How to Choose a Franchise in Ukraine: Reviewing the Agreement, Profit, and Costs

Before buying a franchise, check what rights and services you will receive, whether the financial figures for operating stores can be verified, and how much money your location will need before it reaches stable operations. Make your decision after reviewing the documents, calculating profit and cash flow, and agreeing on the terms for exiting the contract. A well-known brand by itself does not guarantee demand, profit, or recovery of the money invested.

For a store in Ukraine, the legal model must be determined by the substance of the arrangements. If a partner transfers a package of rights to a brand, business experience, and other elements of running a business in exchange for payment, the relevant reference is the provisions of the Civil Code of Ukraine on commercial concession. If the offer covers only use of a trademark or the purchase of goods, clarify separately what gives rise to the promised obligations for training, advertising, and support.

Determine exactly what is being sold under the name “franchise”

Under Articles 1115–1116 of the Civil Code of Ukraine, the rights holder grants the user, for a fee, the right to use a set of rights belonging to the rights holder in accordance with its requirements. The subject matter may include trademarks, other intellectual property, business experience, and business reputation. The parties to such an agreement may be individuals and legal entities that are engaged in business activity, as established by Article 1117. The provisions on commercial concession apply to the relevant cooperation model within Ukrainian jurisdiction.

In practice, it is useful to begin your review with a list of what the partner must provide before opening and continue to provide while the store is operating.

Ask a lawyer to identify the legal model for the entire package in writing. Reviewing only a document titled “franchise agreement” will not reveal risks that may appear in separate supply, equipment lease, or advertising service agreements.

Review the partner, brand rights, and other entrepreneurs’ experience

Match the rights owner, contracting party, and payment recipient

Request documents that establish who owns the trademark, the scope and duration of its protection, and your counterparty’s right to grant permission to use it. Match the exact mark to the future sign and the store’s goods or services. Separately verify the identity of the person signing the agreement and the document confirming their authority.

If an intermediary is offering the agreement, ask to see the entire chain of rights. Under Article 1119, a commercial subconcession is possible in cases provided for by the main agreement, on terms agreed with the rights holder or specified in that agreement. Invalidity of the main agreement makes the subconcession invalid. The entrepreneur who received rights from the rights holder and the entrepreneur to whom those rights were transferred under a subconcession are jointly and severally liable for harm caused to the rights holder: full compensation may be claimed from either of them.

Therefore, before paying, review the relevant provisions of the main agreement and the duration of the transferred rights. Article 1119 of the Civil Code of Ukraine.

In the payment schedule, specify who will receive each payment, what it is for, and which document forms its basis. If the payment recipient differs from the contracting party, ask for a documentary explanation of the arrangement before transferring the money.

Ask for evidence from comparable stores

For a financial review, we recommend requesting monthly data from operating locations covering at least one full seasonal cycle. Choose stores with similar floor area, format, and location. The turnover of a large store in another city will do little to help estimate your rent and number of purchases.

• Ask to see sales after returns and discounts, cost of goods sold, write-offs, inventory, and payments to suppliers.
• Check whether expenses include the full cost of staff, the owner’s work, rent, advertising, taxes, delivery, and all network payments.
• Compare management reports with sales, purchasing, and payment documents in an agreed scope, excluding buyers’ personal data if needed.
• Request a list of open locations, closed locations, and locations transferred to other owners, with an explanation of the reasons for changes.
• Speak separately with entrepreneurs who are operating within the network and those who have ended their cooperation.

Ask about the actual opening budget, supply delays, mandatory purchases, support availability, and exit costs. If figures are not verified, mark them as assumptions in your own model and check whether you can withstand weaker sales.

Check demand and the premises before taking on long-term obligations

For a small town, we recommend starting with a specific address and customers’ needs. Count foot traffic near the premises at different times and on different days, compare competitors’ assortments and prices, and check delivery availability and ease of access. Separately note why a customer should choose your store and which goods they can buy regularly.

Estimate sales using the number of purchases and the average transaction value. Compare the required number of purchases with your own observations and data from comparable locations. If the partner justifies its forecast only by the town’s population or brand recognition, ask it to explain each assumption.

Before signing a lease, agree on the address, layout, and fit-out estimate with the partner. Check electrical capacity, delivery access, storage space, and the cost of necessary work. In the launch schedule, specify who will check the permits and licenses required for the specific activity and by when.

