Buying a franchise: assess your outlet’s turnover forecast

A well-known brand does not automatically make a turnover forecast reliable. If you are buying a franchise in the Netherlands, you need to understand what the projected results for your outlet are based on. Other franchisees’ experiences can provide valuable insights, but your location is still unique. A focused review will help you establish whether the figures fit your catchment area, operations and contractual arrangements.

1. Distinguish statutory information from a sales forecast

The Netherlands has a Franchise Act (Wet franchise), incorporated into Title 16 of Book 7 of the Dutch Civil Code. Article 7:913 sets out the information a franchisor must provide before the agreement is concluded. This includes information about its financial position and financial data relating to the proposed location. If data for that location is unavailable, the franchisor must provide data from one or more businesses it considers comparable, explaining the basis for that comparison.

This is not the same as a general legal obligation to prepare a turnover or profit forecast for every prospective franchisee. Historical results are data; a forecast is an expectation based on assumptions. Always ask which type of document you are receiving.

You also have a responsibility. Article 7:915 of the Dutch Civil Code requires you, within the bounds of reasonableness and fairness, to take steps to avoid entering into an agreement on the basis of incorrect assumptions. This includes asking critical questions and arranging an expert review. It does not remove the franchisor’s disclosure obligations.

For every set of figures, ask who prepared it, when it was prepared, what period it covers and which sources were used. Keep presentations and written responses too: otherwise, it may be difficult to establish later exactly what commercial commitments were made.

2. Check whether comparable outlets really are comparable

Average turnover across the franchise network tells you little if your proposed shop is in a residential neighbourhood while the best-performing outlets are at busy railway stations. Ask the franchisor to explain why the selected reference outlets are suitable comparisons.

Compare at least the following:

• Catchment area: the number of potential customers, purchasing behaviour and local competition.
• Location: visibility, accessibility, parking and footfall.
• Business size: floor area, capacity and opening hours.
• Stage of development: newly opened, still growing or established for many years.
• Sales channels: in-store sales, delivery, business customers and online orders.
• Owner involvement: how many hours does the owner work in the business, and what staffing levels are in place?

Do not ask only about successful examples. Ask about outlets that fell short of their original expectations and locations that have closed. This helps you spot selective presentation of results, without assuming that every disappointing outcome is down to the franchise model.

Speak independently to several franchisees. Ask how their actual turnover compared with their expectations at the outset, and which local circumstances made the difference. Respect confidentiality: anonymised data may be sufficient, provided its source and comparability can still be verified.

3. Rebuild the turnover forecast from the ground up

A forecast becomes testable when you break the headline figure down into specific activities. For a shop, this might be: visitors per day × proportion who make a purchase × average spend × trading days. For a service business, it might be: available hours × utilisation rate × average rate actually achieved.

For each factor, ask: what evidence supports this assumption? A footfall count is not the same as an estimate. National brand recognition does not prove how many local customers will actually buy. Also check whether the figures include or exclude VAT, and whether discounts, returns and cancellations have already been accounted for.

Pay particular attention to the start-up phase. An established outlet’s annual turnover cannot simply be applied to a new location without explanation. Ask for a clear breakdown showing how customer acquisition, staff training and seasonal effects have been factored into the first few months.

Check who is credited with sales, too. Do online orders from your postcode area count towards your outlet’s turnover? Do you receive only a handling fee? Can nearby outlets serve the same customers? Compare the forecast with the contract’s provisions on territory, sales channels and the definition of turnover.

If you are taking over an existing outlet, request historical monthly figures. Where possible, ask your accountant to reconcile them with annual accounts, VAT returns and till records. Investigate anomalies, such as a temporary major customer or an exceptional period of closure.

4. Factor uncertainty into your purchase decision

Ask an independent accountant not just to check for calculation errors, but above all to assess the assumptions. Have both a base case and a downside scenario prepared. Use evidence-based variations, such as slower customer growth or lower average spending, rather than arbitrary percentages.

Then assess what lower turnover would mean for the outlet’s financial performance. Rent and minimum staffing costs do not generally fall automatically when sales decline. Also check how franchise fees, purchasing terms and compulsory promotions affect margins. This will help you avoid being distracted by an attractive turnover figure that masks weak profitability.

Before signing, draw up a list of outstanding questions. For each item, note what evidence is missing, who will provide an answer and whether the forecast needs adjusting. Ask a specialist lawyer to review how key assumptions and commitments are recorded in the contractual documents. A forecast is not a turnover guarantee; equally, a disclaimer does not automatically remove the consequences of providing incorrect information.

Practical conclusion: do not buy on the strength of one convincing headline figure. Sign only when you understand the sources, comparability and key assumptions behind the projected turnover, and can knowingly accept the remaining uncertainty.