10 Things to Check Before Buying a Franchise in Australia
A practical due diligence checklist for prospective franchise buyers. What the sales process won't tell you, and what you need to verify independently.
Buying a franchise is one of the biggest financial decisions you will make. The franchise sales process is designed to get you excited. Your job is to stay rational.
Here are 10 things every prospective franchisee should check before signing anything.
1. Talk to Existing Franchisees
Not one or two. At least five. Ask them about real revenue, real costs, and whether they would do it again. Ask specifically about the gap between what they were told during the sales process and what actually happened.
Questions to ask:
- What was your total setup cost, including unexpected expenses?
- How long did it take to break even?
- What does the franchisor do well? What do they do poorly?
- Would you buy this franchise again if you could start over?
2. Talk to Former Franchisees
This is harder but more valuable. People who have left the system will tell you things current franchisees may not. Ask the franchisor for a list of franchisees who have exited in the last three years. Under the Franchising Code of Conduct, they are required to provide this information in the disclosure document.
3. Have Your Disclosure Document Reviewed by a Franchise Lawyer
Not a general lawyer. A franchise specialist. The franchise agreement is heavily weighted in the franchisor's favour by design. You need someone who knows what is normal and what is problematic.
Our Disclosure Document Decoder provides a structured analysis of every key provision before you engage a lawyer — so you arrive at that meeting with specific questions rather than starting from scratch.
4. Model the Financials Independently
Do not rely on the franchisor's financial projections. Build your own model using conservative revenue assumptions and real local costs. Our Financial Reality Calculator can help you stress-test the numbers before committing capital.
To illustrate how franchise costs break down in practice, here is a real example from our database of 289 Brand Intelligence Reports:
The franchise fee is typically the smallest component. Fit-out, equipment, and working capital represent the majority of your investment — and these are the figures that vary most between what the franchisor estimates and what you actually spend.
5. Understand Your Territory Rights
Is your territory exclusive? Can the franchisor open a competing unit nearby? Can they sell through online channels that compete with your physical location? These questions matter enormously.
The 2025 Franchising Code requires franchisors to disclose territory arrangements, but "exclusive" does not always mean what prospective buyers assume. Some agreements exclude certain channels (online, catering, wholesale) from your territory protection.
6. Check the Litigation History
Review the disclosure document for any litigation involving the franchisor. Search court records independently. A history of disputes with franchisees is a significant red flag.
The ASBFEO (Australian Small Business and Family Enterprise Ombudsman) maintains records of franchise-related disputes and can provide context on systemic issues within a franchise network.
7. Understand the Full Cost Structure
The franchise fee is just the beginning. Add royalties, marketing fund contributions, technology fees, mandatory supplier purchases, and fit-out costs. The total ongoing cost as a percentage of revenue is what determines your margin.
| Fee Type | Your Franchise | Category Avg | Cheapest | Most Expensive |
|---|---|---|---|---|
| Royalty | ?% (check yours) | 5–8% | 0% (some service franchises) | 10%+ (some retail) |
| Marketing Levy | ?% (check yours) | 2–4% | 0% (owner-operated) | 5%+ (major QSR) |
| Technology Fee | Check agreement | $200–$500/month | Included in royalty | $1,000+/month |
Combined ongoing fees above 10% of gross revenue significantly compress margins. Prospective buyers may wish to compare their franchise's fee structure against category averages using our Brand Intelligence Reports.
8. Clarify Renewal and Exit Terms
What happens when your initial term ends? What are the conditions for renewal? What fees apply? What happens if you want to sell? What are the non-compete restrictions?
Under the Franchising Code (Section 26), franchisors must provide at least six months' notice if they intend not to renew. However, renewal conditions can include requirements for store refurbishment, updated equipment, or new franchise fees that substantially increase your costs.
9. Assess the Franchisor's Financial Health
Is the franchisor financially stable? Have they been growing or contracting? A struggling franchisor may increase fees, reduce support, or make decisions that hurt franchisees.
Our risk assessment framework evaluates franchise systems across five dimensions. Here is an example of what a moderate-risk franchise looks like:
A score above 6.0 warrants additional scrutiny. Scores below 4.0 suggest a more stable operating environment — though no franchise investment is risk-free.
10. Take Your Time
The franchise sales process creates urgency. Territories are "about to be taken." Prices are "going up next month." Genuine opportunities will still be there after you have done proper due diligence. If a franchisor pressures you to sign quickly, that itself is a red flag.
The Franchising Code requires a 14-day cooling-off period after signing, but this should not be your primary protection. Thorough due diligence before signing is substantially more effective than relying on the right to withdraw after the fact.
Tools to Help
FranchiseInsights provides independent tools designed for each stage of the franchise buying process:
- Financial Reality Calculator — Free. Model the real costs and break-even for any franchise opportunity.
- Franchise Readiness Assessment — Free. 15-question assessment across 6 dimensions of franchise readiness.
- Disclosure Document Decoder — Upload your disclosure document for a structured plain-English breakdown.
- Due Diligence Kit ($697) — Six essential due diligence tools in one package.
Further Reading
- Browse 289+ Brand Intelligence Reports — Independent analysis for specific franchise brands ($197 per report)
- Franchise Royalty Rates Explained — What is normal in Australia
- Complete Franchise Intelligence Package ($1,995) — Every tool, every report, every template
Brand reports are compiled from publicly available data and independent research. FranchiseInsights is not affiliated with any franchise brand. Information may not be current. Verify all data independently before making decisions.