Starting a business can change your life drastically, helping you create wealth, gain financial independence, and fulfil your lifelong dreams. Yet for many Australians with entrepreneurial spirit, the leap from aspiration to action is still daunting.
The current economic environment presents both challenges and opportunities for small business hopefuls. Rising costs, shifting consumer habits, and technology disruptions have complicated the traditional startup journey. Meanwhile, established brands continue to expand their footprint.
Franchising sits at this crossroads of big business and small enterprise. Its business model combines the independence of ownership with the scaffolding of proven systems. For many, it represents the perfect middle path between employment and standalone entrepreneurship.
While franchising mitigates certain risks, it introduces considerations that prospective business owners must carefully evaluate. The initial investment, ongoing fees, and operational restrictions can seem overwhelming without proper guidance.
As one of Australia’s largest franchisors, ITP Accounting Professionals has grown to include franchises across the nation, employing over 1,500 professionals and serving more than 200,000 clients. Our first-hand experience in successful franchise operations gives us unique insight into both sides of the franchising relationship.
The following guide walks you through everything you need to understand about franchising in Australia, helping you determine whether this path aligns with your business ambitions. We’ll cover:
- What a franchise is and how the model works
- The Australian Franchise Code of Conduct and legal requirements
- Critical documents every prospective franchisee should review
- Key questions your franchise agreement should answer
- The advantages of purchasing a franchise
- Current trends reshaping the franchise landscape
- Financial considerations beyond the initial franchise fee
- Resources for further investigation
With this knowledge, you’ll be better positioned to make an informed decision about whether franchising offers the right entry point for your business journey.
Let’s start with the obvious question…
Why Buy A Franchise?
Many aspiring business owners seek a middle path between starting from scratch and joining the corporate world. Franchising offers exactly that balance.
The Power of Proven Systems
When you purchase a franchise, you gain access to an established business system with proven results. This arrangement allows you to operate your own business while benefiting from methods refined through years of trial and error. The franchisor has already weathered early failures and adapted their approach accordingly—wisdom you get to inherit from day one.
The franchise model works through a structured partnership. As a franchisee, you invest in the right to use a recognised brand name, established business processes, and operational knowledge. The package typically includes comprehensive training, marketing support, and ongoing guidance. This transfer of expertise means you can focus on serving customers and growing your business, rather than reinventing operational systems or building brand recognition from nothing.
A Framework for Success
Consider the practical advantage: while independent business owners split their attention between multiple responsibilities, franchisees can concentrate on execution. The franchisor has already solved many fundamental business challenges, allowing you to direct your energy toward local market success.
Here’s what you can typically expect to receive when buying a franchise:
- A recognised brand name that customers already know and trust
- Comprehensive training in all aspects of the business operation
- Marketing and advertising support at both national and local levels
- Proven operational systems and business processes
- Ongoing guidance and problem-solving assistance
- Access to established supply chains and purchasing power
- Territory protection from other franchisees in the same system
The relationship between franchisee and franchisor is formalised through a franchise agreement—a comprehensive legal document outlining each party’s rights and responsibilities. This contract specifies everything from territorial rights and fee structures to operational requirements and dispute resolution procedures. Once signed, it becomes your business constitution, providing both protection and parameters for your enterprise.
Franchising suits people who value independence but appreciate structure. The model blends entrepreneurial opportunity with systematic support—a combination that helps explain why franchise businesses generally show higher success rates than independent startups.
For the right person, this balance of freedom within a framework can be a brilliant foundation for business ownership.
The Risks of Buying a Franchise
Before you sign off any franchise document, make sure you undertake your due diligence. Ask many questions about the franchise so you understand what your requirements and costs are and if there are any risks you’ll be signing up for.
While franchising offers structure and support, it also comes with potential downsides that every prospective franchisee should carefully consider. Understanding these risks will help you make a more informed decision—one that aligns with your business goals and personal circumstances.
Here are the biggest risks to consider when buying a franchise:
- Limited autonomy: You will have to stick to the franchisor’s established systems, with little scope for implementing your own ideas or innovations. This is great for some but can be a sticking point if you’re a creative thinker or someone who simply likes to have complete control over what you’re doing.
- Contractual restrictions: Similar to the above point, franchise agreements often limit your ability to sell products, set prices, or choose suppliers.
- Ongoing fees: Regular royalty payments and marketing contributions can impact your profitability, especially if you’re going through a slow period. Again, there are benefits that come in exchage for your franchising fees, but they are worth factoring in to your decision making process.
- Territorial limitations: Your agreement may restrict expansion opportunities or fail to give you adequate protection from nearby competitors.
- System-wide reputation impacts: Problems at other franchise locations can damage your business reputation, even if your service is excellent.
