Franchise earnings claims: How to assess forecasts and network averages
Updated: Sep 17
A network average describes the businesses included in a dataset; it does not establish what a particular franchise site will earn.
Franchise earnings claims may appear in sale listings, franchisor presentations, forecasts or comparable-site summaries. For an Australian buyer, the first task is to identify what the number measures and which business, period and assumptions it describes.
Sales, operating profit, owner-adjusted earnings and cash available after repayments are different measures. A useful assessment separates verified historical records from forecasts, network summaries and illustrative assumptions before any number is used in the acquisition budget.
The short answer
Identify the measure: sales, margin, profit, adjusted earnings or cash flow.
Label the evidence: actual site results, comparable-site data, network statistics or forecasts.
Ask which businesses, periods and costs are included or excluded.
Test comparability and the assumptions for the proposed site.
Reconcile owner labour, franchise fees, tax timing and capital needs.
Obtain independent accounting, legal and operational advice; forecasts are not guaranteed.
Franchise earnings claims: classify the number before assessing it
Site-specific historical results
These describe what a particular operating business recorded over a defined period. They can provide useful evidence for a resale, but reliability and relevance still need investigation. A change of owner, staffing model, fees or trading conditions may change the economics.
Comparable-site evidence
These are results from other locations selected as relevant to the proposed site. They provide context only to the extent the sites are genuinely comparable. Ask why each location was selected, how its figures were verified and what differences require adjustment.
Network averages
These summarise a group of businesses. An average is not necessarily representative of the site a buyer intends to operate, and it can conceal variation, exclusions and different operating models. Request the underlying definition and methodology rather than relying on the headline.
Forecasts and illustrative assumptions
A forecast estimates future performance using assumptions. An illustrative example explains a mechanism using stated hypothetical inputs. Neither should be presented as an actual result or a promise. Ask who prepared the figures, why the assumptions were selected and what evidence supports them.
What does Australian guidance say about earnings information?
The ACCC's franchise disclosure document guidance explains that franchisors can choose to disclose earnings information, including historical and projected data. Where provided, it belongs in the disclosure document or an attachment and must be accompanied by the prescribed accuracy statement. Have a franchise lawyer check the relevant requirements and timing.
The ACCC's false or misleading claims guidance says claims about future matters must have reasonable grounds when made. Whether a particular representation breaches the law requires advice on its facts; a forecast missing its target is not, by itself, a legal conclusion.
Record important claims and obtain the supporting documents. A statement labelled a forecast still needs scrutiny of its assumptions. Conversely, the absence of franchisor earnings information does not establish either strong or weak performance; it leaves financial questions to investigate.
Ask what 'earnings' actually means
Start with a written definition. Is the claim turnover, gross profit, EBITDA, net profit, seller-adjusted earnings or another measure? Does it include or exclude GST? What expenses, owner remuneration and one-off items are treated differently? Avoid comparing two figures simply because both are described as earnings.
An accountant should reconcile the claimed measure to supporting statements and identify the costs needed under the buyer's operating model. If owner wages are added back, replacement labour may need to be included. If suitable management costs already appear in the accounts, avoid deducting them twice.
Also separate profit from cash flow. Loan principal repayments, working-capital movements, equipment purchases and tax timing can affect available cash differently from accounting expenses. A sales or profit claim alone does not establish how much money is available for the owner's living costs or loan repayments.
Check whether the comparable sites are genuinely comparable
Location and demand: catchment, competition, access and relevant demographics.
Premises: rent, outgoings, size, equipment and fit-out requirements.
Maturity: newly opened, established or recently refurbished.
Operations: hours, staffing, owner involvement and service capacity.
Revenue mix: pricing, discounts, channels and supplementary services.
Costs and terms: franchise fees, supplier arrangements and temporary concessions.
Ask whether the proposed site is expected to achieve similar customer numbers, pricing and margins, and why. A larger mature site with lower rent and unpaid owner labour may be a poor comparator for a new site requiring paid management.
Identify any adjustments clearly. Changing one site's rent to match another does not resolve all differences. An operational adviser can assess capacity and delivery assumptions, while an accountant tests how the differences affect the financial model.
Understand how a network average was calculated
Ask how many sites are included, how the average is calculated and which periods are used. A simple mean gives each included observation equal weight; other approaches may weight results differently. Confirm whether the claimed number is a mean, median, range or another summary.
Investigate exclusions: newly opened sites, incomplete-year operations, closed stores, transferred businesses or locations without usable records.
An average based only on surviving mature sites does not describe every site that entered the network. Exclusions may be justified, but their effect needs to be understood.
Ask for the range and distribution where available. Different state markets, formats, operating hours or ownership models may be mixed together. Do not assume network growth or a high average establishes the earnings quality of an individual franchise.
