Buy a franchise
Key information
- Buying a franchise is another way to start a business. It can come with risks and challenges that can be hard to spot.
- A franchise is a business where you (the franchisee) pay a licensing fee to an existing business (the franchisor). You sell the franchisor's products or services and use their branding, trademarks, suppliers and business systems.
- Franchisees must follow more rules than other small business owners. It's important you understand how franchising works and what your obligations are before you sign an agreement.
How a franchise is different to running your own business
When you run a franchise, you don’t have the same level of control compared to a business you run on your own.
Franchisors can usually control the products or services you offer and where you must get them from. Even if you can get them cheaper somewhere else.
When you buy a franchise:
- you usually have to follow the operating procedures set by the franchisor
- you may not be able to change the franchise system if the franchisor doesn't agree
- the franchisor may change the franchise system at any time.
Benefits of buying a franchise
When you buy a franchise, franchisors usually give you:
- an established product or service
- equipment
- supply agreements
- operating systems, processes and procedures
- branding and trade marks
- marketing material including website images and content, flyers and brochures
- advertising agreements
- a shop fit-out.
Risks when buying a franchise
There are risks when running a franchise.
If you buy a franchise and it goes badly, you could lose all your money and any assets that you have borrowed against.
Here are some examples of the risks involved:
- Even if you don’t agree, the franchisor may be able to change the amount you must pay and the way you must maintain the franchise.
- The franchisor might become insolvent.
- You can’t always resell or renew the franchise. This is important if you can’t make enough money to recover your costs before your franchise term finishes.
- Franchise agreements often include termination rights in favour of the franchisor.
Before you buy a franchise
The Australian Competition and Consumer Commission (ACCC) has a free online course to help you better understand franchising.
You will learn:
- how franchising compares to independent small business ownership or employment
- what you are likely to find in a typical franchise agreement
- about due diligence and why it’s important
- some of the common issues you can face
- where to get more information and guidance to help you decide
- the main laws that apply to franchising.
Go to the ACCC's website to learn more about the Franchising free course.
Researching the franchise system will help you make an informed decision.
Make sure you:
- review all the documents the franchisor gives to you, such as the information statement, disclosure document, the franchise agreement and the Franchising Code of Conduct
- verify the amount of money you're likely to make
- check the franchisor’s financial position
- complete a background check on the business/company on the ASIC Connect website
- research the market for the product or service
- look out for scammers
- review any lease documents and get advice on them.
The ACCC has information on what to ask before deciding to buy a franchise. They can help you understand what it means to be a franchisee in a particular franchise system and if the business is for you.
Like any business decision, you should consider franchising carefully and follow the right processes.
There are laws you must follow when franchising in Australia, including:
Learn more about the franchising laws including the code on the ACCC website.
The Franchise Disclosure Register is a free directory of franchisors available in Australia.
It can help you:
- compare important information about different franchises, such as costs and contract terms
- make informed decisions before entering into a franchise agreement.
Learn more about the Franchise Disclosure Register.
Because of the risks involved, it's really important you take the time to understand how franchising works and know the system and business you are buying.
The ACCC has steps for people thinking about buying a franchise to help you understand what you are agreeing to when buying a franchise.
Beginning a franchise agreement
Beginning a franchise agreement is a big step.
A franchise agreement is a legally binding document that details the rights and responsibilities of both you and the franchisor.
Once you enter into a franchise agreement, you must commit to run the business according to the franchise agreement and the franchise operating manuals.
If the franchise doesn't go well, you can lose a lot of money.
Tax obligations for franchisees
Franchises can operate under different business structures. Your structure, earnings and assets will determine your tax obligations.
Ongoing franchise fees are often deductible in the year you pay them. You might be able to deduct other payments including training fees and loan interest from your taxable income. Check what you can deduct with your accountant.
Taxes may apply when you buy, sell, transfer or end a franchise.
What to do when things go wrong
The Franchising Code of Conduct sets out a clear process for the resolution of disputes between a franchisor and a franchisee.
If you have a concern with your franchisor, you can:
- formally raise your concerns with them, including through the dispute resolution process in your franchise agreement and under the Franchising Code of Conduct
- get help from the Australian Small Business and Family Enterprise Ombudsman (ASBFEO) or your State Small Business Commissioner
- get independent advice on your rights from a lawyer, accountant, business adviser and industry association.
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