QFA: Scrutinise profit claims and investment payback forecasts

High sales alone do not prove that a franchise will be profitable. In guidance published on 11 November 2026, the Quality Franchise Association (QFA) set out what prospective franchise buyers in the Philippines should examine before accepting profit forecasts and promises of a quick return of their investment.

Clarify whether the figures show sales or actual profit

The guidance centres on the distinction between total sales, gross profit after deducting the cost of goods, and net profit after all expenses have been paid. These figures may look attractive, but they tell different stories about the health of the business.

For the franchising community, it is important to define clearly every financial figure used in a sales pitch. The QFA recommends asking for a written explanation of what is meant by claimed “earnings”, rather than relying solely on the total sales presented.

Check whether the calculations include rent, wages, employee benefits, electricity, water and other day-to-day expenses. Royalties, marketing contributions and system fees must also be included.

Spoiled or missing stock, discounts, delivery commissions, taxes and loan interest should not be overlooked either. The figures should also allow reasonable compensation for the time an owner spends managing the business. If the deductions are unclear, so is the amount the investor can actually take home.

Find out where the figures come from

Another key point in the guidance is to examine the source and scope of the data. Strong results from one outlet do not automatically represent the performance of the entire franchise network.

Ask whether the results presented come from an exceptionally successful outlet, several outlets, or forecasts alone. Costs may also differ between an outlet operated by the franchisor and one run by a franchisee.

Questions to clarify include:

• How many outlets contributed to the data, and what period does it cover?
• Are the outlets comparable in location, size, opening hours and format?
• Are quieter months included, or only the strongest months?
• Have outlets that closed or made losses been excluded?
• How long have the businesses used for comparison been operating?

The QFA also suggests requesting summaries of records that can be shared without disclosing private information. If necessary, ask whether an accountant could review the records under an appropriate confidentiality agreement.

With the owners’ permission, it can also help to speak to current and former franchisees about unexpected costs and how closely the original forecasts matched actual trading.

Tailor investment payback calculations to the location

According to the guidance, buyers need to prepare their own realistic calculations for their chosen location. Simply copying the sales figures of an outlet in a busy shopping area is not enough if the new business will serve a different type of community.

Calculations should use actual rental quotations, current wage costs and the fees specified in the proposed contract. The guidance recommends testing three scenarios: expected performance, lower sales and higher costs.

The aim is to establish whether the business can still cover operating costs and debt repayments if it falls short of the main forecast. Buyers should also allow for sales to build gradually, rather than assuming that a new outlet will immediately match an established one.

When calculating the investment payback period, include all cash spent before opening and during the start-up phase. Compare this with the accumulated cash that can be returned to the owner after essential payments and the funds that must remain in the business. Simply dividing the investment by monthly sales is incorrect: not all sales revenue can be withdrawn as profit.

Understand legal protections and their limits

The QFA explains that Executive Order No. 169 provides protections for micro, small and medium-sized enterprises, including mandatory provisions and registration requirements for agreements within its scope. It is not a guarantee of profit or government endorsement of sales forecasts.

The contract provisions of the Philippine Civil Code also apply. Under Article 1390, fraud affecting consent may provide grounds for annulment. However, failing to meet a forecast is not automatically evidence of fraud; the circumstances and supporting evidence matter.

Practical step: Keep presentations, messages and different versions of the calculations. Before paying, have an accountant or solicitor review any material discrepancies, and base your decision on verifiable data—not simply the best results presented.