Buying a franchise: assess your outlet’s turnover forecast

A strong brand name does not make a turnover forecast reliable. If you are joining a franchise network, you need to understand why the projected turnover is achievable at your proposed location. The distinction between actual results, a network average and a forecast is essential. Use this approach to assess the supporting evidence before entering into a long-term commitment.

1. Distinguish mandatory disclosures from a forecast

The Dutch Franchise Act has been in force since 1 January 2021 and forms part of Book 7, Title 16 of the Dutch Civil Code. Article 7:913 sets out, among other things, the information a franchisor must provide in advance. This includes financial data relating to the proposed location or, where none is available, data from one or more businesses considered comparable. The franchisor must explain why they are comparable.

This does not mean that the franchisor must always prepare a turnover or profit forecast for you. Historical financial information and a forecast are different things. An existing outlet can show actual turnover; a location that has yet to open has no such track record.

For each document, therefore, ask what the figures represent:

• Actual results: results achieved over a specified period.
• Benchmark figures: results from other outlets used for comparison.
• Forecast: a calculation of future performance based on assumptions.
• Target: a desired result, which is not necessarily an evidence-based expectation.

Also ask for a written record of who prepared the calculation, when it was prepared and which data were used. An attractive turnover figure without a traceable source is not a sound basis for your purchase decision.

2. Check whether the benchmark outlets are genuinely comparable

An average across the franchise network can provide useful context, but tells you little if your outlet differs significantly. A busy city-centre location, for example, is not necessarily comparable to a shop on the outskirts of a smaller town.

Ask the franchisor why these particular outlets were chosen as benchmarks. Assess at least the following:

• catchment area, accessibility and visibility;
• floor space, capacity and opening hours;
• local competition and customer profile;
• how long the outlet has been trading and local brand awareness;
• product range, services and sales channels;
• staffing levels and the owner’s involvement in the business.

Then check which outlets have been left out of the comparison. Using only successful, established locations can give an incomplete picture of what a new franchisee should expect. Ask whether recently opened or less well-performing outlets can also be included, using anonymised figures if necessary.

Pay attention to the reporting period too. An exceptionally good year, a competitor’s temporary closure or a large one-off order can distort the comparison. Where possible, ask for figures covering several periods and an explanation of any unusual results. This helps you assess not just the level of turnover, but also how sustainable it is.

3. Break the turnover forecast down into verifiable assumptions

Annual turnover is the result of underlying business activity. Ask for the forecast to be broken down into factors you can investigate. For a shop, these might include visitor numbers, the proportion of visitors who make a purchase and average spend. For a service business, they might include available hours, utilisation rates and average fees.

Ask for evidence supporting each assumption. Are visitor numbers based on a count at your location or figures from another outlet? Does average spend include or exclude VAT? Have discounts, returns and seasonal effects been taken into account? Is the utilisation rate achievable with the planned staffing levels?

Give separate attention to the start-up period. A new outlet will not automatically perform at the same level as an established business from its first month. Ask the forecaster to show how customer acquisition, repeat visits and local awareness are expected to develop.

Then work with an independent accountant to prepare a base-case scenario and a downside scenario. For example, reduce the number of transactions or allow for slower growth in the customer base. Base these adjustments on specific local risks rather than an arbitrary standard percentage. Calculate the effect on profit as well: turnover is not the same as the owner’s income.

4. Factor uncertainty into your decision

Keep a single record of your questions and the answers: the assumption, its source, your checks and the remaining risk. Raise inconsistencies with the franchisor in writing. Ask for a revised calculation if, for example, opening hours, capacity or local rental costs have been entered incorrectly.

A disclaimer such as ‘no rights may be derived from this forecast’ is no substitute for supporting evidence. Equally, a forecast is not a guarantee that you will achieve the stated result. If in doubt, ask a lawyer specialising in franchise law to assess the legal implications of the figures provided and any disclaimers.

Practical conclusion: do not buy on the strength of a single turnover figure. Proceed only once you can explain how the forecast was produced, why the comparison is appropriate for your location and whether the plan remains financially sound if sales fall short.