On this page
Investigate the system and the business
Becoming a franchisee means having to follow most of the franchisor’s rules for how the business must be run. You may not always agree that those rules are best for the business.
Franchisees also take on the financial risk of the business. This could mean having no income if the business is unprofitable, or being unable to cover the costs of running the business.
Here are some helpful steps prospective franchisees should take before signing or paying anything. These will help make it easier to understand what you are agreeing to when you buy a franchise. Included in this information is a handy list of questions to ask the franchisor and other franchisees.
Understand franchising and how it works
Read the experiences of other franchisees
Read our franchisee case studies about the experiences of others in franchising. These are based on one or more reports the ACCC has received.
The Franchising Code of Conduct is one of the laws that apply in franchising, but it doesn’t always protect franchisees when things go wrong.
Watch videos on the risks of franchising
We have some short videos that help explain some of the risks of franchising. These are available in English, Hindi, Mandarin and Cantonese.
Key steps in buying a franchise video
It is very important you check whether the franchise is a good deal or not. There are key steps you should follow to know the risks before signing a franchise agreement or paying money. This includes understanding key documents, talking to other franchisees and ex-franchisees, and seeking professional legal, accounting and business advice from franchising experts.
It is very important you check whether the franchise is a good deal or not. This video covers what every prospective franchisee should do before signing an agreement or paying money. The video is available in English, Hindi, Chinese simplified and Chinese traditional.
Buying a franchise.
It's been your dream, and you can't wait to get started, but are you ready to sign?
Buying a franchise business is a big decision.
It could be as big as buying a house.
It's wise to be informed, as your life savings could be at risk.
Know what the risks are to avoid heartache.
Before you decide to buy a franchise, you will get some important documents from the franchisor.
One of these is a disclosure document.
This will include important things you need to know about the franchise.
Another important document is the franchise agreement.
This is a legally binding contract between you and the franchisor.
It's important because it says what you can and can't do when running the franchise.
So you have a lot to read, but it is important to go through and understand the documents.
If you don't understand something, you can ask the franchisor.
Next, talk to the professionals.
An independent lawyer, accountant, and business advisor can give you advice about the franchise.
Make sure they have franchising experience.
You should also talk to other franchisees who've bought into the same franchise, both current and former franchisees.
Contact details for other franchisees must be in your disclosure document.
Get in touch and ask them whatever you need to.
You should ask current franchise owners what's the work like? Any unexpected costs? Recommend it?
When talking to former franchisees, ask was it a good investment?
It's also a good idea to ask why did you stop being a franchisee?
It is your investment.
Before you sign, research and get professional advice to understand what's right for you.
For more information, visit the website.
Supplier restrictions video
Sometimes when you buy a franchise it’s not up to you where you buy your supplies.
Imagine you’ve just bought a café. You want to make the best coffee in town at the best price. You can buy your milk from anywhere, but you can only buy your coffee beans from one supplier, and they are expensive. You can get coffee much cheaper from other suppliers, but your franchise agreement won’t let you. This is a supply restriction.
Supply restrictions are listed in your disclosure document and your franchise agreement. In many cases supply restrictions are legal. If they are legal and in your franchise agreement, you will have to follow them, even if it costs you more money.
Not sure about the supply restrictions? Get independent advice from a lawyer, accountant, and business adviser about the franchise. Make sure they have franchising experience.
For more information see the website.
Authorised by the Australian Government, Canberra.
Compare price and running costs video
Great, you've been working hard and you finally have enough money to buy a franchise.
But have you thought about the total cost?
There's the price of the franchise, the franchise fee, and then there are the costs of operating and maintaining the business.
Buying a franchise can be like buying a car.
You pay an upfront price to own the car, but you also pay the ongoing costs of running it.
If you go into franchising without understanding costs, you could be in for a shock.
Costs must be in your disclosure document.
If you don't pay the costs, you could breach your franchise agreement.
