Financial Disclosure Before Granting a Franchise in the UAE

Before turning your existing UAE business into a franchise, ask yourself: can a prospective franchisee understand the cost of running their outlet without relying on promises from the sales team? A voluntary financial disclosure pack helps you answer that question with evidence. It is not an earnings advertisement, but a set of documented information explaining what you have actually tested and what may change when an independent partner takes over operations within the franchise network.

1. Define the pack’s purpose and legal boundaries

The UAE has no standalone federal franchise law, nor a general federal regime requiring a standardised pre-contract disclosure document for all franchises. However, the absence of a mandatory template does not mean that information given to prospective franchisees has no legal consequences. Promises, correspondence and financial statements may become the subject of disputes over the accuracy of information or the obligations agreed.

The relationship is governed by the general rules on contracts under the Civil Transactions Law and relevant commercial transactions provisions, including Federal Decree-Law No. 50 of 2022 on Commercial Transactions. Federal Decree-Law No. 36 of 2021 on Trademarks governs trademark protection and licensing. Federal Law No. 3 of 2022 Regulating Commercial Agencies may apply if the arrangement meets its requirements and is registered as a commercial agency; not every franchise agreement automatically becomes a registered agency.

Seek a legal review tailored to the outlet’s location and the nature of the relationship, particularly when operating in a free zone with its own legal framework. Do not describe your pack as ‘government-approved disclosure’. State that it provides pre-contract information, and identify its issue date and who is responsible for updating it. Nor should a prospective franchisee’s signed acknowledgement of receipt be used to absolve the franchisor of responsibility for misleading information.

2. Turn pilot outlet results into comparable data

Start with actual operating accounts that can be reconciled with sales and expense records, rather than a marketing presentation. Choose a period that shows the effects of seasonality and operational changes, and explain why you selected it. If the available data is limited, say so rather than presenting it as a reliable picture of future performance.

Present revenue figures with an explanation of how VAT, discounts, returns and ordering-platform commissions are treated. Then itemise material costs, wages, rent, utilities, maintenance and local marketing. Consistent definitions are essential: a prospective franchisee should not be comparing VAT-inclusive sales with costs calculated on a different basis.

Next, adjust the results to reflect the likely circumstances of a franchisee. If the founder runs the outlet without drawing a salary, include the cost of a replacement manager in the forecast model. If the outlet benefits from preferential rent or staff shared with the parent company, explain this. Include the ongoing franchise, support and marketing fees that the new outlet will bear but your company-owned outlet did not.

Maintain a table distinguishing between actual historical results, estimated adjustments and future assumptions. This separation prevents the performance of one successful outlet from becoming an implied promise that every location will achieve the same results.

3. Disclose the full cost before presenting returns

Do not reduce the investment to the initial franchise fee and premises fit-out. Organise the pack around stages of expenditure: before opening, at opening and during operation. For each item, specify who receives the payment, when it is due, the basis of the estimate and whether it is refundable under the relevant contractual document.

Depending on the business, the table should include:

• The initial franchise fee and any training or opening support it covers.
• Rent, deposits, fit-out, equipment and opening stock.
• The trade licence and approvals required for the activity and location.
• Technology systems, subscriptions, maintenance and insurance.
• Ongoing fees, marketing contributions and approved purchasing requirements.
• Working capital to meet obligations while sales build up.

Explain how each variable fee is calculated: is it based on revenue before or after discounts? How are returns and app-based sales treated? If the franchisor or a related party earns a supply margin or receives benefits from suppliers, clearly disclose the nature of those arrangements.

Then present different operating scenarios rather than a single profit figure. Test the effects of lower demand, higher labour costs and a delayed opening. Distinguish between accounting profit and cash flow: an outlet may appear profitable while deposits, stock and finance repayments put pressure on its cash position. These scenarios are decision-making tools, not guarantees of returns.

4. Link disclosure to review and signing

Create a version-numbered pack. Have the finance lead review the figures, the operations lead review the implementation requirements, and legal counsel check that the fees and obligations match the draft agreement. The pack must not promise free support while the contract allows its cost to be charged to the franchisee without explanation.

Provide the information well before any binding commitment or non-refundable payment, allowing enough time for independent review. This is a recommended precaution, not a general mandatory federal disclosure period for franchises. Give prospective franchisees an opportunity to discuss the data with their accountant and lawyer, and record questions and answers in writing. If a material cost or significant result changes, issue a clear update before signing.

Protect the confidentiality of records through an appropriate agreement and controlled access, withholding unnecessary employee and customer data. Train the franchise recruitment team to use only the approved version and not to make verbal forecasts that go beyond it.

Practical takeaway: Before recruiting your first franchisee, prepare documented accounts, a comprehensive cost schedule, clearly stated assumptions and a record of information supplied and updated. A good disclosure pack does not sell a dream; it helps both parties make a decision they can put into practice.