Calculate the economics of one store

Prepare two connected calculations: the store’s monthly operating result and a calendar of incoming and outgoing payments. The first will show whether sales cover expenses. The second will help you see whether you will have enough money for purchases, payroll, and other payments on the required dates.

Clarify the basis for every payment

A one-time entry payment is often called a lump-sum fee, and a regular fee for using rights is called a royalty. For your budget, the decisive terms are the definitions in the agreement: what exactly is being paid for, when the obligation arises, and how the amount is calculated.

• Royalty. Clarify whether it is a fixed amount, a percentage of sales, or a combination; how returns, discounts, online sales, and value added tax, if applicable, are treated. Check whether a minimum monthly payment applies even when there are no sales.
• Marketing contribution. Find out what it funds, how the partner reports on the use of the funds, and whether separate local advertising is needed.
• Goods. Include the purchase price, delivery, packaging, losses, markdowns, and minimum order quantities. Agree on how purchase prices may change.
• Rent. Add operating charges, utilities, and any rent changes provided for in the agreement. Include the security deposit separately in the cash needed to launch.
• Staff. Calculate the full cost of the team, including mandatory contributions, cover for absences, and training. If the owner works in the store, include compensation for that work.
• Taxes. Ask an accountant to determine the applicable tax regime, tax bases, rates, and payment deadlines, including payments relating to staff and payments to the rights holder.

The tax amounts below are hypothetical expenses for the example. Before deciding to buy, ask an accountant to determine the tax regime applicable to your activity and calculate the relevant payments. Include those amounts in your own store budget.

Hypothetical monthly operating result

All figures in this example are invented to explain the calculation. Suppose the store has UAH 600,000 in sales after discounts and returns. The royalty is a hypothetical 5% of this amount, the marketing contribution is 2%, and payment processing costs 1%. Taxes are included as a hypothetical fixed amount; the example does not separately calculate value added tax.

The cost of goods sold is 55% of sales. After that cost, royalties, the marketing contribution, and payment processing, 37% of sales remains to cover the other expenses. Those other expenses total UAH 192,000 per month. With the assumptions unchanged, the break-even point is UAH 192,000 ÷ 0.37 = approximately UAH 518,919 in monthly sales.

Hypothetical adverse scenario: sales fall by 20%, to UAH 480,000, while the variable expense percentages and the amount of other expenses remain unchanged. The result is UAH 480,000 × 37% − UAH 192,000 = a loss of UAH 14,400 per month. Separately recalculate a scenario in which purchase costs rise: even with sales unchanged, this will change the share of funds remaining with the store.

Separate profit from the cash in your account

In the same hypothetical example, suppose that all sales have been paid for, current expenses have been paid, and there are no debts or new investments. If the store paid UAH 360,000 for goods while the cost of goods sold was UAH 330,000, the difference of UAH 30,000 increased inventory. The increase in cash is then UAH 30,000 profit + UAH 8,000 depreciation − UAH 30,000 increase in inventory = UAH 8,000.

For your own store, prepare a weekly calendar at least for the first months of operation. Enter the dates for purchases, incoming payments, payroll, rent, taxes, royalties, and loan repayments, if any. This will show your financing needs before payments become overdue.

Determine the full launch cost and reserve

We recommend calculating one-time investment, working capital, and a loss reserve separately. Working capital is needed for purchases and payments before sufficient sales revenue comes in. A loss reserve covers expenses exceeding income if events take an adverse turn. Do not count the same amount as both reserves at the same time.

Hypothetical launch budget: entry payment — UAH 100,000; renovation and equipment — UAH 250,000; security deposit and pre-opening rent — UAH 80,000; initial inventory — UAH 300,000; other preparation expenses — UAH 70,000; additional working capital — UAH 120,000; loss reserve — UAH 90,000. Total required: UAH 1,010,000.

In the adverse scenario above, three months of losses amount to UAH 14,400 × 3 = UAH 43,200. This covers only part of the possible need: a delayed opening, additional purchase, or renovation will require separate funds. Set the reserve based on the payment calendar and specific scenarios, taking into account which expenses are already included in the launch budget.

Estimate the payback period based on accumulated free cash flow after necessary purchases and payments and maintaining inventory. Do not project the result of one successful month across the entire operating period. If the offer is viable only under the best-case scenario, reconsider the rent, network payments, or the purchase itself.

