Sales forecasts when franchising: how to document them

When franchising an existing business, the performance of your outlets helps explain the opportunity, but it does not automatically predict sales at another location. Before handing a spreadsheet to a prospective franchisee, you need to be able to justify its figures. Documenting forecasts helps build a franchise network around clear expectations and enables each prospective franchisee to assess the opportunity with their own advisers.

1. Distinguish between legal requirements and what you choose to provide

In Spain, the specific legal framework includes Article 62 of Law 7/1996 on the Regulation of Retail Trade and Royal Decree 201/2010 of 26 February. Article 3 of the Royal Decree governs pre-contractual disclosure and sets out a particularly relevant rule: where a franchisor provides forecasts of sales or operating results, these must be based on sufficiently substantiated experience or studies.

This does not amount to a general obligation to promise future turnover. If you choose to provide a forecast, you must have evidence to support it. An indicative figure also needs explaining; calling it an ‘estimate’ does not make unsupported data sound.

Pre-contractual information must be provided in writing at least twenty working days before the franchise agreement or preliminary agreement is signed, or before the prospective franchisee makes any payment to the franchisor. Include any forecasts you intend to provide within that process, rather than introducing them as a surprise at the end of negotiations.

A disclaimer stating that results are not guaranteed helps explain uncertainty, but it does not replace the requirement for truthful, non-misleading information.

2. Build a comparable historical evidence base

Start by preparing a profile of the outlets whose results you will use. Identify which are company-owned, how long they have been open, their format and the period covered by the data. Do not combine figures from an established outlet with those from a newly opened one without highlighting the difference.

For each set of sales figures, retain:

• Source: point-of-sale reports, accounting records or other verifiable documentation.
• Period: specific dates and the full months included.
• Basis: whether sales include or exclude VAT, and how returns and discounts are treated.
• Context: opening hours, floor area, sales channels and exceptional circumstances.
• Adjustments: any changes made and the reasons for them.

Do not select only the best-performing outlet. If you exclude an outlet because of exceptional circumstances, record what those circumstances were and why they prevent a meaningful comparison. A temporary closure or refurbishment can distort the data, but so can an exceptional marketing campaign or a location that would be difficult to replicate.

If you have only one outlet, state this explicitly. Its track record may provide useful evidence, even though it cannot show the spread of results across several outlets. The level of precision in the document should reflect the actual breadth of experience available.

3. Turn the data into explicit assumptions

The forecast should show how you move from historical results to projections for the new outlet. To do this, separate three layers: observed results, adjustments for differences in the proposed outlet, and assumptions about its future performance.

For example, you could break sales down into the number of transactions and average spend per transaction. Then explain what supports each variable: records from comparable outlets, a location study or documented sales trials. Do not present an assumption as though it were a measured fact.

Use scenarios that help readers understand the uncertainty:

• Base case: combine the assumptions you consider most reasonable and explain why.
• Downside case: allow for slower customer acquisition, less frequent purchases or other relevant changes.
• Upside case: identify the additional conditions that would need to be met.

Avoid applying arbitrary percentages to manufacture scenarios. It is more useful to change specific variables and show their effect. If the outlet will need several months to become established, reflect that progression rather than dividing an annual figure by twelve.

Also state what the calculation excludes. A sales forecast is not a forecast of profit, cash flow or investment payback.

4. Prepare a supporting file you can explain and update

Keep a dated version of each forecast, its sources, the assumptions used and a record of who reviewed it. The aim is to be able to reconstruct what information each prospective franchisee received and the basis for it.

Before providing the forecast, arrange a financial and legal review. Check that the formulae work, that the comparisons are reasonable and that limitations appear alongside the results, rather than being buried in a footnote elsewhere.

Set clear triggers for reviewing it: changes to the format, prices, opening hours or historical data that affect its underlying assumptions. If you discover a material error during negotiations, correct it and explain its implications before proceeding.

Practical conclusion: do not provide a sales figure that you cannot reconstruct from its sources. A concise, dated supporting file with explicit assumptions is more useful than a sophisticated projection that nobody can justify.