Buying a Franchise in Australia: Check Franchisor Stability

Joining a franchising community means relying on more than a recognisable name. Your business may depend on the franchisor’s technology, brand licences and central payment systems every day. Before buying a franchise in Australia, investigate whether the organisation behind it can sustain those essentials — and what would happen if it changed hands or became insolvent.

1. Identify the businesses behind the brand

Start with the legal entity named in your proposed franchise agreement. The familiar trading name on a shopfront may belong to a group containing several companies, each with different assets and responsibilities.

Ask the franchisor to explain, in writing:

• Which entity will sign your franchise agreement?
• Who owns the trade marks and other essential intellectual property?
• Which entity provides the booking platform, website or payment service?
• Who holds customer deposits or collects payments before passing them to franchisees?
• Does another group company guarantee any contractual obligations?

Draw a simple diagram showing these relationships. An apparently substantial parent company does not necessarily stand behind the obligations of the company contracting with you.

Check the relevant company details through the Australian Securities and Investments Commission. Compare these with the agreement and disclosure document. Look for inconsistencies in company names, Australian Company Numbers and the identity of directors, then ask for explanations rather than assuming an administrative error.

Also check the Franchise Disclosure Register. It is a useful starting point, but a listing is not government approval of the franchise or a guarantee of financial stability.

2. Test how the franchisor funds its operations

Ask an independent accountant with franchising experience to examine the financial information supplied with the disclosure document. Have them explain what it covers, how current it is and whether it relates to the contracting entity or a wider group.

The central question is practical: can the franchisor meet its commitments to franchisees from a sustainable income stream?

Ask your accountant to investigate:

• Whether recurring revenue supports recurring operating costs.
• How dependent the business is on selling new franchises.
• Whether debt repayments or related-party balances create pressure.
• Whether losses, weak cash reserves or audit qualifications need explanation.
• Whether material changes have occurred since the reporting date.

Rapid network growth is not proof of financial strength. Establishing new locations can generate upfront fees while also increasing demands on central resources.

Request explanations for unusual movements and seek evidence where possible. If further financial information is unavailable, record that limitation explicitly. Your accountant should distinguish between a demonstrated problem and a risk that cannot be assessed because information is missing.

3. Map the consequences of disruption

Ask what would happen to your business tomorrow if the franchisor stopped operating normally. Focus on dependencies that could prevent you serving customers or accessing money already earned.

For each essential service, record who controls it, what your contract promises and whether an alternative is legally and practically available. Priorities include:

• Access to customer records and transaction histories.
• Booking, ordering and point-of-sale systems.
• Settlement of centrally collected revenue.
• Rights to use the brand and operating materials.
• Responsibility for outstanding vouchers, refunds and customer deposits.

Do not assume you could simply trade independently under a different name. Intellectual property restrictions, data protection obligations and contractual terms may limit that option.

Likewise, a sale of the franchise system does not automatically cancel your agreement. Ask your solicitor to explain assignment provisions, change-of-control clauses and any rights triggered by ownership changes.

Insolvency outcomes depend on the contracts, the entities involved and the insolvency process. Neither continued operation nor immediate termination should be treated as certain. Obtain specialist advice before withholding fees, terminating an agreement or moving customer data.

4. Understand the protections — and their limits

Australia’s franchising community is governed by the mandatory Franchising Code of Conduct under the Competition and Consumer Act 2010. A replacement Code commenced on 1 April 2025, with some additional requirements applying from 1 November 2025. Your solicitor should confirm which provisions apply to your proposed agreement.

The Code imposes disclosure obligations and requires parties to act in good faith, including during pre-contract dealings. The Australian Consumer Law also prohibits misleading or deceptive conduct. These protections matter when assessing statements about financial backing, ownership and business continuity.

However, regulatory compliance is not insurance against commercial failure. A legal claim may offer limited practical recovery if the party responsible has no available assets.

Before committing, ask your advisers for a written summary of unresolved stability risks, their likely operational impact and any contractual protections worth negotiating. Keep written records of important representations and supporting documents.

Practical takeaway: Buy only after you understand which entities your business depends on, how those dependencies are funded and what disruption you could realistically withstand. An unexplained gap in the evidence is a reason to pause, not a reason to assume everything will be fine.