Franchising in Portugal: standardising financial reporting

A business can have healthy finances and still be unprepared to compare performance across its outlets. When preparing to expand through franchising, business owners need to establish a common financial language: what information they receive, how it is calculated and what it is used for. The aim is not to manage the franchisee’s business, but to identify difficulties and target support using comparable data.

1. Choose information that supports decision-making

Before requesting complete accounting reports, identify the decisions you want to support. Do you want to understand whether an outlet’s margins are falling, whether stock is building up or whether it faces cash flow difficulties? Each question requires different information.

An initial management report might include:

• Sales excluding VAT, with discounts, returns and cancellations shown separately.
• Cost of goods or services sold, calculated on a consistent basis.
• Staff costs, including employer contributions and other employment-related charges.
• Rent and other occupancy costs, separated from exceptional expenses.
• Operating profit for management reporting purposes, using an explicitly defined formula.
• Stock and payment commitments, where relevant to the business.

Do not turn this list into a universal requirement. A service business with no stock needs different indicators from a shop. For each field, record its purpose, the data source and the person responsible for checking it.

Also distinguish profitability from liquidity. An outlet may report a profit yet lack the cash to meet upcoming obligations. The report should help identify this difference without requiring indiscriminate disclosure of bank transactions.

2. Create a glossary of indicators before expanding

Two outlets may use the term ‘margin’ for different calculations. One includes transport in purchasing costs; another records it as a separate expense. Without shared definitions, comparisons may unfairly penalise an outlet or conceal a problem.

Prepare a simple glossary to accompany the reporting template. For each indicator, specify:

• Name and purpose.
• Calculation formula.
• Items included and excluded.
• Reporting period.
• Data source and correction procedure.

For example, clarify whether delivery platform commissions are shown separately from sales and how refunds are treated. With support from a Portuguese certified accountant (contabilista certificado), also define how to distinguish investment in equipment from day-to-day expenses.

Do not confuse this management report with each company’s statutory accounting. Franchisees remain responsible for their own accounting and tax obligations. The common classification is intended to support analysis across the network, not to replace accounting documents or change legally required accounting practices.

Test the reporting process in your existing operation. If completing the report requires every transaction to be reconstructed manually, simplify it before making it a contractual obligation. A sustainable system should produce useful information without consuming disproportionate resources.

3. Set out reporting duties and access limits in the contract

Portugal has no specific franchising law and no mandatory register specifically for franchisors. Franchise agreements are subject to the general provisions of the Portuguese Civil Code, including freedom of contract and good faith. Where standard contract terms are used, Decree-Law No. 446/85 of 25 October, as amended, also applies.

Do not therefore assume that use of the brand gives you unrestricted access to all of a franchisee’s financial information. The contract should specify the data to be supplied, the reporting frequency, formats, purposes and conditions for any checks of supporting documents.

Establish a procedure for delays, errors and discrepancies: a request for clarification, a deadline for correction and a record of the corrected version. The consequences of non-compliance should undergo legal review, avoiding treating an isolated mistake in the same way as a persistent refusal to provide information.

The European Code of Ethics for Franchising is a self-regulatory reference, not a Portuguese law of general application. Specific financial obligations should be clearly set out in the documents agreed between the parties.

4. Turn reports into support while protecting confidentiality

Define who receives the reports and who may access supporting documents. Where personal data is involved, the General Data Protection Regulation and Portuguese Law No. 58/2019 apply. Avoid requesting employees’ names or individual customer details when aggregate figures are sufficient.

Sharing information between independent businesses also requires attention to Portuguese and EU competition rules. Do not circulate business-specific data on future prices, margins or commercial strategies indiscriminately. Even aggregated comparisons may allow an outlet to be identified in a small network; assess that risk before sharing them.

After each submission, provide a brief analysis covering significant variances, questions requiring clarification and proposed support measures. Compare similar operations and take account of differences in maturity, location and size.

Practical takeaway: before bringing your first franchisee on board, prepare a reporting template, a glossary of indicators and contractual rules governing access. Request only information that you can interpret, protect and turn into practical support.