Buying a Franchise in Malaysia: Check Voucher and Discount Costs

Opening offers, loyalty rewards and app discounts can attract customers, but higher sales do not necessarily mean higher profits. Before entering Malaysia’s franchise market, prospective franchisees need to understand who funds each offer and when the money arrives. This review goes beyond advertising expenditure: it determines whether each redemption generates a return or puts further pressure on the outlet’s cash flow.

1. Identify who has the authority to set promotions

Start by requesting a list of the types of promotion that an outlet may be required to run. Distinguish between direct price reductions, paid-for vouchers, loyalty points, free gifts and offers through delivery platforms. Schemes that look similar to customers may create different liabilities for franchisees.

Read the agreement to answer four questions:

• Is participation in every campaign compulsory, or does it require the outlet’s consent?
• Who decides the discount amount, campaign duration and products included?
• Can customers combine several offers in a single transaction?
• Are there redemption limits or cost caps for each outlet?

Do not assume that a term such as “national promotion” means the franchisor covers the entire cost. Ask for a written breakdown of the shares borne by the franchisor, franchisee and any third-party platform.

Also check for vouchers sold before you take over an outlet but redeemable afterwards. If you are buying an existing outlet, ask for the total liability for unredeemed vouchers and establish who will fund their redemption. Do not accept historic liabilities without knowing their value or how they will be reflected in the purchase price.

2. Check promotional terms against the legal documents

Malaysia’s franchise sector is governed by the Franchise Act 1998, including its 2020 amendments. Official registration guidance also lists the Franchise (Forms and Fees) (Amendment) Regulations 2022 and other registration-related regulations. However, registration does not replace a review of how promotional costs are allocated in the offer you are considering.

Under Section 15 of the Franchise Act 1998, the franchisor must provide prospective franchisees with the disclosure document and a copy of the franchise agreement at least 10 days before the agreement is signed. Use this period to compare the sales pitch with the actual obligations set out in the documents.

Ask the franchisor to identify the clause allowing compulsory discounts and the document explaining how reimbursement works. If the details appear in an appendix or promotional policy, obtain the version referred to in the agreement. A statement such as “head office usually covers it” is not a sound basis for profit forecasts.

The official disclosure document format also states that amendments to information in the document require the Registrar’s approval under Section 11. If a new explanation differs from the documents supplied, request written clarification and ask a lawyer to review what action is required. Do not assume that an agreement reached through messages alone resolves inconsistencies between documents or satisfies legal requirements.

3. Test the return on each redemption and the timing of payments

Request sample settlement statements from previous campaigns, with confidential information removed. The aim is to understand the actual flow of money, rather than simply looking at promotional sales totals.

For each type of offer, create a spreadsheet showing:

• The selling price before and after the discount.
• The amount actually received from the customer.
• The promotional reimbursement promised to the outlet.
• The ingredient, packaging, transaction and delivery costs borne by the outlet.
• Any contractual charges that still apply to the transaction.

The contribution per transaction can be estimated by adding customer receipts to eligible reimbursements, then deducting variable costs and relevant charges. The remaining amount must still cover rent, fixed salaries and other expenses; it is not net profit.

For prepaid vouchers, avoid counting the voucher sale proceeds and the redemption value as two separate receipts. Establish who receives the original payment and how the outlet receives its share when the customer redeems the voucher.

Next, separate profit on paper from cash requirements. If you need to buy ingredients today but reimbursement claims are paid later, the outlet must fund that gap. Test scenarios involving higher-than-expected redemptions, late payments or rejected claims. Use the actual proposed terms, rather than assuming every claim will be paid.

4. Establish the claims process before committing

A clear promotional system requires more than a promise to pay. Ask for written procedures covering transaction evidence, claim deadlines, settlement schedules and corrections to incorrectly recorded redemptions. Also establish who bears the cost of counterfeit vouchers, repeated use or orders cancelled after a discount has been applied.

Negotiate reasonable commercial safeguards, such as advance notice of campaigns, caps on the outlet’s liability and access to redemption reports. These are matters to agree in the contract, not automatic rights that all franchisees can assume they have.

Before signing, make sure an accountant can trace a promotional transaction from the sale through to settlement in the bank account, and that a lawyer can identify the contractual basis for every deduction. If either is unclear, seek clarification first.

Practical action: Do not judge vouchers solely by the number of customers they attract. Buy a franchise only once you understand who bears the cost of discounts, how much remains from each transaction and when the money reaches the outlet’s account.