Acquiring the rights to operate under an established brand—supported by proven marketing strategies, operational systems, and procedures—can offer structure and guidance from the outset. However, it also requires adherence to the franchisor’s established framework, which may not align with every individual’s objective or preferred way of working.

This article provides insight into:

• The fundamental differences between franchise ownership and independent business ownership

• The advantages of investing in a franchise

• The potential risks involved

• Important steps to take before committing

• The purpose of the Information Statement for prospective franchisees

• When and why to seek professional advice

Franchise vs. Running Your Own Business

Owning a franchise typically offers less autonomy than running an independent business. Franchisors: Individuals or entities that own and manage the brand, systems, and business model— they typically retain overall control over how the business operates. This often extends to determining the products or services you provide and where they are sourced, even when lower-cost alternative suppliers are available.

When you buy a franchise, you will usually:

• Be required to follow the franchisor’s operating procedures

• Have limited ability to make changes without the franchisor’s approval

• Be subject to system changes introduced by the franchisor at any time

The Benefits of Buying a Franchise

Franchising can offer a strong foundation, particularly for first-time business owners.

Common benefits include access to

• An established product or service

• Recognisable branding and trademarks

• Equipment and fit-out guidance

• Proven operating systems, processes, and procedures

• Marketing assets such as websites, brochures, and promotional materials

• National or regional advertising agreements

• Supply arrangements and increased buying power

The Risks of Buying a Franchise

Like any business investment, franchising carries risks. If the business underperforms, you may lose your investment and any personal assets used as security.

Potential risks include:

• The franchisor may change fees or operational requirements, even if you disagree

• Franchise agreements often give termination rights that favour the franchisor

• The franchisor may become insolvent

• You may not be able to renew or resell the franchise at the end of the term. This is critical if you haven’t recovered your costs

Essential Considerations Before You Commit

Understand the Opportunity Fully

Doing your market research is key for any new business, and if you’re thinking about a franchise, it’s just as important to dive into franchise-specific research.

This may include:

Getting to Know Your Area

Your agreement might outline a specific geographic area, such as certain suburbs or

postcodes. The size and exclusivity of this territory can have a direct impact on your

ability to reach customers and grow your business.

Check for:

• Boundary overlaps with other franchisees

• Whether other franchisees can compete in your area

• How online sales and leads are managed

Planning for the Future

Ask the franchisor about their growth strategy, including plans for new territories or locations. While expansion can bring new opportunities, too much oversaturation could affect profitability. It’s also crucial to ask about any upcoming rebranding or major marketing initiatives. Rebranding can involve significant changes, such as new signage, uniforms, or store layouts, and the associated costs often fall on franchisees.

Understanding these plans upfront can help you budget effectively and avoid unexpected expenses.

Connecting with Other Franchisees

Current or former franchisees can provide valuable insights. Useful questions include:

• Are they profitable?

• Were there any unexpected or hidden costs?

• Have they recovered their initial investment?

• What support do they receive from the franchisor?

• What is the overall culture of the franchise network?

Reviewing restraint of trade clauses

If you exit the franchise, understand whether restrictions will limit your ability to operate a similar business in the future.

Assess Your Finances

Buying a franchise usually involves significant upfront costs, including franchise and setup fees. You should clearly understand:

• How much capital you’ll need

• Whether external funding is required

• Ongoing expenses such as royalties, marketing fees, and lease costs

Request the Franchise Disclosure Document

Once you’ve identified a franchisor, request their franchise disclosure document. Under the ACCC Franchising Code of Conduct, franchisors are legally required to provide this document to prospective franchisees. It is designed to help you properly evaluate the opportunity.

The disclosure document includes information such as:

• Supply restrictions and rebates

• Future capital expenditure requirements

• Setup and ongoing operating costs

• The franchisor’s financial position

• Contact details for current and former franchisees

• Any legal action related to franchising

Further details are available on the ACCC website.

Essential Franchise Details for Potential Owners

When you express interest in a franchise, the Australian Competition and Consumer Commission (ACCC) require the franchisor to provide an Information Statement. This must be given as soon as possible, and no later than seven days after your interest is expressed.

The statement outlines key considerations, including:

• The risks of franchising

• The importance of research and due diligence

• Questions you should ask before committing

A copy can be downloaded from the ACCC website.

Get Professional Advice

Buying into a franchise can be a smart alternative to starting a business from scratch or purchasing an existing one—but only if you fully understand the obligations involved. Franchise agreements often include strict rules and long-term commitments.

For Guidance, contact us at 1300 367 594