Franchising in Portugal: presenting financial forecasts

When turning an existing business into a franchise offering in Portugal, it is natural to want to show how much a future franchisee could earn. But your own outlet’s results are not a promise of performance at another location. Before sharing sales figures, margins or investment payback periods, establish a method that allows you to explain every figure, substantiate its assumptions and acknowledge what you do not yet know.

1. Separate actual results from estimates

Start by distinguishing three categories: historical results from company-owned outlets, adjustments to reflect a franchised operation, and projections for a future outlet. Do not combine these categories in a table without clearly identifying where the figures come from.

Historical results should specify the period covered, the type of location, how established the outlet is and any exceptional circumstances. An established operation with repeat customers does not automatically reflect the first few months of a new opening.

Before using those results, check whether they include:

• Appropriate remuneration for whoever manages the business, even when that role is performed by the founder;
• Rent reflecting the type of premises required, including where the business owns its premises;
• Staffing, insurance, maintenance, wastage and outsourced service costs;
• Expenses covered by head office that an independent outlet would have to bear;
• The effects of exceptional discounts, one-off events or special supplier terms.

Then add the costs specific to the franchise relationship separately, such as royalties and contractual contributions. The aim is not to redefine these fees, but to prevent the forecast from showing profitability that disappears once all costs are taken into account.

Presentation rule: every table should state whether it contains actual data, adjusted figures or estimates. Also identify whether amounts include VAT and treat the tax consistently with the purpose of the calculation.

2. Build scenarios using verifiable assumptions

A useful forecast starts with operational variables, not the profit you would like to advertise. Estimate sales using factors such as customer service capacity, transaction numbers, average transaction value, trading days and expected changes in demand.

For each assumption, record its source and limitations. The track record of a company-owned outlet may support an average transaction value, but it does not, on its own, demonstrate that another location will attract the same level of custom.

Prepare a base-case scenario alongside less and more favourable scenarios. These are decision-making tools, not statistical probabilities, unless there is a methodology supporting that interpretation. Avoid calling a scenario the ‘worst case’ if it only reduces sales slightly.

In particular, test the effects of:

• Opening later than planned;
• Slower initial sales growth;
• Higher staffing or occupancy costs;
• Lower margins caused by changes in the mix of products or services sold;
• Additional working capital requirements.

Present profit and loss separately from cash flow. An outlet may show an accounting profit yet still need cash for stock, loan repayments or tax payments. If you state an investment payback period, explain which investment is being measured, which cash flows are used and which costs are included.

3. Follow Portuguese disclosure rules

Portugal has no franchise-specific law or mandatory statutory disclosure document equivalent to Brazil’s Circular de Oferta de Franquia, its franchise disclosure document. This does not remove the duties of disclosure and fair dealing during negotiations.

The general rules of the Portuguese Civil Code apply, including good faith in the formation of contracts under Article 227 and the principle of freedom of contract under Article 405. Financial information that is false, incomplete or presented misleadingly may give rise to liability, depending on the circumstances. Advertising is also subject to the Portuguese Advertising Code, particularly its rules on truthfulness and misleading advertising.

The European Code of Ethics for Franchising states that advertising references to forecast financial results must be objective and verifiable. It is a self-regulatory standard, not a generally applicable Portuguese law; whether it is binding depends on the relevant association membership or contractual arrangements.

A disclaimer stating ‘results are not guaranteed’ therefore does not remedy a misleading presentation. If the headline promises a rapid return of the initial investment, the essential assumptions should not be hidden in an inconspicuous note. Have your sales materials and disclaimers legally reviewed before publishing or sharing them.

4. Control what is communicated to prospective franchisees

Create an approved version of the financial model and designate who may update it. Keep a record of the date, source data and changes made. The sales presentation, spreadsheet and verbal explanations should all convey the same message.

Anyone recruiting franchisees should be able to explain the difference between turnover, operating profit and available cash. They should also avoid turning a personalised financial model into an informal guarantee.

Provide the assumptions alongside the results, allow for review by an independent accountant and record the questions answered. If material information emerges during negotiations that makes the forecast out of date, revise it before the prospective franchisee makes a decision.

Practical takeaway: only share a forecast when you can reconstruct every figure, explain its limitations and show how adverse developments would affect cash flow. The credibility of your proposition is worth more than a promise of profitability.