- Franchisor financial instability: If the parent company struggles financially, support services may diminish while fee obligations remain. Not a fun time for franchisees.
- Unexpected costs: Required renovations, equipment upgrades, or system changes can create unplanned expenses that you have no choice about going ahead with.
- Exit challenges: Selling your franchise often requires franchisor approval and may involve substantial transfer fees and a mountain of paperwork.
- Cultural fit issues: The franchise’s operational philosophy and values may conflict with your management style. This is something you should try to get a good feel for before signing any agreements.
- Limited term of ownership: Most franchise agreements have fixed terms, requiring renewal with potentially different conditions.
- Inflexible adaptation to local markets: Standardised operations may prevent effective response to unique local conditions. For example, if your franchisor is based in the Melbourne CBD, some of their rigid processes just might not be ideal for the franchise you want to set up in Far North Queensland. This won’t always be the case—the best franchisors recognise the need for regional differences. But it is something to check carefully before you sign up.
What Happens When You Buy a Franchise?
A good franchisor will give you an information statement outlining the risks and benefits of franchising. You should also receive a copy of:
- The Franchising Code
- A disclosure document
- The franchise agreement in its final form
- The appropriate information about lease arrangements
Don’t rush into a decision. At least 14 days should pass after the franchisor hands you all relevant information before you sign and make a non-refundable payment. However, you can take more than 14 days to make your decision if you need to—the most important thing is that you don’t feel rushed.
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Franchise Code
The Franchise Code of Conduct is a mandatory code in the form of a legal contract that must be adhered to by both parties. Any misleading or deceptive information should not be allowed.
The Code governs how the franchisor and franchisee should conduct themselves before entering into a franchise agreement, how they should act during the term of the franchise agreement and what they should do upon termination of the franchise agreement.
Disclosure document
The disclosure document details critical information for those considering buying a franchise. You should not be rushed into signing or making a payment by the franchisor or any of the franchisors parties.
You can take the Franchise Code and Disclosure Document to an independent legal professional (lawyer, business accountant, business advisor) so you fully understand each parties’ requirements and help you identify risks.
The disclosure document should include:
- A disclosure document
- Key facts sheet
- Information statement
- Franchise agreement
- Lease documents if applicable
The Franchise Agreement
The franchise agreement gives the franchisor permission to offer the franchisee the right to carry on a business in Australia under a specified business system. More than that, however, this valuable document should answer all of your questions (even ones you might not have thought to ask).
Such questions include:
- What fees and payments are you obligated to pay as a franchisee?
- What are the terms of the franchise agreement?
- What are the rights and restrictions around running your franchise?
- Do you need to purchase certain capital equipment and products?
- What are the marketing and advertising requirements?
- How are disputes settled?
- Is the franchisee entitled to any goodwill in the business?
- How are contracts renewed?
- How is an agreement terminated?
Now That You Know The Ins and Outs: Why Purchase a Franchise?
For some people who want to own a business, this type of arrangement suits them down to the ground. The risks are real, but if you do your research, you can minimse, or at the very least, prepare for them. And there are plenty of attractive benefits that come along with being a franchisee.
Franchises give you a sense of security, knowing that the business model has a proven track record. If you work with a quality franchisor, you should also get:
Support
When you purchase a franchise, you’re buying into a strong support network. You’ll also be handed a proven blueprint detailing how to set up and run, as well as training on how to execute the business model effectively.
If you have any questions, or if something comes up that’s beyond your capabilities, there’s always someone to ask and to help you out. This may appeal to business owners who don’t have a lot of experience.
Established Brand
A perk of buying into a franchise is knowing that the brand has already been established in the marketplace. Recognition and loyalty normally take a business anywhere from between 2 to 5 years to establish. A franchise is a good way of short-tracking these hard-to-earn qualities.
You don’t have to start from scratch because your customer will already know your brand and what you offer. They’ll come to you with a ready need and confidence that you can attend to it. This normally contributes to a high success rate for new businesses.
Cheaper Operational Costs
It often costs less to start a franchise compared to launching a new business in the same industry. Because of the brand’s reputation, positive image, and proven track record of success in the market place, customers don’t have to learn who you are. They already trust the goods or services you provide.
Marketing and advertising annual fees offer great ‘bang for your buck’ as national campaigns are often much more effective than what could be achieved with the same budget over a smaller area.
Current Franchise Trends Worth Considering
The Rise of Flexible Franchise Models
Home-based and mobile franchises have surged in popularity, partly accelerated by recent global events. These models offer lower overhead costs and greater flexibility than traditional brick-and-mortar operations. Service-based franchises like home cleaning, pet care, and mobile repair services are among those that have risen in popularity.
