Potential Franchisees: Key Things You Need To Know

Buying a franchise can be a smart way to start a business with an established brand, proven systems and ongoing support.

But that doesn’t mean it’s “set and forget”. As a potential franchisee in Australia, you’re taking on real legal and financial obligations - and the decisions you make up front will shape your success.

In this guide, we’ll walk through the key things you need to know before you sign, from due diligence and the Franchising Code of Conduct, to fees, leases and everyday compliance. Our aim is to help you feel confident about what to ask, what to read, and what to lock in so you can launch on the right foot.

What Is Franchising In Australia?

Franchising is a way of doing business where you (the franchisee) operate your own business using another brand’s trade marks, systems and know-how under a licence from the franchisor.

In exchange, you pay fees and agree to follow their model. You’ll usually get training, ongoing support and the right to sell the brand’s products or services in a defined territory.

In Australia, franchising is regulated by the Competition and Consumer (Industry Codes-Franchising) Regulation (commonly called the Franchising Code of Conduct). Among other things, the Code sets disclosure requirements, a cooling-off right for new franchisees and rules for marketing funds and dispute resolution.

Common industries that use franchising include food and beverage, fitness, retail, home services and education. The legal setup is similar across industries, but site selection, permits and local market dynamics will differ - so your due diligence should be industry-specific.

How To Assess A Franchise Opportunity (Due Diligence Checklist)

Before you sign anything, slow down and do thorough due diligence. This is where you reduce risk and pressure-test whether the franchise fits your goals, budget and skills.

Start With The Documents

• Disclosure Document: Review the franchisor’s history, litigation, initial and ongoing fees, marketing fund rules, number of outlets opened/closed and financial details.
• Key Facts Sheet: A short summary that highlights essential costs, terms and risks - use it as a quick reference, but don’t rely on it alone.
• Franchise Agreement: The legally binding contract that sets your rights and obligations. Get a thorough Franchise Agreement Review before you commit.
• Lease Or Licence To Occupy: If the franchisor controls the lease, understand how risks and obligations flow down to you (rent reviews, options, fit-out clauses, make-good).
• Operations Manual: This governs day-to-day operations. Confirm you’ll have access and that it’s consistent with what’s been promised.

Ask Commercial Questions

• Unit Economics: What are realistic revenues and margins in your territory? Are there seasonality patterns? How long is the typical payback period?
• Territory: Is it exclusive? How is it defined (by radius, postcode, drive-time)? Can the franchisor sell online into your area?
• Support And Training: What’s included initially and ongoing? Who pays travel/accommodation for training? How often are site visits?
• Suppliers: Are you locked into approved suppliers and price lists? Are there rebates, and who receives them?
• Marketing: How is the marketing fund used? Is there transparent reporting? What local area marketing is required from you?

Validate With People On The Ground

• Current Franchisees: Speak to several (not just the ones the franchisor suggests). Ask candidly about profitability, support, challenges and culture.
• Former Franchisees: Understand why they left. Was it market-driven or relationship-driven?
• Competitors And Customers: Visit competing outlets and mystery-shop your prospective brand to gauge product-market fit and service standards.

Check Site And Territory Feasibility

• Location: Foot traffic, parking, visibility, complementary neighbours and demographics matter. Use data if available (traffic counts, population growth).
• Planning And Approvals: Confirm zoning, signage permissions, fit-out requirements and any council permits you’ll need.
• Lease Terms: Before you sign a lease or agreement for lease, get a Commercial Lease Review to understand rent escalations, outgoings and make-good obligations.

Engage Independent Advisors

Work with an accountant to model cash flow and tax, and a franchise lawyer to interpret the documents and highlight risks. If you're weighing multiple opportunities, a structured approach similar to a Legal Due Diligence process can help you compare apples with apples.

Key Legal Documents And Your Rights Under The Code

Franchising has unique rules, timelines and rights. Here are the big-ticket items to understand before you sign.

Franchise Agreement

This is the master contract between you and the franchisor. It covers the term, territory, what you can sell, brand standards, fees, training, marketing, termination, renewal and transfer.

Watch for clauses on performance targets, relocation, refurbishment, restraint of trade and the franchisor’s right to change systems. Tailored advice from a Franchise Lawyer can help you negotiate clearer and fairer terms.

Disclosure And Cooling-Off

• Disclosure Period: The franchisor must give you the Disclosure Document, Franchise Agreement and Key Facts Sheet at least 14 days before signing or paying non-refundable money.
• Cooling-Off: You have a cooling-off period after entering the franchise agreement (or making a non-refundable payment). The exact timing and refund rules are set by the Code - know your dates.
• Material Changes: If something important changes, the franchisor must disclose. Ask for updates if timing drags out.

Marketing Funds

If there’s a marketing fund, the Code requires that it be used for legitimate marketing/advertising and reported annually. Ask to see past statements and how spend decisions are made.