Illustrative example: an average can conceal variation
Assume five hypothetical sites record annual sales of $100,000, $100,000, $100,000, $100,000 and $500,000. Their simple mean is $180,000, while the median is $100,000. Four of the five sites are below the mean. These invented figures illustrate arithmetic only, not franchise sales benchmarks or expected results.
None of those sales figures shows profit, expenses, owner workload or cash flow. Nor does the example predict that a proposed site will match either the mean or median. Its purpose is to show why the underlying data matters more than one summary number.
Investigate the assumptions behind the forecast
Ask for the model, not only its final total. Identify assumptions for opening date, ramp-up, customer numbers, average spend, repeat business, gross margin, staffing, royalties, marketing, rent and other material costs. Label site-specific evidence separately from general network experience.
Check internal consistency. Forecast sales require enough equipment, staff and trading capacity to deliver them. If sales grow, related labour, stock, supplier or marketing costs may also change. A model that raises revenue without investigating delivery costs can overstate earnings.
For a new site, include pre-opening expenses, possible delays, initial losses and the period before sustainable trading. For a resale, reconcile the forecast with recent actual records and explain material departures from history.
New franchise site versus existing business guide explains why greenfield forecasts and established trading records offer different evidence. Neither makes future performance certain.
Test sensitivities without treating scenarios as predictions
Have your accountant assess the effects of lower sales, a slower opening, weaker margins or higher staffing costs. Use clearly labelled assumptions and identify which costs move with sales and which remain fixed. Do not present a downside scenario as a forecast or an arbitrary percentage as a universal test.
Review the cash balance period by period, not just the annual profit. Ask how much working capital is needed and what happens when wages, rent, franchise deductions and loan repayments fall due together. Contingency allowances should reflect the transaction rather than be treated as a guaranteed solution.
Franchise fees, royalties and marketing contributions: Their effect on cash flow discusses continuing charges and payment timing. Check the actual fee formulas before incorporating them into a model.
Verify an existing site's records independently
For a resale, ask an accountant to review financial statements, BAS, tax returns, interim accounts, bank records and relevant sales and operating reports. Reconcile timing differences and investigate unexplained inconsistencies. A positive network statistic does not resolve a gap in this site's evidence.
The business.gov.au acquisition guide recommends independently checking financial information alongside operations and legal documents. The appropriate scope should be agreed with your advisers.
How to Finance the Purchase of a Franchise Business in Australia for the wider review of staff, equipment, premises and contractual rights. Financial due diligence is one part of the acquisition assessment.
How may lenders use earnings information?
A lender may assess verified historical performance, sustainable earnings, forecast assumptions, buyer experience, contribution, security and the proposed agreements. Requirements vary. A network average is not a universal substitute for the information required about the particular acquisition.
Explain management and staffing changes and provide supporting records and adjusted cash-flow forecasts. A recognised brand or panel relationship does not guarantee acceptance of a forecast or approval of an application. Do not treat finance approval as independent confirmation of expected returns.
A broker can assess possible funding structures and lender requirements. An accountant investigates the financial evidence and tax consequences, a lawyer assesses representations and contractual obligations, and operational specialists examine delivery assumptions. The broker does not determine investment suitability.
A six-question evidence checklist
What is the financial measure and how is it defined?
Is it historical evidence, a network summary, a forecast or an illustration?
Which businesses, periods and exclusions are included?
Why is the evidence relevant to this proposed site and owner model?
What costs, assumptions and sensitivities remain unresolved?
What independent verification and advice are needed before committing?
Frequently asked questions
Is network average turnover what I should expect to earn?
No. Turnover is sales, not profit or available cash. A network average describes the included data and does not predict a particular site's performance.
Is the median a guaranteed result?
No. It is the middle observation in the dataset, not a forecast. You still need to understand the data, comparability and proposed site's costs.
Can comparable-site results support a new-site forecast?
They may provide context, but the selection, verification and material differences require investigation. The proposed location has its own assumptions and no site-specific trading history.
What if the forecast does not include a manager?
If the buyer plans paid management, have the model reassessed for realistic management, staffing and relief costs. Do not compare different owner-involvement assumptions without adjustment.
What should I do if a material claim cannot be substantiated?
Record the gap, request supporting evidence and seek independent advice. Do not use an unsupported number as established earnings or guaranteed repayment capacity.
The conclusion: assess the evidence behind the number
Useful earnings assessment connects a clearly defined measure with reliable evidence, relevant comparators and realistic site-specific assumptions. Obtain individual professional advice before using promotional claims, averages or forecasts to support an acquisition decision.
Assessing a Franchise Opportunity?
Discuss how forecasts and supporting evidence may be presented to lenders.
General information only. This article does not constitute financial, credit, legal, tax, accounting, compliance or valuation advice. Finance is subject to lender approval, eligibility criteria, terms, fees and conditions. Consider obtaining independent professional advice for your circumstances before acting.
