On this page
- The different systems of franchising
- Checklist of tasks before you commit
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.
Understand the different systems of franchising
There are four main types of franchise you can consider
Product and trade name franchisingFranchisees are granted the right to distribute a manufacturer's product within a specified territory or at a specific location, generally with the use of the manufacturer's identifying name or trademark, in exchange for fees or royalties.
The franchisee sells the franchisor's product directly to the public (e.g. new motor vehicle dealerships).
The franchisee manufactures and distributes the franchisor's product under licence (e.g. soft drink bottling arrangements.
Business format franchising
The franchisee purchases products for retail sale from a franchisor (e.g. hardware and automotive product stores) and sells the products to the public.
The franchisor markets a service, or a product, under a common name and standardised system, through a network of franchisees (e.g. McDonalds).
Tasks before you commit
Do your researchExplore what are the franchising opportunities that's available currently. Be wary of franchisors who make inflated franchise-income claims. The Australian Competition and Consumer Commission publishes a Franchisee Manual which offers a useful guide on what to look out for when considering buying a franchise. gives in detail what is franchising, and what you need to look out for when doing your research and verifying the franchisor's claims. The Franchise Council of Australia also offers a good set of guidelines on what to look out for.
Work out your finances
Buying a franchise requires a substantial franchise and set-up fees - determine how much you will need and work out if you need to raise funds.
Request further information
Once you have decided on the particular franchisor that you will buy from, request for the franchisor's Disclosure Statement. It is a legal requirement under the ACCC Franchising Code of Conduct for all franchisors to provide specific information to potential franchisees to help them in the evaluation process. The Disclosure Statement will contain financial information, past and projected financial performance, market reputation and information on previous and current franchisees and any disclaimers.
Get adviceSpeak to current franchisees in the system and ask them questions such whether they're making a profit, any hidden and unexpected costs, have they recovered their investment, and the level of training and marketing support the franchisors provide.
Get legal and financial advice from franchise lawyers and accountants before you commit to the franchisor.
Case Study: How to run a successful franchise
'For me, a franchise is great because it gives you that motivation to keep going when you hit a slump.'
Sasha Spivak, Kumon
Read more about How to run a successful franchise
- Common costs when starting a business
- Licences and registrations
- Basic bookkeeping principles
- Sources of finance