Buying a Franchise in Australia: Budget for Refurbishments

The opening price of a franchise may not be the last major investment you make. A brand refresh, replacement equipment or a compulsory technology upgrade could require substantial cash while you are still establishing the business. Before joining Australia’s franchising community, investigate what the franchisor can require you to replace, when the spending might arise and how you would fund it.

1. Identify spending beyond the opening budget

Significant capital expenditure means more than repainting a shop. Depending on the business, it could involve replacing vehicles, installing new kitchen equipment, rebuilding a reception area or adopting a new point-of-sale system.

Start by separating three categories in your budget:

• Initial investment: the equipment, fit-out and systems needed to open or take over the business.
• Routine operating costs: servicing, repairs, subscriptions and ordinary maintenance.
• Later capital spending: substantial replacements or upgrades required during your agreement.

Ask the franchisor for a written schedule of planned and possible upgrades. Request the expected timing, estimated cost, scope and basis for each estimate. Where a figure remains uncertain, ask what decisions could change it.

If you are buying an existing outlet, establish whether its fit-out meets current brand standards. An attractive purchase price can conceal a refurbishment requirement triggered by the transfer, or an equipment replacement programme already announced to the network. Commission an independent condition assessment where the assets justify it.

2. Understand the Australian rules

Australia specifically regulates franchising through the Franchising Code of Conduct, a mandatory code under the Competition and Consumer Act 2010. The Australian Competition and Consumer Commission regulates compliance. The Australian Consumer Law also applies, including prohibitions on misleading or deceptive conduct.

A new Code commenced on 1 April 2025, with some provisions applying from 1 November 2025. Which rules govern a particular agreement can depend on when it was entered into, transferred, renewed or extended. Have an independent franchise lawyer check the applicable provisions rather than relying on an old agreement template.

The Code restricts a franchisor’s ability to require significant capital expenditure during the agreement. Broadly, permitted circumstances include expenditure disclosed before entering or renewing the agreement, expenditure needed to comply with legislation, certain spending approved by a majority of franchisees, and expenditure agreed individually by the franchisee. The conditions attached to these exceptions matter.

Disclosure requirements cover significant capital expenditure required by the franchisor. Relevant information includes its rationale, amount, timing, anticipated benefits and risks. The Code also requires discussion of disclosed significant capital expenditure before entering into, renewing or extending an agreement.

Do not interpret these protections as a promise that future upgrades will be affordable or profitable. Nor should you assume that an unexpected demand can simply be ignored. Ask your lawyer how the expenditure provisions operate alongside the proposed contract.

3. Turn upgrade estimates into a funding plan

A refurbishment budget should capture the business disruption as well as the builder’s invoice. Ask your accountant to model:

• Equipment, installation, professional fees and approval costs.
• Removal of old assets and temporary storage.
• Closure days, reduced trading capacity and lost gross profit.
• Wages, rent and other payments that continue during the work.
• Additional borrowing costs and the timing of GST cash flows.
• A contingency based on the uncertainty of the project.

Test whether the business could meet these obligations if sales were below expectations when the upgrade fell due. Keep this separate from the money needed for ordinary working capital.

Do not assume a lender will finance a compulsory refurbishment just because it financed the original purchase. Ask potential lenders which assets they would fund, what security they would require and whether approval would depend on the remaining franchise term.

Also establish who owns the new equipment. Spending on an asset does not necessarily mean you can remove it, sell it or recover its value when the franchise agreement ends.

4. Resolve uncertainty before committing

Compare the written upgrade schedule with the franchise agreement and disclosure document. Look particularly for broad obligations to follow future brand standards or replace equipment whenever the franchisor directs.

Seek clear written answers about notice periods, cost estimates, project timing and whether equivalent equipment is acceptable. Ask what happens if contractors are unavailable or the proposed works cannot be completed without a prolonged closure.

Where you negotiate a spending cap, staged programme or exemption, have your lawyer put it into binding documentation. A salesperson’s reassurance is not a substitute for an agreed contractual position.

If a requirement remains undefined, treat it as an unresolved financial risk rather than assigning it a zero cost. You can request clarification, reconsider the purchase price or decide not to proceed.

Practical takeaway: Before signing, obtain a written upgrade schedule, test the full cash requirement and have an independent lawyer check the franchisor’s power to require the spending.