Buying a Franchise in Saudi Arabia: How to Assess Whether the Business Model Is Proven

A brand may thrive in a busy location, or thanks to its founder’s daily involvement, without that success being repeatable under another investor. Your search for a franchise should therefore begin with a specific question: are you buying a proven business model that can be replicated, or joining an experiment that is still under way? This guide explains how to distinguish compliance with franchise requirements from practical evidence that the model is sufficiently developed before you commit to buying.

1. Start with Saudi Arabia’s legal requirements for offering and granting franchises

Franchise relationships in Saudi Arabia are governed by the Commercial Franchise Law, issued under Royal Decree No. M/22 dated 9/2/1441 AH, and its Implementing Regulations. The law applies to any franchise agreement performed within the Kingdom, subject to the exceptions it specifies. It is important to distinguish a franchise that transfers an operating method and know-how from an agreement limited to using a brand or selling its products.

Article 5 states that a franchise opportunity may not be offered or granted unless the franchise business has been operated under the business model for at least one year, by at least two persons or at two different outlets. One of those persons may be the franchisor or a member of its group.

There is an additional requirement for anyone buying a sub-franchise: if the franchisor does not itself operate the business in the Kingdom, a franchisee with sub-franchising rights may not offer or grant a franchise until it, or another franchisee, has operated the business in the Kingdom for at least one year. The law allows the Minister to amend the periods specified in this article.

These are requirements for operating the business before offering or granting a franchise, not a government endorsement of its profitability. Meeting them does not remove the need to assess the quality of that operating experience. Nor does international recognition replace checks on compliance with local requirements.

2. Ask for evidence that the model you are being offered has been tested

Ask the franchisor for a concise information pack linking each claim to a document or verifiable fact. The aim is not to collect as much paperwork as possible, but to establish who operated the model, where and when, and whether it genuinely resembles what you would be buying.

Your request could include:

• The names of the operators and outlets the franchisor relies on as evidence of operating experience.
• Actual trading start dates, supported by documents such as licences and sales records, with sensitive information redacted.
• A description of each outlet’s format: floor area, services, sales channels and opening hours.
• Details of material changes to products, equipment or operating methods.
• Clarification of the status of the party granting you the franchise and its authority to do so, particularly when dealing with a master franchisee.

Do not treat the company’s incorporation date alone as proof of how long the franchise model has been in operation. The company may be long-established while the model on offer is new. Likewise, opening-day photographs do not prove continuous trading or show that the previous operating experience matches the current opportunity.

If the brand has tested a large shop but is offering you a small kiosk, ask for evidence that the new format is suitable. The difference does not automatically indicate a breach of the rules, but it does call for a separate commercial assessment and, if compliance is in doubt, a legal review.

3. Test whether success can be repeated without the founder

Once you have checked legal compliance, move on to the commercial question: what drove the results at the existing outlets? Where possible, ask to visit more than one operating location at different times. Observe order flow, how work is organised and the consistency of service. Do not rely solely on an opening-day visit or a carefully chosen appointment designed to show the business at its best.

Look for differences that could conceal weaknesses in the model. Does the outlet presented as an example benefit from an unusually favourable rent? Does the founder work there every day without the cost of a replacement being included? Does a party connected to the franchisor perform tasks whose costs do not appear in the outlet’s accounts? These are questions about comparability, not accusations of dishonesty.

Ask for operating data covering a meaningful period, rather than just one successful month: transaction numbers, average order value, wastage and staffing hours, for example. Compare these across the available outlets, allowing for differences in location and size. You are not looking for identical results, but for credible explanations of the differences.

For example, a brand may perform strongly in a shopping centre while your proposed site is in a residential neighbourhood. Ask how evening footfall, delivery and repeat purchases might affect performance. If the answer is simply, ‘The brand is in demand everywhere’, the case for your location’s success remains untested, however attractive the example outlet may be.

4. Turn your findings into a clear buying decision

Create a checklist with three columns: ‘Documented’, ‘Needs explanation’ and ‘Unsubstantiated’. Include the length of operating experience, the number of operators or outlets, the granting party’s authority, the similarity of the operating format and the extent to which results depend on exceptional circumstances.

Raise unresolved points with the franchisor in writing and specify what is needed to resolve them before you decide. You can also draw on the educational resources and services of the Franchise Centre at Monsha’at, Saudi Arabia’s Small and Medium Enterprises General Authority, including its service for checking a brand’s readiness to grant franchises. These should not, however, replace due diligence on your specific opportunity.

If you identify a gap relating to legal requirements, take the facts to a specialist lawyer before committing. If the gap is commercial, ask for further evidence or postpone your decision. You are under no obligation to fund the testing of a model you are not convinced is sufficiently developed.

The practical takeaway: do not buy on the strength of the name alone. First check that the requirements for granting a franchise have been met, then examine the model’s actual operating track record, and finally assess whether its results can be repeated in conditions similar to those of your proposed business.