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A franchise is a business structure with a legal agreement. You (the franchisee) pay a fee to sell the products or services of an existing business (the franchisor). You use the franchisor’s:

  • branding
  • trade marks
  • suppliers
  • business systems.

Buying a franchise can come with risks and challenges. Here’s what you need to know before you sign a franchise agreement.

How a franchise is different to running your own business

When you run your own business, you have control of the products and services, where you buy them from and the way you operate.

You don’t have the same level of control when you buy a franchise: 

  • You follow the operating procedures set by the franchisor. The franchisor may change these at any time.
  • You can’t make changes to your franchise unless the franchisor agrees.
  • The franchisor controls where you buy the products and services from, even if you can get them cheaper elsewhere.

Benefits of buying a franchise

When you buy a franchise, the franchisor gives you:

  • a known product or service
  • branding and trade marks
  • equipment
  • retail shop fit-outs
  • ongoing training and support
  • operating systems, processes and procedures
  • supply and advertising agreements
  • marketing materials, such as website content and images.

Risks when buying a franchise

Like all businesses, running a franchise comes with risks. For example, you could lose money and any assets that you’ve borrowed against. Other risks are unique to franchising:

  • The franchisor can change the amount you need to pay them and the way you must operate the business.
  • If the franchisor becomes insolvent, you may lose access to the stock or the right to use the brand.
  • You may not recover your costs if you can’t resell or renew the franchise before your franchise term ends.
  • Franchise termination rights are often 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 running your own business or employment
  • what's in a typical franchise agreement
  • why it’s important to do your research
  • the common issues you can face
  • where to get more information to help you decide
  • the main laws that apply to franchising.

Researching the franchise system will help you decide if the franchise is right for you and look out for scammers.

Make sure you:

  • read the documents the franchisor gives to you, such as the information statement, disclosure document and franchise agreement
  • research the market for the product or service
  • confirm the amount of money you could make
  • check the franchisor’s financial position
  • complete a business background check using the Australian Securities and Investments Commission’s ASIC Connect.
The ACCC has information on what to ask before deciding to buy a franchise.

You must follow these laws when franchising in Australia:

Learn about the franchising laws on the ACCC website.

The Franchise Disclosure Register is a free directory of franchisors hosted by the Australian Government.

The register can help you make an informed decision before you sign a franchise agreement. Use it to compare information about different franchises, such as costs and contract terms.

It’s important to get advice from an accountant, lawyer and business adviser with expertise in franchising.

Because of the risks involved, it's important you take the time to understand:

  • how franchising works
  • the system
  • the business you are buying.

If you’re thinking about buying a franchise, the ACCC can help you understand what you’re agreeing to.

Starting a franchise agreement

A franchise agreement is legally binding. The document details your and the franchisor’s rights and responsibilities.

Once you enter into a franchise agreement, you must run the business according to the franchise agreement.

Tax obligations for franchisees

Your business structure, earnings and assets affect which taxes you pay.

You can deduct some franchise payments from your taxable income, including:

  • training fees
  • loan interest
  • ongoing franchise fees.

Ask your accountant what else you can deduct.

Taxes may apply when you buy, sell, transfer or end a franchise.

What to do when things go wrong

If you have a complaint, tell you franchisor.

If you can’t resolve your dispute, follow the complaints process in your franchise agreement or the Franchising Code of Conduct.

Get advice on your rights from your:

The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) or your state small business commissioner can help you with the dispute resolution process.

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