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Checklist: buying a franchise

Know the risks and invest wisely

On this page

  • What are the different systems of franchising?
  • Perform these tasks before making a commitment

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 two main types of franchise you can consider:

Product and trade name franchising

Franchisees 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.

Manufacturer-retailer

The franchisee sells the franchisor's product directly to the public (e.g. new motor vehicle dealerships).

Manufacturer-wholesaler

The franchisee manufactures and distributes the franchisor's product under licence (e.g. soft drink bottling arrangements.

Business format franchising

Wholesaler-retailer

The franchisee purchases products for retail sale from a franchisor and sells the products to the public (e.g. hardware and automotive product stores).

Retailer-retailer

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 research

Explore current franchising opportunities, and be wary of franchisors who make inflated franchise-income claims. 

The Australian Competition and Consumer Commission (ACCC) publishes a franchisee manual which offers a useful guide on what to look out for when considering buying a franchise. The manual provides detailed information about franchising, and what you need to look out for when doing your research and verifying the franchisor's claims. Franchise Council of Australia also offers a useful 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'll need and whether you'll need to raise funds.

Request further information

Once you've decided on the particular franchisor to buy from, request the franchisor's Disclosure Statement – 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
  • information on previous and current franchisees and any disclaimers.

Get advice

Speak to current franchisees in the system, and ask them questions such as:

  • Are they making a profit?
  • Are there any hidden and unexpected costs?
  • Have they recovered their investment?
  • What level of training and marketing support do the franchisors provide?

Make sure you receive 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

Sasha Spivak of Kumon standing outside in front of a tree