Leases And Occupancy

There are two common models: you hold the lease directly, or the franchisor holds the head lease and grants you a licence to occupy. Each has pros and cons around control, negotiation power and exit - and each needs careful review alongside the franchise agreement so obligations align.

Intellectual Property And Branding

You’ll be licensed to use the brand’s trade marks. Confirm the franchisor actually owns and maintains those rights. If you’re investing in local brand building (e.g. local social handles), clarify who owns the content and what happens on exit. If you start your own spin-off business later, consider protecting it early with Trade Mark Registration.

Dispute Resolution And Enforcement

The Code sets a dispute resolution process (including mediation). Understand your obligations to attempt resolution in good faith and the timelines involved. Also note the franchisor’s enforcement tools (breach notices, termination for serious breaches) so you can manage your compliance proactively.

Money Matters: Fees, Finance And Profitability

Franchises can feel expensive up front because you’re buying a proven system and brand. Lay out all costs and revenue drivers before you commit.

Typical Fees

• Initial Franchise Fee: The one-off amount for joining the network.
• Fit-Out And Equipment: Build, signage, furniture, POS, initial stock and technology.
• Ongoing Royalties: Often a percentage of gross sales (or a fixed fee).
• Marketing Fund Contributions: Usually a percentage of sales plus local area marketing spend.
• Training And Launch: Travel, accommodation, staff wages during training, opening promotions.
• Other: Software, insurance, accounting, cleaning, repairs and maintenance, bank fees.

Cash Flow And Working Capital

Forecast cash flow conservatively. It’s common to have a ramp-up period where sales build slowly while costs are fixed. Work with your accountant to estimate working capital for the first 6-12 months, including wages, rent and inventory.

Financing Options

Some lenders have dedicated franchise lending programs for established brands. You’ll still need a robust business plan, security and equity. The franchise agreement, lease and disclosure will be part of lender due diligence - another reason to have them reviewed carefully in advance.

Unit Economics And Break-Even

Calculate your break-even sales based on rent, wages, cost of goods, royalties and other overheads. Compare this to realistic sales for your territory, not the top-performing site in the network. Talk to multiple operators to sanity-check assumptions.

Operations And Compliance: Everyday Legal Obligations

Once you’re open, your obligations shift from “set-up” to “stay compliant”. These are the key areas franchisees regularly manage.

Consumer Law

You must comply with the Australian Consumer Law (ACL), including rules against misleading or deceptive conduct, fair contract terms, and complying with guarantees and refunds. Ensure your advertising, pricing and promotions are accurate and consistent with the franchisor’s brand guidelines.

Employment And Workplace Laws

If you employ staff, you’re responsible for Fair Work compliance, minimum pay, award coverage, rosters, breaks, leave entitlements, and a safe workplace. Use clear contracts and policies to set expectations and reduce disputes. Having a tailored Employment Contract for each staff member is a practical foundation.

Privacy And Data

If you collect customer information (online bookings, loyalty programs, email lists), you’ll likely need a compliant Privacy Policy and secure processes for handling personal data. Confirm how customer data is shared within the network and who is responsible for data security and breach response.

Health, Safety And Industry Permits

Depending on your industry, you may need food safety licences, council permits, signage approvals or specific professional registrations. The franchisor will guide you on standards, but you remain responsible for local compliance at your site.

Brand Standards And Audits

Expect regular audits on service, quality, cleanliness and brand presentation. Keep clear records of training, maintenance and corrective actions to demonstrate compliance and avoid breach notices.

Insurance

Franchisors typically mandate public liability, product liability, workers compensation and business interruption insurance. Check minimum sums insured and any additional industry-specific cover.

Taxes And Reporting

Register for an ABN, and if required, GST. Keep your BAS and payroll obligations up to date. Many franchise systems have integrated POS and reporting - take advantage of this, but verify accuracy and reconcile regularly.

Key Takeaways

• Take your time with due diligence - read the Disclosure Document, Key Facts Sheet and the agreement closely, speak to current and former franchisees, and stress-test territory and site assumptions.
• Understand your rights and obligations under the Franchising Code of Conduct, including disclosure timelines, cooling-off and marketing fund transparency.
• Model all costs and cash flow carefully, including fit-out, royalties, marketing contributions and working capital for the ramp-up period.
• Review and align your franchise agreement, lease and operations manual so obligations are consistent and there are no hidden traps.
• Stay compliant day to day with consumer law, employment law, privacy, industry permits and brand standards - use strong contracts and policies to reduce risk.
• Get independent legal and accounting advice before you sign; a tailored Franchise Agreement review, Lease Review, and clarity around IP and data will set you up for success.

If you’d like a consultation on buying a franchise in Australia, you can reach us at 1800 730 617 or team@sprintlaw.com.au for a free, no-obligations chat.