Buying a Franchise in Saudi Arabia: How to Check Profit Projections

A franchisor may show you a spreadsheet suggesting that you will recover your investment quickly, but the outcome depends on where the figures come from and what they leave out. In Saudi Arabia’s franchise market, transparency helps you distinguish an opportunity worth investigating from a marketing promise. This guide focuses on checking profit projections before buying a franchise, rather than preparing a budget to open an outlet.

1. Establish what the proposal actually promises

Start with a direct question: are the figures actual results from existing outlets, projections for your proposed outlet, or simply an illustrative calculation? Ask for a written answer. A spreadsheet labelled ‘projected profits’ may combine actual sales with estimated expenses, making it appear more reliable than it is.

Also distinguish between sales, operating profit, net profit and cash flow. High sales do not prove that an outlet is profitable, and an accounting profit does not necessarily mean there is cash available to meet finance repayments. Ask whether sales are shown before or after VAT, and how discounts, returns and delivery platform commissions have been treated.

Request a clear definition of every measure used, particularly ‘investment payback’. Does the calculation cover your entire investment or just the franchise fee? Does it assume that all profits are withdrawn, or does it retain the funds needed to keep the business running? Do not compare two proposals until these definitions are consistent.

2. Request supporting evidence through the statutory disclosure process

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 franchisor must provide a prospective franchisee with a disclosure document at least 14 days before the franchise agreement is signed or any franchise-related payment is made, whichever comes first. This provides time for review; it does not guarantee that the projections will be achieved.

If the franchisor provides information about historical or projected financial performance, ask to review it alongside its disclosures under the relevant legal requirements. Do not assume that the law requires the franchisor to guarantee your profits or provide a forecast specific to your location. What matters is that you can identify the nature and basis of the information provided, and that your adviser checks whether the required disclosures have been made.

Request a package of supporting information that includes:

• The period covered by the results and the date the projections were prepared.
• The number of outlets included in the calculations and the criteria used to select them.
• The assumptions used and the sources behind sales and expense estimates.
• Supporting documents, such as sales reports and income statements with sensitive information removed.

If documents cannot be shared for confidentiality reasons, suggest controlled access under a confidentiality agreement, or a review by an independent accountant. Confidentiality does not automatically make a claim valid, and a lack of evidence increases uncertainty.

3. Check whether the outlets are genuinely comparable

The results of a successful outlet are not necessarily a suitable benchmark for yours. It may operate in a high-footfall destination, benefit from a long-standing lease at a favourable rent, or be run by the franchisor using resources unavailable to an independent franchisee. Ask for comparisons with outlets that are similar in location type, floor area, opening hours, sales channels and length of time in operation.

Do not rely solely on the group average. Ask for the range of results and the median — the middle result when the outlets are ranked. Also ask whether closed, newly opened or struggling outlets have been excluded. Leaving them out can make the picture look more optimistic, even if the calculations themselves are correct.

Where possible, and with the consent of those involved, speak to current and former franchisees. Ask about the gap between projections and actual performance, how long it took to reach stable operations, and expenses that were not clear at the outset. Look for explanations you can verify, rather than a general recommendation to buy or walk away.

4. Recalculate profit rather than accepting the headline figure

Give the data to an independent accountant to rebuild the result from its components. Start with the number of transactions, average transaction value and trading days, then check whether the resulting sales are consistent with the capacity of the premises and team. A sales forecast that requires serving more customers than the outlet can handle is a warning sign worth pausing over.

Next, check that the calculations include the cost of goods, wastage, wages, rent, utilities, maintenance and contractual fees. Pay particular attention to the manager’s salary: working for free yourself may improve the apparent profit, but it does not make the model viable once your time is properly paid for.

Build a base case and a less optimistic scenario using justified assumptions, not arbitrary percentages. Test the effect of fewer transactions, higher labour costs or a change in the proportion of sales made through delivery channels. Calculate the break-even point, then ask: can the required sales volume be achieved within the available operating capacity? The aim is to understand how sensitive the result is, not to produce another attractive figure.

5. Document the claims and decide how to proceed

Keep dated copies of proposals, spreadsheets and correspondence, and record the source of each figure and who supplied it. If the financial proposal differs from the disclosure document or draft agreement, request a written explanation and correction before committing. Do not rely on a verbal statement such as ‘all our outlets achieve this’.

Review with a Saudi lawyer how the agreement addresses financial representations and limits reliance on them. A clause disclaiming any guarantee of profits does not remove the need to check the accuracy of the information. Equally, a missed forecast does not, by itself, prove a legal breach. Establishing your rights and the legal consequences requires a review of the facts and documents.

The practical takeaway: do not buy a projection; test it. Continue negotiations when the sources of the figures are clear, the outlets are comparable and the outcome remains acceptable under cautious assumptions. If profitability still depends on information you cannot verify, postpone committing until the picture is clearer.