Get some independent advice from an accountant and business advisor, and make sure they have franchising experience.
Know the costs, not just the upfront price.
For more information, visit the website.
Understand the laws about franchising
The Competition and Consumer Act 2010 and the Australian Consumer Law applies to small businesses, including franchises.
Our Small business and the Competition and Consumer Act guide helps small businesses understand their key rights and responsibilities under these laws.
Research the business you are buying
You need to thoroughly research the franchise business you are buying. Ask questions, do your own research and get independent advice.
You also need to look into the franchise system that you're joining and check the information available on the Franchise Disclosure Register.
If a franchisor is not on the register, you should be careful before handing over any money or signing any documents with them. They are unlikely to be a legitimate franchise system and may even be a scam. Read our guide about how you can stay protected from scams.
A franchisor who doesn’t follow the requirement to be on the register may also not be following other parts of the Franchising Code of Conduct. This includes the requirement to act in good faith or disclose important financial information.
Get information from the franchisor
Read documents from the franchisor
Carefully read the information in the documents the franchisor gives you. In most cases, the franchisor must give you a minimum of 14 days to read these documents.
Ask the franchisor questions
Ask the franchisor to explain anything that is not clear, or to provide more details that could help you decide if the business is right for you. We have a list of questions that you should ask your franchisor.
Get answers from the franchisor in writing
You should get the franchisor to put their answers in writing or, preferably, in the franchise agreement or disclosure document. Otherwise, it may be difficult to prove later what the franchisor said.
For example, franchisors have to discuss capital expenditure in the disclosure document with anyone who is about to sign an agreement. This can include money to buy equipment or refurbish the premises. Franchisees should write down the details of this conversation, especially if the franchisor mentions anything that is not in the disclosure document.
Get your own professional advice
Even if you have owned or worked in a small business before, franchising can be very different. After the cooling-off period has run out it's harder to just leave the business.
Get independent, professional advice from a lawyer, accountant and business adviser. Because of the unique characteristics of franchising, you should find advisors with franchising experience. They can check the information a franchisor discloses and help identify risks and concerns that may not be obvious.
Talk to other franchisees
You can’t tell how well a business or franchise system is doing from the outside. Talking to other franchisees is the best way you can find out what a franchise business is really like.
You should speak to at least 5 current and 5 former franchisees to get a range of perspectives.
We have put together some questions you can ask former and current franchisees to help you find out what a franchise is really like.
The franchisor must include contact details of their current and former franchisees in the disclosure document. The franchisor cannot ask a former franchisee to remove their contact details from the franchisor’s disclosure document. You don’t need permission from a franchisor to speak to franchisees.
Questions to ask
Questions to ask former and current franchisees
Understand what it means to be a franchisee
- How long have you been a franchisee of this brand?
- Why did you become a franchisee of this brand?
- Did you have a background in business before you became a franchisee for the first time?
- How many hours do you work each week?
- What is the most important advice would you give to anyone buying any franchise, or a franchise in this brand or system?
- Has the franchisor kept promises made to you before you signed up?
Find out if current franchisees are successful
- If you could go back in time, would you buy your franchise again?
- Have you been able to pay off your initial investment? How long did this take?
- Is your cash flow positive or negative? What are the main factors affecting your cash flow?
- What are your costs of goods?
- Does the franchisor require you to pay more for supplies than you think is fair?
- Where is your franchise located? For example, is it in a shopping centre, strip shop or mobile?
- What is the rent?
- What are your staffing costs and are you able to pay yourself a wage?
- Do you feel like you can live comfortably off the money you make from the franchise?
Understand if former franchisees were successful
- Did you make a return on your investment? What were the main reasons for this?
- What happened at the end of the franchise agreement?
- If you could go back in time, would you buy your franchise again?
- Why did the franchise arrangement end? Which party ended it, and are you satisfied with the process?
Find out if franchisees feel supported by the franchisor
- What is your relationship like with the franchisor?
