Buying a Franchise in Australia: Assess Investment Returns

A franchise can generate sales and pay its bills without delivering a worthwhile return on the money you invested. Before joining Australia’s franchising community, examine whether the required investment makes financial sense within the agreement’s term. This is more than a profitability check: it connects your capital commitment, the time available and an important protection under the Franchising Code of Conduct.

Understand the reasonable return requirement

Australia specifically regulates franchising through the mandatory federal Franchising Code of Conduct, enforced by the Australian Competition and Consumer Commission (ACCC). The current Code commenced on 1 April 2025, with some requirements applying from later dates.

According to the ACCC, franchise agreements entered into, renewed or extended on or after 1 November 2025 must give franchisees a reasonable opportunity to make a return on any investment required by the franchisor during the agreement’s term.

That is an opportunity, not a guarantee of profit or a promise that every franchisee will recover every dollar. Poor trading, higher costs and other commercial risks still matter. Nor should you assume that a particular percentage return is prescribed or that the Code makes an unattractive purchase financially sound.

Ask your lawyer to explain how the requirement applies to the proposed agreement, particularly if you are buying an existing outlet through a transfer. Ask the franchisor how the proposed term and required expenditure support a reasonable opportunity to make a return. A general assurance that the brand is successful does not answer that question.

Identify the investment being assessed

Create a schedule of the money you must commit, showing when each amount is payable and what requires it. Separate expenditure required by the franchisor from optional spending and other acquisition costs. Your lawyer can advise on the legal scope of the requirement; your accountant should assess the whole purchase economically.

For each item, record:

• Amount and timing: the initial payment and any later commitment.
• Purpose: what the expenditure buys or enables.
• Source of the obligation: the agreement, a specification or another written requirement.
• Funding: your own capital, borrowing or another arrangement.
• Remaining value: whether anything could realistically be recovered when the term ends.

Include the initial franchise fee, required fit-out, equipment and any other required investment identified in the documents. Keep refundable deposits separate from money that is permanently spent, while recognising that deposits still tie up cash.

For an existing business, distinguish the price paid to the seller from investment required by the franchisor. A seller’s asking price is not automatically justified by the Code’s return requirement. Your overall purchase may be too expensive even if the brand’s standard establishment model appears viable.

Measure returns within the available term

Ask an accountant to prepare a term-length cash-flow assessment, rather than relying solely on a typical year’s profit. It should show the initial outlay, subsequent investment and cash generated throughout the period you are actually entitled to operate.

Distinguish three different outcomes:

• Payment for your work: a realistic allowance for the hours and responsibilities you take on.
• Recovery of capital: cash that replenishes the money originally invested.
• Return on capital: the financial reward for putting that money at risk.

If the apparent return disappears after allowing for reasonable owner remuneration, you may effectively be buying yourself a job rather than building an attractive investment.

Have your accountant explain how borrowing, interest, tax and non-cash accounting charges affect the assessment. Accounting profit, available cash and investment return are not interchangeable. Avoid double-counting the original investment and loan repayments when measuring returns.

Use the contractual term as the base case. Do not make the purchase viable only by assuming another agreement will follow, or that a buyer will pay a substantial goodwill premium at the end. Any assumed resale proceeds should be separately identified and supported, not used to conceal weak operating returns.

Resolve a mismatch before committing

Compare a realistic trading case with a downside case involving weaker income or higher operating costs. The aim is not to predict every outcome, but to understand how much room exists before the investment stops making sense.

If returns depend on unusually strong performance, ask the franchisor to explain the commercial basis for the proposal. Possible discussion points include a lower upfront commitment, reduced required expenditure or a different agreement term. None is an automatic entitlement, and changes should be documented and reviewed professionally.

Keep your investment schedule, assumptions and the franchisor’s written responses together. Ask your lawyer whether the agreement meets the applicable Code requirement, and your accountant whether the deal meets your own financial needs. Those are related but different questions.

Practical takeaway: Before signing, establish what you must invest, how long you have to earn a return and what cash could remain after paying operating costs and fairly rewarding your work. A legal protection is valuable, but it does not replace a sound investment case.