Paying for the rights to run a business with an established name, marketing and operating procedures offers a new business owner guidance and assistance from the start. However, it also means you need to follow the franchisor's system of running and marketing the business, which may not suit everyone.

What are the differences between a franchise and running your own business?

Running a franchise means you don’t have the same level of control you would have with a business of your own.

Franchisors – the person or entity that runs and controls the name, brand and business systems the franchise is going to use –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.

The benefits of buying a franchise

When you buy a franchise, franchisors usually give you:

  • an established product or service
  • recognisable branding and trademarks
  • equipment
  • operating systems, processes and procedures
  • marketing material including website images and content, flyers and brochures
  • advertising agreements
  • supply agreements and increased buying power.

The risks of buying a franchise

There are risks when running a franchise. If you buy a franchise and things go wrong, you could lose money and any assets that you have borrowed against.

The risks involved might include:

  • 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.
  • franchise agreements often include termination rights in favour of the franchisor.
  • 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.

Tasks before you commit

Do your research

When starting any new business, it’s important to do market research.

When thinking of entering a franchise agreement, additional research specific to the franchise is advisable. This might include:

  • Understanding your proposed territory – Your franchise agreement may specify a geographic area or range of suburbs or postcodes in which you are allowed to serve customers. The size of your catchment area may affect your ability to attract enough customers to meet your business goals and grow your business. Also check if there are any boundary conflicts with other franchisees that might cause issues, if other franchisees are allowed to compete for business in your region and how online sales are handled.
  • Know the future plans for the franchise – It’s important to know if the franchise has plans for expansion including new territories. While expansion can offer opportunities to grow, saturation of locations can impact on your ability to do business. It can also pay to know if the franchise has any plans to rebrand in the future. Rebranding can have impacts such as needing to redo signage or even undertaking a full shop fit for which the cost will often fall on you as the franchisee.
  • Talking to other franchisees – Talking to existing or past franchisees can help you understand whether the operating environment will work for you. Questions to ask might include:
    • are they making a profit?
    • are there any hidden and unexpected costs?
    • have they recovered their investment?
    • what is the culture like and what kind of support do they receive from the franchise?
  • Checking restraint of trade clauses – If you choose to leave the franchise, are there clauses in your franchise agreement that will restrict your ability to compete with the franchise

Work out your finances

Buying a franchise requires substantial franchise and set-up fees so it’s important to determine how much you'll need and whether you'll need to raise funds.. You may also be subject to ongoing fees such as advertising and marketing fees, royalties, and lease fees

Useful tools to help estimate the cost of starting a business can be found on

Request a franshise disclosure document

Once you've decided on the particular franchisor to buy from, request the franchise disclosure document.

It is a legal requirement for all franchisors to provide the franchise disclosure document to potential franchisees to help them with the evaluation process under the  ACCC Franchising Code of Conduct.

The disclosure document must contain the information listed in Annexure 1 of the Franchising Code, this includes:

  • supply restrictions and rebates
  • future capital expenditure that franchisees may have to pay for
  • costs of setting up and running the franchise
  • whether the franchisor is solvent
  • contact details for current and former franchisees
  • legal action against the franchisor to do with franchising.

You can find out more on the franchise disclosure document on the ACCC website.

Information Statement for prospective franchisees

When you express interest in buying a franchise, the Australian Competition and Consumer Commission (ACCC requires the franchisor to provide an information statement to you. The statement must be provided as soon as possible but no later than 7 days after interest is expressed.

The information statement highlights issues to think about before becoming a franchisee. These include the following:

  • risk of franchising
  • research and due diligence
  • questions you should ask before buying a franchise.

You can download a copy of the information statement for prospective franchisees from the ACCC website.

Get advice

Buying into a franchise can be a great alternative to starting your own business or buying an existing business, but it’s important to understanding what you’re getting into. Franchises can have a lot of rules and restrictions, so make sure you receive legal and financial advice from franchise lawyers and accountants before you commit to the franchisor.