Buying a Franchise in the UAE: How Do You Verify Profit Figures?

A brand may present strong sales figures and a short investment payback period, but the success of a model outlet does not prove that your business will achieve the same results. When entering the UAE franchise market, you need to examine where the figures come from, which costs have been excluded and whether the results can be replicated. This guide focuses on financial due diligence before signing a franchise agreement, rather than assessing the brand’s appeal alone.

1. Understand what the law requires and what you must request yourself

The UAE has no standalone federal franchise law, nor a specific federal regime requiring a standardised disclosure document to be provided before a franchise is sold. Do not therefore assume that the financial proposal you receive has undergone government scrutiny, or that the franchisor is automatically obliged to provide all its outlets’ data. The absence of a specific disclosure regime does not remove the general rules governing contracts and liability for misleading statements.

Depending on its nature, the relationship is governed by the Civil Transactions Law and general contract rules, Federal Decree-Law No. 50 of 2022 issuing the Commercial Transactions Law, and trademark and competition legislation. Federal Law No. 3 of 2022 Regulating Commercial Agencies is not a standalone franchise law; it may apply to a franchise arrangement that meets the conditions for a commercial agency and is entered in the relevant register at the Ministry of Economy.

Not every franchise agreement needs to be registered as a commercial agency. Ask a UAE lawyer to establish the legal status of the relationship and its implications for rights, termination and dispute resolution. At the same time, negotiate specific contractual financial disclosure requirements: what information must be provided, who must approve it, when it must be supplied and updated, and what happens if it proves materially inaccurate.

2. Request an evidence pack, not a sales presentation

Start by requesting a list of outlets that have operated, closed or transferred to new owners during a defined period. Separate franchisor-owned outlets from franchisee-owned outlets, as purchasing costs, management costs and fees may differ. Request data covering at least one full seasonal trading cycle, separating the opening phase from established trading.

As far as the information is available and confidentiality can be protected, the due diligence pack should include:

• Monthly income statements for comparable outlets, identifying the city, type of location, floor area and how long each outlet has been operating.
• A written definition of sales: do they exclude VAT, returns and discounts? Do they include delivery orders before commission is deducted?
• A breakdown of the cost of goods, wages, rent, marketing, franchise fees, IT systems and maintenance.
• An explanation of the data sources, including whether the figures come from internal management accounts or financial statements reviewed or audited by an independent professional.
• Reasons for excluding any outlets from the average, and information about outlets that have closed or struggled financially.

Ask an accountant to reconcile a sample of sales against point-of-sale reports, bank reconciliations and relevant tax documents, with the data owners’ consent. Anonymised data or a confidentiality agreement can be used, but confidentiality does not make unsupported figures sufficient evidence.

If the brand is new to the UAE, treat its overseas results only as an initial reference point. Differences in rents, supply chains and customer behaviour could fundamentally change the business’s viability.

3. Rebuild the profit and cash flow projections for your business

First ask: what does ‘profit’ mean? The franchisor may be presenting a gross margin or operating profit before depreciation, financing costs and tax, while you understand it to mean the money available for you to withdraw. Request a clear reconciliation from sales through to the net result, followed by a separate cash flow model.

Include the salary of a replacement manager even if you plan to run the business yourself: your labour is not a free resource when comparing this investment with other options. Add ongoing franchise fees, marketing contributions, local marketing, delivery commissions, payment processing fees, insurance, licence renewals, wastage, maintenance and any mandatory fit-out or equipment upgrades.

Check how each fee is calculated. A percentage of sales may be payable even when the outlet is making a loss, and the contract may include minimum fees or mandatory purchases. Also check whether supplier prices include transport and storage, and how those prices can be adjusted.

Build three scenarios: base, conservative and stress. Vary order volumes, average transaction value, material costs and the pace of sales growth, rather than arbitrarily reducing the final profit figure. Calculate the break-even point and the cash needed to cover shortfalls, taking financing repayments and supplier payment dates into account. Accounting profit alone does not guarantee that you can meet your payment obligations.

4. Test the claims and record what you rely on in the contract

Speak to current and former franchisees, not just those selected by the franchisor. Ask about the gap between the initial budget and actual spending, how long it took to reach stable trading, unexpected fees and the quality of support. Respect their confidentiality obligations and compare their answers with the documents rather than relying on impressions alone.

Create a simple verification log recording each financial claim, its supporting evidence, its assumptions and the consequences if it does not materialise. Request a written explanation for any inconsistencies, and do not treat sales forecasts as profit guarantees.

Before signing, review the entire agreement and non-reliance clauses with your lawyer. Negotiate to have the material information underpinning your decision attached to the contract, define the franchisor’s responsibility for its accuracy within clear limits, and require the franchisor to report material changes before the contract is concluded. Also specify your rights to receive subsequent operating reports and the procedure for resolving disputes.

The practical takeaway: Do not buy a franchise on the strength of a single profit figure. Gather the supporting evidence, recalculate it using your own costs, test whether you can withstand the conservative scenario, and document the information you have relied on before committing.