Set out support and store obligations in the agreement

Under Part One of Article 1120, the rights holder must provide technical and commercial documentation, provide other information needed to exercise the rights, and inform the user and its employees. Ongoing technical and advisory assistance, including training support, and quality control are provided for by Part Two of this article, unless the agreement provides otherwise. Therefore, the agreement’s wording directly affects the scope of ongoing support. Article 1120 of the Civil Code of Ukraine.

We recommend preparing an appendix that lists materials, delivery deadlines, the training program, and responsible people. For each service, state whether it is included in the fee, how many employees it covers, and what constitutes completion. For ongoing support, agree on contact channels, availability hours, and response times.

Article 1121 requires the user to use the mark in the agreed manner, ensure the quality matches that of similar goods or services provided by the rights holder, follow the relevant instructions, provide the additional services customers are expected to receive, and preserve confidentiality. Customers must also be informed, in the way most apparent to them, that the marks are used under a commercial concession agreement. User obligations under Article 1121.

Before signing, obtain access to the standards referenced in the agreement. Calculate the cost of complying with them and agree on the update process: who gives notice of changes, how much time the store has, and who pays for new equipment or fit-out. Separately define inspections, deadlines for remedying violations, and contractual penalties.

Agree on territory, supply, and permitted restrictions

Under Article 1116, an agreement may specify the territory where the rights may be used or leave it unspecified. Article 1122 allows the parties to agree that the rights holder will not grant similar rights to other persons in a designated territory or will refrain from similar activity there. Therefore, any desired territorial protection should be expressly described in the agreement.

In practice, specify territorial boundaries, store formats, delivery, and online orders. Clarify whether the partner may open its own location nearby, use another format, or grant rights to another entrepreneur, and what consequences follow from breaching the agreed terms.

Under Article 1122, the parties may agree that the user will not compete specifically with the rights holder in the territory covered by the agreement in relation to activity carried out using the rights granted. The agreement may also require the user not to obtain similar rights from competitors or potential competitors of the rights holder and to agree with it on the location and fit-out of the premises. For any proposed non-compete restriction, check the specific activities, territory, and duration. A post-contract restriction should not be treated as automatically justified by this list; it requires a separate legal review.

Terms that give the rights holder the authority to set the sale price or its upper or lower limit are void: they are invalid by law and do not give the rights holder that authority. Terms requiring sales exclusively to a certain category of buyers or exclusively to buyers located or residing in a specified territory are also void. This is expressly provided by Parts Two and Three of Article 1122. If the partner provides a recommended price list, check whether the agreement effectively makes it mandatory through fines or other requirements. Special terms under Article 1122.

For supply, we recommend agreeing on mandatory assortment, minimum orders, deadlines, delivery costs, procedures for accepting defective goods, and returns of remaining stock. Determine whether you may purchase from an alternative supplier if the main supplier fails to fulfill an order. Use the agreed purchase terms in your financial model.

Agree on liability, exit, and a brand change

Under Article 1123, the rights holder has subsidiary, or additional, liability for claims against the user arising from the non-conformity of the quality of goods sold, work performed, or services provided. For claims against the user as the manufacturer of the rights holder’s products, both parties have joint and several liability. This does not guarantee compensation for the store’s own losses or recovery of its investment. Separately agree in the contract on handling complaints, returns, and quality documents. Article 1123 of the Civil Code of Ukraine.

Under Article 1118, a commercial concession agreement must be in writing; failure to observe the written form makes it void. This article does not establish mandatory state registration of such an agreement. Amendments are made in accordance with Chapter 53 of the Civil Code of Ukraine, as provided by Article 1125. Before paying, sign the agreed text and all appendices that affect your costs and rights.

• Renewal. Article 1124 gives a user who has properly performed its obligations the right to enter into an agreement for a new term on the same terms; the law may establish conditions under which the rights holder can refuse. Agree on the application procedure and keep evidence that you have fulfilled your obligations.
• Agreement for an indefinite term. Under Article 1126, either party may withdraw from it by notifying the other party at least six months in advance, unless the agreement sets a longer period. Do not automatically apply this rule to an agreement for a fixed term.
• Termination. Article 1126 provides for termination if the right to a specified mark or other designation ends and is not replaced by an equivalent right, or if a party is declared insolvent or bankrupt.
• Change of rights owner. Under Article 1127, the transfer of an exclusive right to another person is not by itself grounds to amend or terminate the agreement. Following the death of the rights holder, its rights and obligations pass to an heir, provided that the heir is already registered as an entrepreneur or, within six months of the date the inheritance is opened, registers as an entrepreneur or transfers the rights and obligations to a person entitled to engage in business activity.
• Change of designation. Under Article 1128, the agreement remains in force with respect to the new designation unless the user demands termination and compensation for losses. If the agreement continues, the user is entitled to demand a corresponding reduction in the fee.
• Termination of an individual right. Under Article 1129, the rest of the agreement generally remains in force, and the user may demand a corresponding reduction in the fee unless the agreement provides otherwise. Special consequences under Articles 1126 and 1128 apply to a mark or other designation.

