Prospective franchisees should conduct thorough research before deciding to invest in a franchise. You are paying to use the intellectual property of someone else for a time, but the business opportunities, risks and responsibilities are yours to assess and manage as the business owner. 

Acquiring a franchise is not like purchasing a share that might have a fixed investment return, and the investor is an interested but largely passive observer. It is an active investment involving business risk with financial return conditional upon many variables, including the drive, local market activation success and day-to-day business acumen and involvement of the franchisee.

In addition to understanding your obligations to the franchisor, you need to make your own assessment of the likely return on your investment. Make sure you research the market, the competition (both local and online) and broader economic trends, such as cost-of-living and business input pressures, all of which can impact on future earnings of your business. 

Start your research by:

• completing the ACCC’s free online course on franchising. The course will help you understand the arrangements you are looking into and introduce you to the terminology and concepts used in franchising models.
• considering what questions to ask before buying a franchise. This ACCC resource provides helpful tips, so you know the sorts of things you need to be researching.
• accessing the Business.gov.au ‘Buy a franchise’ resource and find out what they recommend when buying a franchise.
• reviewing the ACCC’s comprehensive checklist that assists prospective franchisees ask questions to help inform whether the franchise you are considering is right for you.
• attending small business and franchising expos run by industry experts who provide short seminars and provide access to a wide range of business professionals and government agencies to talk through any questions you may have.

You should ask questions to ensure you understand the franchisor’s experience and reputation, start-up costs, ongoing costs, earnings, changes, dispute resolution and what happens on exit, expiry or termination of the franchise. You also need to understand what happens if the franchisor or master franchisor goes insolvent. You can’t ask too many questions.

Don’t solely rely on information from the franchisor or their agent. While they’ll offer their perspective, it’s essential – especially when making a significant investment – to seek insights from a wide range of sources.

• Find out information about the franchise from the Franchise Disclosure Register.
• Talk to other franchisees, including people who have left the franchise.
• Is there an opportunity to work in the franchise you are looking to buy? Get alongside current franchisees (and possibly future peers) to truly understand what’s involved.
• Get to know the area you will operate in – is it a place you are familiar with, or can you talk to other businesses in the area to understand local pressures and opportunities?

The Franchise Council of Australia has free and paid training and educational opportunities for franchisees and franchisors. 

The Australian Association of Franchisees may also have some information on experiences it has had working with and supporting franchisees from the system you are considering investing in, that could be very valuable input to your due diligence inquiries.

Commercial success is not guaranteed in a franchise business. Seeking and accepting proper legal and financial advice before committing and investing in a franchise is important. Listen to the advice, act on the advice, and reduce the risk of failure.