Buying a Franchise in Australia: What to Know Before You Sign

A franchise is not “buying a business” in the ordinary sense

When you buy a franchise, you are not buying ownership of a business — you are buying the right to operate a business under someone else’s system (the franchisor), for a set term, on specific conditions.

This is not inherently good or bad. Many franchises succeed because the system is proven, the brand has an established reputation, and the initial training support is substantial. But for the same reason, you need to understand exactly what you are buying — and what you cannot decide for yourself — before you sign.

The legal framework: the Franchising Code of Conduct

In Australia, franchising is governed by the Franchising Code of Conduct — a mandatory code administered by the ACCC (Australian Competition and Consumer Commission). The Code sets out the rights and obligations of both the franchisor and the franchisee.

One of the most important things in the Code is that the franchisor must provide you with several key documents before you sign — and you must have enough time to read them, do your research, and consult professionals before deciding.

The specific timeframes are set out in the Code — check the current version at accc.gov.au/franchising. Do not sign before you have had the time the law requires.

The two most important documents you will receive

Franchise Disclosure Document (FDD): This document summarises the key information about the franchise system — the franchisor’s history, financial position, the number of franchises currently operating, the number that have closed or not renewed, significant disputes, and the main operating conditions. Read the FDD carefully, especially the section on how many franchises have closed and why — this is a more reliable indicator than a salesperson’s promises.

Franchise Agreement: This is the legally binding contract between you and the franchisor. It sets out: the franchise term (usually several years), your territory, fees and royalties, your obligations and the franchisor’s, renewal conditions, and conditions for transfer or termination.

Do not sign a franchise agreement without an independent solicitor reading it and explaining any unclear clauses to you.

Questions to ask before you decide

On finances:

• What is the total cost to get started — not just the franchise fee, but also equipment, inventory, premises deposit, and operating capital for the first month?
• How much is the royalty fee, and is it calculated on revenue or on profit?
• How long does it take the average franchisee to break even? (Ask the franchisor, and verify by talking to current franchisees.)
• Is there a compulsory marketing levy, and what do you get for it?

On support:

• What does the franchisor provide in the early stage — training, set-up, marketing launch?
• What ongoing support is provided?
• Is there territory exclusivity — or can the franchisor open another franchise next to you?

On exiting the franchise:

• What are the conditions for selling your franchise to someone else?
• Does the franchisor have the right to refuse a buyer?
• What happens when the term ends — can you renew, and on what terms?
• What are the conditions under which the franchisor can terminate the agreement early?

Talk to current and former franchisees: This is the most important step, and many people skip it. The FDD must list current and former franchisees — call them. Ask about what isn’t written in the documents: the franchisor’s real-world support, whether there have been difficulties, and whether they would do it again.

Risks specific to franchising

Dependence on the brand’s reputation: If the franchisor faces a scandal or its reputation declines, your business is affected even though you have done nothing wrong. You share a reputation with every other franchisee in the system.

Less flexibility than an independent business: You cannot change the menu, switch suppliers, or adjust the model to suit local conditions without the franchisor’s agreement. This is the trade-off you accept when you buy into an established system.

Ongoing costs can rise: Royalties, marketing levies, and requirements to buy supplies from approved suppliers can affect your profit margin in ways that are hard to control.

Before you sign: a minimum checklist

• You have read the full FDD
• You have read the full Franchise Agreement
• Your accountant has reviewed the financials and projections
• An independent solicitor has read the Franchise Agreement and explained it
• You have spoken with at least three current franchisees and one or two former franchisees
• You understand the total start-up cost and a cash-flow forecast for the first 12 months
• You understand the conditions for exiting the franchise if you need to

A franchise is a long-term, costly commitment. Prepare thoroughly by reading, asking, and consulting professionals before you sign — not after.