These rules are set out in Articles 1118 and 1124–1129 of the Civil Code of Ukraine. For a practical exit, also agree on what happens to goods, equipment, signage, security deposits, and access to accounting data. Set deadlines for final settlement, costs of changing the fit-out, and the possibility of transferring the business to another entrepreneur under an agreed procedure.

Prepare procedures for store damage or downtime

We recommend agreeing on separate procedures for damage to the premises, a prolonged power outage, inaccessibility of the location, and suspension of supplies. For each event, identify who is responsible for giving notice, the required evidence, the temporary operating arrangement, and the date for a joint review.

• Agree on which documents and information the parties will provide to each other about the event and the inability to perform a specific obligation.
• Determine what happens to royalties, minimum purchases, and marketing contributions during an agreed period of downtime.
• Set out the conditions for temporarily changing the assortment, supplier, schedule, or address.
• Allocate costs for moving goods, storage, restoration, and reopening.
• Agree on the period of downtime after which the parties will consider terminating the agreement and the settlement procedure.

When negotiating the agreement, ask a lawyer to review how force majeure and martial law rules in Ukraine apply to each store obligation. Clarify what evidence and notices are required and how the relevant circumstances affect payments and the parties’ liability. Include discontinuation or deferral of payments in the financial plan only after confirming a legal or contractual basis.

Accounting for a franchise store and network in Torgsoft

You can use Torgsoft to check inventory levels and inventory costs on a daily basis. For one store with basic operations, consider Start. If you need to account separately for goods in several stores or warehouses, which the program calls «центри обліку» (“accounting centers”), place orders with suppliers, and move goods between warehouses, choose a configuration with full functionality. Ultra runs on local infrastructure, while Terminal or Online are intended for remote locations using a shared server database. Separate licenses are required for local workstations; in a terminal configuration, account for client connections. Compare configurations.

For central inventory control, first agree on the list of required items—the assortment matrix—and who is responsible for purchasing. In «Стан складу» (“Warehouse Status”) mode, you can view quantities, cost, and prices, select accounting centers, and filter goods. This helps employees compare stock against the agreed assortment. Separately configure permissions for salespeople, inventory specialists, and the manager, and check access to each location. Warehouse view features and access settings.

Include licenses or subscription, server infrastructure for the selected setup, implementation, support, and required options in the budget. Torgsoft Online provides the program and server infrastructure on a rental basis. The options «Мінімальні та максимальні залишки за складами» (“Minimum and maximum stock by warehouse”) and «Зарплата та мотивація персоналу» (“Staff payroll and motivation”) are purchased separately for a configuration with full functionality; they are unavailable in Start.

Before paying, obtain an invoice with the cost of the required options and agree with Torgsoft on how they will be activated and configured. After payment for the Torgsoft license is confirmed, Torgsoft provides an electronic key or access to activate the program. To check the scenarios for each location, use the free 30-day demo version and activate the required trial options during installation. Also check the agreed access for network participants.

Clarify the scope, duration, and cost of setup assistance and ongoing support in the invoice or service agreement. For royalty calculations and monitoring compliance with concession agreements, separately define the responsible employees and the procedure they will follow. Compatibility of additional options and licensing and activation terms.

Sign the checklist before the first payment

We recommend completing the review in one document that links to the supporting evidence and final versions of the agreements. Assign each participant a separate task, and have the business owner sign off on the payment decision after reviewing all findings.

In the checklist, specify the amount and purpose of the first payment, the recipient, the list of signed appendices, and any agreed terms for refunding the money. If a material document or calculation is missing, record exactly what the partner must provide and by what date. Transfer the money after you can explain every significant expense, verify the promised scope of rights, and determine what you will do if sales are weak or cooperation ends.