Earnings Claims Before Offering a Franchise in the Philippines

When an established business is ready to franchise, prospective franchisees often ask: “How much will I earn, and when will I recover my investment?” The performance of your strongest outlet alone is not enough to answer this. In franchising, presenting earnings responsibly is essential to building trust. Before offering a franchise, establish a process for calculating, explaining and approving any claims about expected results.

1. Separate actual results from projections

The recorded earnings of a company-owned outlet are different from what a future franchisee might earn. The former are historical results; the latter are projections based on assumptions. Do not combine them in a sentence that suggests they carry the same degree of certainty.

In every table or explanation, make the following clear:

• Scope: Which outlet and period do the records cover?
• Type of figure: Does it represent sales, gross profit after deducting the cost of goods, or net profit?
• Deductions: Have rent, wages, taxes, royalties and other fees been included?
• Outlet characteristics: Does the business own its premises, is it owner-managed, or does it benefit from unusually cheap supplies?

If your original outlet pays no rent, it is not fair to suggest that a franchisee will face the same costs. Similarly, if the owner works there every day but no salary is recorded, include a reasonable allowance for a replacement manager in the projection.

2. Build an evidence base that can be reviewed

Create a separate file for each claim used when offering the franchise. Include the underlying sales records, a cost summary, the calculation method and an explanation of anything excluded or added.

Do not cherry-pick the best month. If the business is seasonal, show the effect of quieter months. If only one outlet has sufficient records, say so; do not describe its performance as typical of the whole network.

For an investment payback period, first define which investment is being recovered. The investment is not just the initial franchise fee. It may also include fitting out the premises, equipment, rental deposits, opening stock, pre-opening expenses and working capital for the start-up period.

Also distinguish profit from cash actually available. A business may show a profit on paper while its cash is tied up in stock or needs to be set aside for repairs. If the payback calculation is only a rough estimate, explain its limitations rather than giving a firm date.

3. Show how changes in assumptions affect the outcome

Several clearly explained scenarios are more useful than a single attractive figure. Prepare low, base and high scenarios using assumptions with a reasonable basis.

Vary customer numbers, average transaction value, rent, the cost of goods and staffing requirements. Examine what happens when sales grow more slowly or premises costs are higher.

An explanation might read: “This projection is based on the stated rent, staffing levels and sales assumptions. If these change, earnings and the payback period will also change.”

The phrase “no guarantee” is not enough if the main claim is misleading. If a promise of rapid payback appears in large print while the conditions are barely visible, revise the entire presentation. Encourage the candidate to have the figures reviewed by their own financial adviser.

4. Align franchise offers with the law and internal controls

The Philippines has no single comprehensive franchise law, but there are specific regulations to follow. Executive Order No. 169, series of 2022, establishes protections for franchisees that are micro, small and medium-sized enterprises. These include minimum agreement terms, disclosure of fees and registration of covered agreements with the Department of Trade and Industry (DTI).

Compliance does not mean that the government has verified the projected earnings. The Civil Code also applies: fraud or misrepresentation that influenced a party’s consent may affect the validity of the contract and give rise to liability, depending on the circumstances.

Appoint someone to approve earnings claims before they are used in meetings, advertisements or messages. Keep the version given to each candidate, together with its date and assumptions. When costs or fees change, stop using the old projection and correct any explanations already sent before the candidate signs.

Practical takeaway: Before offering a franchise, make sure every earnings claim has a verifiable basis, accounts for all costs and clearly states its limitations. If you cannot yet support a figure, do not promise it.