Franchising in Taiwan: How to Present Revenue Forecasts and Payback Estimates Without Misleading

A successful existing business does not mean every franchisee can achieve the same income. When brands in Taiwan prepare to offer franchises, they are often asked: ‘How much will I earn each month, and how long will it take to recover my investment?’ Rather than offering an apparently certain answer, build a financial explanation supported by evidence, explicit assumptions and clear limits on where it applies. This helps establish franchise relationships based on realistic expectations.

1. Distinguish actual results, projections and commitments

Financial figures in recruitment presentations should first be divided into three categories: actual historical outlet results, estimates calculated under specified conditions, and contractual commitments for which the franchisor is prepared to take responsibility. These must not be conflated. For example, ‘A particular company-owned outlet recorded a profit last year’ is a historical fact; ‘A similar outlet could achieve a comparable profit’ is a projection; and ‘Profit is guaranteed once you become a franchisee’ carries a different level of responsibility.

Taiwan does regulate franchising. Although it has no single dedicated franchise statute, the Fair Trade Commission has issued the Fair Trade Commission Disposal Directions (Guidelines) on the Business Practices of Franchisors, which operate alongside the Fair Trade Act to regulate franchise transactions. Questions concerning contract formation, performance and damages must also be assessed under the Civil Code and other applicable provisions.

The Guidelines require franchisors to provide important information in advance, including costs incurred before opening and during operation. However, this does not mean the law requires franchisors to guarantee revenue or a payback period. False or misleading earnings claims in public recruitment advertising may fall within Article 21 of the Fair Trade Act. Withholding important transaction information may fall within Article 25 where the conduct is obviously unfair and capable of affecting trading order. The precise application depends on how the claims are presented and the facts of each case.

2. Build an evidence file for every revenue figure

Decide which outlets provide meaningful comparisons before calculating the results, rather than selecting the most attractive figures first. Outlet size, opening hours, trading area, staffing and length of operation all affect how useful the figures are to a prospective franchisee.

Each supporting file should record at least:

• Sample scope: Which company-owned or franchised outlets are included, which are excluded, and why.
• Data period: Which months are covered, and whether there were peak seasons, opening promotions or closures.
• Revenue definition: How refunds, discounts, taxes and delivery platform charges are treated.
• Verification sources: Whether point-of-sale data, settlement records and accounting information can be reconciled.
• Special circumstances: For example, owner-occupied premises, the founder working on site, or additional staff support from head office.

If there is currently only one outlet, state clearly that the sample is limited. Do not present its results as the average performance of an entire franchise network. Where there are several outlets, consider showing the median and a reasonable range as well as the average, so a few high-revenue outlets do not obscure differences. Do not show only successful outlets that remain open without explaining how closed outlets or those with insufficient data have been treated.

3. Break ‘payback’ down into cash flows that can be checked

Turnover is not profit, and an accounting profit does not necessarily mean enough cash has been generated to recover the investment. The franchisor should first define which initial outlays are included in the payback calculation: does it cover the franchise fee, fit-out, equipment, rental deposit, opening stock and working capital needed during the early stages?

Next, itemise operating expenses, including rent, staff, raw materials, utilities, platform service charges, royalties and marketing fees. If the owner works in the outlet, it is advisable also to show the results after allowing for reasonable owner remuneration, rather than treating unpaid labour as profit. Explain separately how equipment replacement, taxes and loan repayments are handled; do not mix different accounting bases.

Forecasts can be divided into conservative, base-case and more favourable scenarios, but each should have a sound basis, such as transaction volumes, average spend per transaction and cost changes at comparable outlets. In particular, test which costs will not fall in line with declining revenue, and how much extra cash would be needed if the outlet takes longer to establish itself.

Do not claim a payback period simply by dividing the total investment by the profit from an ideal month. A more useful approach is to track cumulative cash flow month by month, allowing for early losses and seasonal fluctuations, and stating whether financing is included. If the investment is not recovered within the forecast period, show ‘Investment not recovered within the period’ rather than removing the unfavourable scenario.

4. Use the financial explanation as a shared basis for recruitment discussions

The same assumptions should run through recruitment advertising, presentations, spreadsheets and individual discussions. Sales staff must not say ‘You will definitely achieve this’ while the documents say ‘For reference only’. Nor can a disclaimer remedy promotional claims that lack evidence or create a misleading overall impression.

During discussions, ask prospective franchisees to enter their local rent, staffing plans and funding sources, then review the differences with the franchisor line by line. The franchisor should retain the data used, calculation methods and key responses, clearly distinguishing verified figures from those still awaiting confirmation. Applicants who have not yet selected a site should receive scenario analysis, rather than claims that a forecast already applies to their future outlet.

Financial modelling is also no substitute for the required disclosure of important information. Under the Guidelines above, the relevant information should generally be provided ten days before establishing a franchise or preliminary franchise relationship, within a period deemed reasonable in the particular case, or within a period agreed by both parties. If a fee that will be forfeited on withdrawal is collected and documents such as a letter of intent are signed, a preliminary franchise relationship may already have been established. The franchisor cannot simply wait until the final contract is signed to supply the cost information.

Practical takeaway: Before offering franchises, use a traceable evidence file of actual outlet results to build a financial model that includes all costs and adverse scenarios. A payback figure whose sources, assumptions and limitations cannot be explained should not become a recruitment selling point.