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.
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.
3. Have Your FDD 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.
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.
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.
6. Check the Litigation History
Review Item 3 of the FDD for any litigation involving the franchisor. Search court records independently. A history of disputes with franchisees is a significant red flag.
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.
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?
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.
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.
This checklist is not exhaustive. Every franchise opportunity is different. Always seek independent professional advice before making investment decisions.