive figure does not always reveal how it was calculated or which outlets it represents. When entering Lebanon’s franchise market, you need to turn every profit promise into a testable claim. This guide focuses on scrutinising the financial performance presented to you, rather than preparing a funding application or gathering general disclosure documents.

1. Establish what ‘profit’ means in the pitch

Start by asking for a written definition of every metric the franchisor uses. Do ‘sales’ include tax, discounts and cancelled orders? Does ‘profit’ mean gross margin after the cost of goods alone, operating profit after wages and rent, or the net result after all expenses and taxes? Different definitions can make two similar figures describe entirely different realities.

Ask for a breakdown reconciling sales with the bottom line, item by item. It should show royalties, marketing contributions, delivery commissions, wastage, maintenance, insurance and the manager’s salary. If the model assumes that you will manage the outlet yourself without pay, separate the return on your labour from the return on your capital: unpaid work is not additional business profit.

Also ask how the figures are recorded: do they represent booked sales or money actually received? Do they include one-off income or temporary support from the franchisor? For any claim about ‘payback’, request a breakdown of the investment included and the cash flows used. The pitch may exclude deposits and initial fit-out costs, or rely on accounting profit rather than cash actually available.

2. Examine the sample before trusting the average

Average performance across a network is not an automatic forecast for your outlet. Ask how many outlets the average is based on, which countries they are in, how long they have been trading, their floor areas and the types of location they occupy. Find out whether the sample includes closed and struggling outlets, or only those still trading successfully. Excluding weaker performers can create a misleading picture even when the figures quoted are accurate.

Distinguish between franchisor-operated and franchisee-operated outlets. The franchisor may receive different purchasing terms or may not charge its own outlets some of the fees you will pay. Equally, do not compare an outlet that has been established for years with a new one that still needs to build a customer base.

Ask for the distribution of results, not a single figure: the median, the performance range and the results of outlets most comparable to your proposed business. Then assess whether the model can transfer to Lebanon by asking specific questions:

• Are the proposed prices affordable for your target customers?
• Is the projected number of orders based on actual customer traffic or a marketing estimate?
• Have backup power, telecommunications and maintenance been costed at local rates?
• Have seasonal effects and opening promotions been separated from normal demand?

If the data comes from an overseas market, converting the currency is not enough. You need to rebuild the operating assumptions locally, recording the date of each price and the source of each estimate.

3. Check claims against independent evidence

Respecting confidentiality, ask for samples of the sales reports and profit and loss statements supporting the claims. Aggregated or anonymised data can be provided where individual outlet records cannot be disclosed. But a presentation without supporting documents remains promotional material, not a sufficient basis for assessment.

Engage an independent accountant to reconcile a sample of the figures. Do sales recorded in the system match bank settlements and delivery platform reports once any differences have been explained? Do expenses include services paid for by head office that do not appear in the outlet’s accounts? The aim is not to audit the entire network, but to establish whether the financial account you have been given holds together.

Also speak to current franchisees and, where possible, former ones, rather than relying solely on the most successful operators suggested by the franchisor. Ask about differences between the original model and reality, unexpected expenses, and the time it took to reach stable operations. Do not request information that would breach their confidentiality obligations, and do not treat one person’s experience as evidence of the entire network’s performance.

Create a simple record with four columns: the claim, its source, verification evidence and the outstanding question. If the franchisor refuses to provide evidence, record the refusal and the reason given. Place less reliance on the claim rather than filling the gap with an optimistic assumption.

4. Document what you relied on before signing

Lebanon has no specific law governing franchise agreements, nor a dedicated statutory disclosure regime requiring a standard format for profit forecasts. Depending on the subject matter, the relationship is governed by the Code of Obligations and Contracts, the Commercial Code, intellectual property rules and other relevant legislation, including consumer protection rules in dealings with customers. These rules do not mean that a franchisee is automatically treated as a consumer.

The Lebanese Franchise Association also has a code of ethics containing disclosure obligations for its members within its scope of application. However, it is not a general law binding all franchisors. Legislative Decree No. 34 of 1967 on commercial representation may also be relevant, depending on how the relationship is legally classified. Do not assume automatic protection simply because the arrangement is called a ‘franchise’.

Ask a Lebanese lawyer to review the proposals and correspondence alongside the contract, particularly clauses stating that you have not relied on earlier representations and those excluding any guarantee of profitability. Distinguish between a conditional forecast with clearly stated assumptions and a statement of historical results that should be accurate. Negotiate to have material data, its sources and its dates documented, without turning forecasts into an artificial guarantee of success.

The practical takeaway: Do not buy on the strength of a single profit figure. Insist on clear definitions, a comparable sample, evidence you can examine and a record of what informed your decision. Treat anything you cannot verify as a risk, not a fact.