Buying a Franchise in Malaysia: Test Sales Projections Before You Buy

Impressive sales figures can make a brand look like a safe choice. Yet the sales achieved by a well-known outlet may not be attainable at your location. Before entering Malaysia’s franchise market, examine how the projections were built, the evidence behind them and the conditions needed to achieve them. The aim is not to predict the future precisely, but to avoid buying on the strength of figures that cannot be substantiated.

1. Distinguish actual results from sales targets

Start with a simple question: do the figures presented represent actual sales, an average across several outlets or merely a management target? Each carries a different weight as evidence. Labels such as “sales potential” are not the same as records of completed transactions.

Ask the franchisor to explain the following in writing:

• The period used to produce the figures.
• The number and types of outlets included in the calculation.
• Whether those outlets are owned by the franchisor or run by franchisees.
• Whether the sales figures include tax, and how returns, cancellations and discounts are treated.
• Whether the figures include delivery sales, corporate orders or opening promotions.

Averages can be misleading when a few large outlets push up the overall figure. Ask for the median and sales range if available. Also ask whether outlets that have closed are excluded; looking only at outlets still trading can give an overly optimistic picture.

In Malaysia, the Franchise Act 1998, as amended, including by the 2020 amendments, is the specific legislation governing franchises. Section 15(1) requires the franchisor to provide the franchise agreement and disclosure documents at least ten days before the agreement is signed. Use this review period to compare the presentation figures with the formal disclosures. This obligation does not guarantee that sales targets will be met.

2. Choose genuinely comparable outlets

A flagship outlet in a prominent shopping centre is not a good benchmark for a new neighbourhood shop. Differences in footfall, purchasing power, opening hours and competition can significantly affect results, even under the same brand.

Build a list of comparable outlets based on premises format, floor area, customer catchment, length of time trading and sales channels. Prioritise outlets whose conditions most closely match your proposal. Do not group established and newly opened outlets together without understanding how long it takes to build a regular customer base.

With the relevant parties’ consent, speak to several existing franchisees. Ask how long sales took to stabilise, which months tend to be quiet and how much promotions affect revenue. Also ask whether the owner works on site; an owner’s presence may influence performance in ways that a hands-off investor would struggle to replicate.

Request reasonable evidence, such as monthly sales summaries without customers’ personal information. Do not make indiscriminate demands for confidential data. If the data can only be inspected under a confidentiality agreement, consider reviewing it with an accountant. Refusal to grant access does not necessarily prove there is a problem, but a lack of evidence should be recorded as an uncertainty in your purchasing decision.

3. Rebuild the sales forecast from day-to-day activity

Rather than accepting a single monthly figure, break the projection down into observable components:

Monthly sales = transactions per day × average transaction value × trading days.

For a service business, use the number of bookings or sessions and the average revenue per session. Then check whether staffing, equipment and premises capacity can support that volume.

Visit the proposed area on weekdays, at weekends and at different times of day. Record relevant footfall, rather than everyone who passes by. People passing the premises are not necessarily target customers, and target customers will not necessarily make a purchase.

Check the following assumptions one by one:

• How many customers need to make a purchase each hour?
• Is that volume realistic during off-peak hours?
• Does the transaction value depend on unproven upselling?
• Can the team meet demand without compromising quality?
• Will delivery sales bring in additional customers or replace in-store purchases?

Avoid double counting the same customer across multiple channels. Also distinguish gross sales from the net cash received after platform deductions or refunds. High sales figures alone do not indicate profitability.

4. Set evidence-based decision criteria

Prepare three scenarios: cautious, base case and optimistic. Vary transaction volumes, purchase values and the time needed for sales to build up, using clearly justified assumptions. Do not simply raise or lower figures arbitrarily.

For each assumption, record the source of evidence and your level of confidence. Flag anything that still depends on verbal promises. Ask the franchisor to explain any discrepancies between the presentation, outlet data and your proposed location before making a payment that may be difficult to recover.

If a particular sales claim is a major reason for your purchase, ask an independent lawyer to review how that claim is recorded and its implications under the agreement. Do not assume that marketing slides automatically become contractual guarantees. Keep emails, presentation materials and written responses for reference.

Practical action: Do not make a decision until you can explain where the sales figures come from, which outlets support them and why your location could meet those assumptions. If the answers remain unclear, postpone the purchase and fill the gaps in the evidence first.