How to substantiate a turnover forecast for your first franchisee

A successful business of your own does not automatically prove what a franchisee can earn in another location. Yet prospective franchisees want to know what results are achievable. As a new franchisor, you therefore need to handle turnover expectations carefully. In a healthy franchise network, figures are not a sales pitch without explanation, but a starting point for independent research. This guide helps you build an outlet forecast that can be checked and assessed.

1. Distinguish financial information from a forecast

The Netherlands has specific franchise legislation: the Dutch Franchise Act, incorporated into Book 7 of the Dutch Civil Code. It requires you to provide certain information before entering into a franchise agreement. This includes financial data relating to the proposed location or, where that is unavailable, one or more businesses you consider comparable. You must explain why those businesses are comparable.

This disclosure duty is not the same as a general obligation to prepare a turnover or profit forecast. Historical figures describe what actually happened; a forecast describes what might happen under certain assumptions. Make that distinction clear in every presentation and spreadsheet.

If you voluntarily provide a forecast, treat it as a carefully substantiated document to support decision-making. A carelessly prepared or misleading presentation may have legal consequences. A statement such as ‘no rights may be derived from these figures’ is no substitute for a sound supporting basis.

The legally required information must be provided at least four weeks before the agreement is signed. Schedule any forecast early enough for the prospective franchisee to review it with their own financial adviser. Refer any significant new information to your legal adviser before signing, to establish what it means for disclosure and timing.

2. Choose a genuinely comparable starting point

Start with the financial records of your existing business, not the turnover needed to make the franchise look attractive. Use a representative period and state which circumstances affected the results. These might include refurbishment, a temporary closure, an unusually large order or a local event.

Next, examine how your business differs from the proposed franchise outlet:

• Location: footfall, accessibility, competition and catchment area.
• Capacity: available space, workstations, seats or treatment hours.
• Opening hours: trading days and genuinely productive hours.
• Customer base: established regular customers versus an outlet that still needs to build awareness.
• The owner's role: your personal reputation, sales skills and presence in the business.

For each difference, explain whether you are making an adjustment and what supports it. Expecting lower turnover because a new outlet has no regular customers yet is understandable. The assumed rate of growth then needs its own justification.

Is your own outlet your only point of reference? State that explicitly. One example does not show how widely results may vary between outlets. Do not present your own results as a proven average for future franchisees.

3. Build the forecast around evidence-based assumptions

Break turnover down into recognisable components. For a shop, these might be the number of transactions and average spend; for a service provider, available hours, utilisation and revenue per hour. Use figures excluding VAT and apply definitions consistently.

Next, create an assumptions register. For each key input, record the source, date, person responsible and degree of uncertainty. An actual average spend drawn from your till system is different from an assumed utilisation rate at a location that has not yet opened.

Develop a base case and a downside scenario. For example, show the impact of slower customer growth without simultaneously making various other assumptions more favourable. Scenarios are not a statutory requirement, but a practical tool for showing how different factors affect the outcome.

Then translate turnover into profit or loss and cash flow. Include staffing, premises, purchasing costs and franchise fees. Explain how the owner's work and remuneration have been accounted for. For a sole trader, personal drawings are not business expenses, but they do affect how much cash remains available.

Do not confuse profit with available cash, either. Building up stock, loan repayments and payment terms may mean an outlet needs additional funding even when its operations are profitable on paper.

4. Arrange an independent check and keep track of versions

Ask a financial expert to check the calculations, definitions and consistency with historical data. Specifically request an assessment of the assumptions, not just the spreadsheet formulas. Even an error-free spreadsheet can produce an unrealistic forecast.

Give the prospective franchisee room to make their own assessment. Provide not just a final figure, but also the underlying assumptions and an explanation of the uncertainties. Answer questions in writing and make sure recruitment conversations do not paint a more optimistic picture than the document.

Keep every version you provide, with its date and an explanation of any changes. If an assumption proves incorrect, make the correction explicit; do not quietly replace the file. Also discuss how the correction affects turnover, profit or loss and funding requirements.

Practical conclusion: only share a turnover forecast once you can explain its sources, the basis for comparison and its main uncertainties. A modest forecast that can be scrutinised is more useful to a prospective franchisee than an attractive figure with no sound basis.