Singapore Franchising: Substantiate Earnings Claims

When franchising an existing business in Singapore, prospective franchisees will ask what they could earn. Your flagship’s accounts may help answer that question, but they do not automatically establish what another operator can achieve. Before sharing profit forecasts or payback estimates, build a process that makes every financial claim traceable, comparable and properly qualified. This protects both your business and trust within the franchising community.

1. Understand the legal risk behind the sales pitch

Singapore has no dedicated franchise statute, franchise registration system or mandatory franchise-specific disclosure document. There is also no statutory franchise disclosure timetable. However, the absence of these requirements does not give franchisors freedom to make unsupported financial statements.

General contract law and the Misrepresentation Act 1967 are particularly relevant. A false statement that induces someone to enter a franchise agreement can expose the franchisor to legal remedies, potentially including rescission or damages, depending on the circumstances. Fraudulent statements may also give rise to liability in deceit.

Other general laws apply according to the issue, including the Trade Marks Act 1998 for brand rights and the Competition Act 2004 for competition matters. For earnings claims, the immediate task is to ensure that factual statements are accurate and that forecasts have a defensible basis.

Treat presentations, emails, messaging conversations and spoken assurances as part of this risk. Labelling a spreadsheet “illustrative” is not a substitute for checking its contents. Nor should you assume that a disclaimer in the agreement will neutralise an earlier misleading assurance. Have a Singapore-qualified lawyer review both your proposed claims and their qualifications.

2. Separate recorded results from franchise projections

Start with a clear distinction between historical performance and a forecast. Historical results describe what a specified outlet actually achieved during a stated period. A projection estimates what might happen under stated assumptions. Do not present one as the other.

Build an evidence file for each financial statement you intend to use. Record:

• The outlet or group of outlets covered and the relevant trading dates.
• The accounting records supporting revenue and costs.
• Whether sales include or exclude GST, refunds and discounts.
• The definition of profit used, including any excluded expenses.
• Any adjustments made to convert company-owned results into a franchise scenario.

Those adjustments matter. A company-owned outlet may not pay franchise royalties or marketing contributions. Its owner may work without a commercial salary, while head-office staff provide support that is not charged to the outlet. A franchise projection should identify these differences rather than quietly carrying them forward.

Explain whether profit is measured before or after owner remuneration, financing costs, depreciation and tax. Avoid using “take-home income” to describe an operating profit figure.

If your records cannot support a reliable estimate, say that you cannot yet provide one. A narrower, verifiable statement is more useful than an impressive number built on incomplete accounts.

3. Show the limits of the comparison

A successful flagship can be an unrepresentative example. It may benefit from favourable rent, established customers, founder-led selling or unusually strong pedestrian traffic. Identify these advantages before using its performance in recruitment.

Where you have several outlets, explain how you selected the examples shown. Do not describe the best-performing location as “typical” without evidence. If presenting an average, state which outlets and periods it covers and explain significant differences that the average conceals.

For projections, list the assumptions that drive the result: trading hours, transaction volumes, average spend, staffing, rent and other material costs. Show how weaker sales or higher costs would change the outcome. Describe these as scenarios, not promised ranges of performance.

Be especially careful with “break-even” and “payback”. Monthly operating break-even is not the same as recovering the original investment. A payback calculation should explain which initial expenditure it includes and how cash available for recovery is calculated.

Ask someone outside the recruitment team to read the presentation. Can they distinguish actual results from estimates without an explanation from the salesperson? If not, revise it.

4. Control how claims reach candidates

Create a single approved set of financial materials, with a version date and a named person responsible for approval. Require recruiters and any appointed agents to use that version rather than building their own spreadsheets or repeating informal success stories.

Give the team a clear response to requests for guaranteed returns: explain the available evidence and uncertainty, without improvising an assurance. Record material financial questions and answer them in writing using checked information.

Keep a record of what each candidate received. Review claims when costs, trading conditions or the franchise offer change, and withdraw outdated versions. Correct material errors promptly with affected candidates before they commit.

Practical takeaway: Before quoting earnings, assemble the supporting records, define the financial measure, explain the assumptions and approve the wording. If a claim cannot survive those checks, do not use it to recruit a franchisee.