Meanwhile, multi-unit ownership has become increasingly common. Rather than operating a single location, experienced franchisees often acquire rights to multiple territories or brands. This approach spreads risk across different markets while potentially increasing overall returns.
Technology and Innovation in Franchising
Modern franchise systems typically provide comprehensive digital tools for inventory management, customer relationship management, and performance analytics. The most competitive franchisors offer proprietary apps and software solutions that streamline operations and enhance customer experience. When evaluating potential franchises, the sophistication of their technology stack deserves close scrutiny.
Sustainability and Flexibility
Environmental sustainability has moved from niche concern to mainstream consideration. Franchises that emphasise eco-friendly practices often appeal to socially conscious consumers and may benefit from positive public relations.
The concept of semi-absentee ownership has also gained traction alongside the rise of interest in passive income streams. Some franchise models require only 10-15 hours of owner involvement per week, with day-to-day operations managed by hired staff. While this arrangement offers flexibility, it typically demands higher initial investment to support management infrastructure. Again, something you’ll need to weigh up when deciding which business model is right for you.
Financial Considerations Beyond the Franchise Fee
Capital Requirements and Cash Flow
When contemplating franchise ownership, many prospective buyers fixate on the initial franchise cost while overlooking financial factors that will kick in down the road. Don’t make the mistake of thinking “I’ll be making profits by then, so I don’t need to budget for future costs.”
Working capital requirements often surprise new franchisees. Beyond startup costs, you need to have sufficient capital on hand to sustain operations until profitability—typically six to twelve months.
Your franchisor should give you estimates of these working capital needs based on historical data from existing units. We recommend adding a buffer to these estimates to account for unexpected challenges.
Fee Structures and Ongoing Payments
The structure of ongoing royalty payments is another thing you need to have a solid look at. Traditional percentage-based royalties (typically 4-8% of gross revenue) can become burdensome during periods of thin margins. Some franchises have adopted fixed monthly fees or tiered structures that reduce rates as revenue increases. You need to find out precisely what the lay of the land is with the franchise you’re considering. Understanding how royalties might impact profitability under various revenue scenarios will help you avoid unpleasant surprises.
Marketing fund contributions constitute another regular expense. These fees—usually 1-3% of revenue—support national or regional advertising campaigns. The effectiveness of these marketing efforts varies dramatically between franchise systems. Be your own best friend and ask for specific examples of marketing initiatives and their measurable results before committing. Additionally, clarify what portion of marketing funds remains available for local market activities versus national brand campaigns.
Location and Supply Chain Economics
A franchise territory with 50,000 residents might yield dramatically different results than an identical business model serving 100,000 potential customers. Sophisticated franchisors provide territory analysis reports including population data, competitive landscape, and consumer spending patterns. These reports merit independent verification through census data and local economic development resources.
Supply chain economics can also impact certain franchise categories. Franchises requiring specialised inventory or proprietary products typically mandate purchasing through approved vendors. This arrangement can ensure quality consistency but sometimes at premium prices. Review the franchise disclosure document carefully for information about required suppliers and whether you can source items independently if you want to go that way.
Critical Financial Factors to Evaluate
When assessing the complete financial picture of a franchise opportunity, pay special attention to these often-overlooked elements:
- Rent Escalation Clauses: Commercial leases can include annual increases that might eat into your revenue growth.
- Exit Strategy Provisions: You need to know the terms for selling your franchise, including transfer fees and right-of-first-refusal clauses.
- Tax Structure Implications: Look into the varying depreciation benefits and business expense deductions between franchise models.
- Insurance Requirements: Is there mandated coverage that exceeds what you would choose for yourself?
- Technology Fees: Are there any recurring charges for software platforms, websites, or digital marketing tools?
- Franchisor Financial Stability: Do a deep dive into the parent company’s financial health as this can impact support services and fee stability. Review the franchisor’s financial statements (included in the disclosure document) and research any parent company thoroughly.
Still Keen to Buy a Franchise?
A franchise could be precisely the opportunity you’ve been searching for. Of course, like any business model, franchising presents both advantages and challenges that must be carefully weighed. So, do your due diligence, and take the time needed to make an informed decision.
At ITP, we’ve helped both new and experienced business owners set up successful tax accounting franchises across Australia, supporting our franchisees through every stage of their business journey. Our experience has shown that the right franchise match—combining a proven system with your skills and ambitions—can create a foundation for long-term success.
Before making any commitment, we recommend exploring all available resources to ensure you understand the full scope of franchise ownership. The Australian Competition and Consumer Commission provides detailed information about franchising that serves as an excellent starting point.
Keen to learn more about opening an ITP Accounting Professionals franchise? You can register your interest here.