- Do you have a choice about whether to take part in promotions or product discounting?
- Tell me about the support you receive from the franchisor. Is it what you expected?
- Do you think training was adequate to help you operate the business?
- Does the franchisor respond to your questions quickly?
- Does the franchisor encourage or facilitate communication between franchisees?
- Are you in competition with the franchisor, the franchisor’s other brands or other franchisees?
- Have you had a problem or a dispute with the franchisor and was it resolved to your satisfaction?
- Tell me about the marketing strategy and if you are happy with it?
- Has the franchisor made any changes to the system that has impacted your business?
Learn about the pros and cons of the franchise
- What is the best thing and worst thing when it comes to being a franchisee?
- What are your favourite and least favourite things about this franchise system?
- Have you been able to renew your agreement, or do you intend to?
Questions to ask the franchisor
Get a general idea about the franchise business
- What is a typical day as a franchisee and am I expected to work full-time?
- How much money do I need to set up the franchise, and for the first year of operation?
- Do you have an operations manual and can I review it?
- How many times in the last 5 years have you not renewed a franchise agreement and what were the reasons for not renewing? What happened with the franchise businesses that weren’t renewed?
- What happens if I am unable to meet some franchising obligations? Is there a time period to remedy?
- What happens if my lease and franchise agreement don’t end at the same time, or if one ends early?
- Can I exit the franchise agreement before the end of term and what costs are involved?
- Can you end the franchise agreement early even without the franchisee being in breach?
- In the next 10 years do you have plans to grow or sell the franchise system?
Understand if other franchisees are making money
- Across all franchised businesses, not including corporate stores, what is the highest, lowest and average gross revenue?
Remember, gross revenue is different from profit. Just because there is a high gross revenue doesn’t mean there is also a high profit, or even any profit. - What is the average time it takes for a franchisee to pay off their investment and start making a return? What is the shortest and the longest time across all franchised businesses?
- How many franchisees are behind in their franchise fees or rent?
- What capital expenditure is planned during the term of my franchise agreement? Is this in the disclosure document? How am I likely to recoup the expenditure having regard to where my franchised business is based?
Find out about the training and support
- Will I receive training before I open for business and ongoing training? What costs are involved?
- Does training cover the operations, such as how to use a particular machine. Will training cover learning general business skills, such as how to manage cash flow?
- What happens if I need extra training or support?
- Can you provide a typical field support schedule? What happens during visits by support staff?
- What are the key performance measures and do you help me to meet them?
- How will you help me build revenue in the first 12 months?
- What support will you provide if the business isn’t profitable?
Understand how marketing works
- Are franchisees expected to contribute to a common marketing fund? If so, how much will I pay in marketing fees?
- What happens if you sell, or my agreement ends, but there is unspent money in the common marketing fund?
- Whose salary in head office is paid from the marketing fund, and what do those staff do?
- Tell me about your marketing strategy and what it means for my franchise business.
- What further information will you provide me if I don’t understand the marketing statement?
- Do you consult or take on feedback from franchisees about the marketing strategy?
- Am I expected to commit time and money to local area marketing and do I need franchisor approval?
Understand any other special purpose funds
- Are there any other specific purpose funds that I am expected to contribute to?
If there are specific purpose funds, ask for more information using similar questions to the marketing ones.
Find out if there are supply restrictions and how this impacts your costs
- Are there suppliers that I must use and what happens if I find a cheaper supplier?
- What rebates or incentives does the franchisor receive from suppliers?
- What do you do to make sure the best price is secured for products supplied to me?
Find out about the culture of the franchise system and the people you have to work with
- How long does the typical franchisee stay with the franchise system?
- How many franchisees have failed in the past 5 years?
- Who founded the business? What was their motivation to start the business, and are they still involved?
- Who or what company currently owns the business? What changes have they made since taking over the business?
- What experience do key staff have in operating or managing a franchise business?
- What is the process for handling disputes in this franchise system?