Buying a franchise

ACCC franchising essentials

Being smart about your new franchise: checklist before signing a lease agreement
This publication has a checklist of things you should consider before signing your lease agreement.

The franchisee manual
This manual looks at what franchising is, steps to take before choosing a franchise, answers to frequently asked questions and much more.

Franchising code of conduct
The ACCC regulates the Franchising Code of Conduct, which is a mandatory industry code that applies to the parties to a franchise agreement.

Subscribe to the Franchising Information Network
The ACCC offers a free subscription service for those people who wish to be kept up-to-date with developments on the Franchising Code from the ACCC.

The Australian Franchise Registry ™

The Australian Franchise Registry aims to make it easier for potential franchisees and their advisors to identify genuine and responsible franchise brands.

What is franchising?

Franchising is the practice of using another firm's successful business model. A business owner (a franchisor) assigns independently owned outlets (a franchisee) the right to market and distribute their products or services.

For a fee, the franchisor grants the right to operate a replicated business under a trademarked name, using established management techniques, marketing and operational procedures.

In addition to this upfront capital fee, the franchisee is normally required to pay ongoing royalty fees and/or a percentage of gross monthly sales and agrees to comply with franchising procedures.

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What types of franchise models are there?

There are three major types of franchise models:

  • Business format franchise
    This is the model that people most commonly think of as a franchise. As the franchisee you would be given the rights to use the franchisor's intellectual property in your own business. An example of this model is a fast food outlet.
  • Product franchise
    This is where the franchisee sells the franchisor's product from a wholesale or retail outlet. As the franchisee you would be given exclusive rights to sell the product within a specific area. An example of this model is a motor vehicle dealership.
  • Processing or manufacturing franchise
    In this model the franchisee produces the product. The franchisor provides an essential ingredient or "know-how" to the franchisee. An example of this model is the soft-drink industry.

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Free online course to prepare for buying a franchise

Are you thinking of buying a franchise?

FREE franchise education is now available to help you assess franchise business opportunities, before buying a franchise business.

The free online Pre-entry Franchise Education program was developed by Griffith University's Asia-Pacific Centre for Franchising Excellence and funded by the Australian Competition and Consumer Commission (ACCC).

The program consists of five modules of easy-to-understand information to help prospective franchisees conduct due diligence and better understand their rights and obligations.

Each module takes about 45 minutes to complete and consists of video, audio and text documents, as well as additional resources and a self-assessment quiz.

After completing each module participants will receive a certificate of completion.

Topics covered in the program include:

  • an overview of franchising;
  • franchise disclosure, agreements, royalties and finance;
  • franchise support services, site and territory selection, retail leasing and franchise marketing funds; 
  • franchising intellectual property, the operations manual, franchisor-franchisee relationships and dispute resolution; and
  • questions to ask, additional due diligence and useful business skills.

Visit the Pre-entry Franchise Education program website for further information, or to register.

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Advantages and disadvantages of buying a franchise

Before deciding to buy a franchise there are advantages and disadvantages to consider. Advantages could include assistance with marketing and involvement with an established brand. Disadvantages could be the loss of decision making autonomy and strict operational procedures. Read more...

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What will it cost to buy a franchise?

The cost of buying a franchise will vary dramatically depending on which one you select. However, most franchisees will pay an initial up-front franchise fee and a continuing royalty which is a flat monthly or weekly fee, or a fee based on turnover.

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How do I evaluate a franchise opportunity?

There are many things to consider when evaluating a franchise opportunity, not the least of which is how the business fits with your personal characteristics and situation. Many of the issues are the same as evaluating any business idea. However, a franchise does have other factors to consider, such as the implications of the franchise agreement. Read more...

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Franchises and retail leases

Most franchisees will also need to lease a commercial property. Before you sign a lease, make sure that you know your rights and obligations under the agreement.

Get professional advice before committing to leasing commercial premises, because the cost in time and money to get advice about negotiating an acceptable lease for your business is likely to be many times less than what a poorly negotiated lease could eventually cost you.

Read leasing commercial premises or contact us on 13 12 49 to book a free appointment with one of our specialist commercial tenancy advisers.

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What is the Franchising Code of Conduct?

The Franchising Code of Conduct (the Code) forms part of the Competition and Consumer Act 2010. The Australian Competition and Consumer Commission (ACCC) is responsible for ensuring compliance with the Code.

The Code regulates the conduct of participants and provides protection for franchisees in the following areas:

  • disclosure documents;
  • cooling off periods;
  • marketing fund audits; and
  • dispute resolution.

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What are the tax implications of buying a franchise?

The initial franchise fee you pay when buying a franchise, along with any renewal or transfer fee, form part of the capital cost base of the business and cannot be claimed as a tax deduction. Given they form part of the cost of acquiring the franchise, they may be relevant in calculating any capital gains tax liability if you sell the business.

The ongoing fees payable to the franchisor such as administration fees, royalties, marketing levies and training fees, are generally tax deductible as are other operating costs of running the franchise business.

Refer to the Australian Tax Office (ATO) website for information about franchising and taxation

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Applying for finance to buy a franchise

Before buying a franchise, as with starting any business, you'll need to think about how you will secure the funds to buy the franchise. Refer to obtaining finance.

Very few franchisors provide funding to prospective franchisees, but most of the major banks have online information about franchising and applying for finance.

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What's next...

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Related Information

Business Guide to view:
Evaluating a Franchise

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