Buying a Singapore Franchise: Test Earnings Claims

An attractive profit forecast can make a franchise look like a safer purchase than it really is. Before joining Singapore’s franchising community, establish whether the earnings presented are verified results, estimates or sales illustrations. Your task is not to secure a promise of success: it is to understand what the numbers prove, what they leave out and whether they fit your proposed outlet.

1. Identify exactly what is being claimed

Start by collecting every earnings statement that influences your decision, including presentation slides, emails, advertisements and spreadsheets. After a sales meeting, send a written summary of any important verbal claims and ask the franchisor to confirm or correct it.

Terms such as ‘profit’, ‘owner income’ and ‘return on investment’ are not interchangeable. Ask for a written definition of each measure used.

For every claim, establish:

• Whether it describes actual trading results or a forecast.
• Which outlets and accounting periods it covers.
• Whether the outlets are company-owned or franchisee-operated.
• Whether the figure is an average, a median or a selected example.
• Whether it includes a market-rate wage for the working owner.

A company-owned outlet may not bear the same franchise fees as your business. A mature outlet may also benefit from an established customer base that a new location cannot immediately reproduce.

Treat a ‘payback period’ with particular care. Ask what investment is being recovered and whether the calculation uses accounting profit or cash available after operating expenses, tax and necessary reinvestment. Recovering the franchise fee alone is not the same as recovering your total investment.

2. Trace the figures to comparable outlet records

Ask for evidence supporting the headline figures, rather than another version of the sales presentation. Useful material can include anonymised outlet profit and loss accounts, monthly sales reports and a reconciliation explaining how the advertised earnings were calculated.

Where confidentiality limits access, propose a controlled review by your accountant or suitably redacted records. A refusal does not establish wrongdoing, but it leaves uncertainty that should affect your buying decision.

Check how the comparison group was selected. Results from the strongest outlet are not evidence of typical performance. Ask whether the calculation excludes outlets that closed, changed owners or traded for only part of the period. Exclusions may be justified, but they should be visible.

Then assess whether the outlets genuinely resemble yours:

• Location: a central shopping centre and a residential neighbourhood may have different demand and occupancy costs.
• Format: a kiosk, full-service shop and delivery-led operation have different economics.
• Trading history: opening promotions can temporarily lift sales, while a new outlet may take time to build repeat custom.
• Management: unpaid family labour or unusually intensive owner involvement can make reported profit misleading as a measure of investment return.

Ask your accountant to distinguish evidence that can be independently checked from management estimates that cannot.

3. Rebuild the forecast for your own outlet

Do not simply reduce the franchisor’s sales forecast by an arbitrary percentage and call it conservative. Build a separate model using assumptions you can explain.

For a transaction-based business, estimate customer transactions and average spend separately. Test whether the implied daily activity is realistic for the premises, staffing and opening hours. For a service franchise, consider appointment capacity, utilisation and repeat bookings instead.

Use local quotations and your proposed contractual charges when estimating expenses. Include a reasonable wage for your own work: otherwise, you risk confusing payment for a demanding job with a return on invested capital.

Create a base case and a downside case. Test weaker demand, lower margins and a slower route to stable trading. Calculate the sales needed to cover operating costs, then separately consider debt repayments and cash available to you.

The objective is to identify which assumptions determine viability. If a modest change turns an attractive return into a loss, investigate that assumption before proceeding.

4. Understand the legal position on misleading claims

Singapore has no franchise-specific statute, mandatory franchise registration scheme or statutory franchise-specific pre-sale disclosure document. General contract law and laws concerning misrepresentation apply, alongside other relevant business laws. The franchise agreement is important, but it is not your only potential protection.

A false factual statement that induces you to enter the agreement may support a misrepresentation claim. Depending on the circumstances, remedies may arise under common law or the Misrepresentation Act 1967, including section 2(1). An unsuccessful forecast does not, by itself, prove actionable misrepresentation; its wording, factual basis and surrounding circumstances matter.

The Franchising and Licensing Association Singapore’s Code of Ethics applies to its members, rather than operating as a statutory regime for every franchise. Do not treat membership as independent verification of earnings.

Have a Singapore lawyer assess material earnings statements before signing, especially where the documents describe them as illustrative or deny reliance on them.

Practical takeaway: keep a written claims record, obtain supporting evidence and rebuild the forecast independently. If the investment works only when you accept an unsupported earnings claim, pause the purchase.