Buying a Franchise in Australia: Franchisor Financial Health

A promising outlet can still face disruption if its franchisor runs short of money. Central technology, purchasing arrangements and brand management may depend on the franchisor’s ability to pay its bills. Before joining a franchise community, investigate the financial strength of the business behind the brand—not just the projected performance of your own outlet.

Understand what financial disclosure tells you

Australia specifically regulates franchising through the mandatory Franchising Code of Conduct, enforced by the Australian Competition and Consumer Commission (ACCC). The current Code commenced on 1 April 2025, with transitional arrangements affecting how some provisions apply. The Australian Consumer Law also applies, including its prohibition on misleading or deceptive conduct.

The disclosure document is your starting point for understanding the franchisor’s financial position. Ask your accountant to review its financial details and accompanying material, including the directors’ solvency statement and the financial reports or independent audit material provided under the applicable disclosure requirements.

A solvency statement concerns the franchisor’s ability to pay its debts as they fall due. It is not a promise that the brand will succeed, that your outlet will be profitable, or that support will remain unchanged throughout your agreement.

Check the dates carefully. Financial information describes a particular reporting period or position at a particular time. Ask what has changed since then, especially if the franchisor has acquired another business, borrowed substantially or expanded quickly.

Distinguish mandatory disclosure from additional information you request. The franchisor may not have to provide every internal management report you would like, but an unresolved information gap still matters to your buying decision.

Identify where the franchisor’s money comes from

Ask your accountant to explain how the franchisor earns money and whether that income appears capable of sustaining its obligations to franchisees.

Possible sources include ongoing royalties, initial franchise fees, company-owned outlets, product sales and supplier-related income. None is automatically problematic. The question is how dependent the business is on each source and what happens if conditions change.

Useful questions include:

• How much income depends on recruiting new franchisees rather than supporting existing outlets?
• Does recurring income cover the central business’s recurring costs?
• Are reported profits supported by cash generated from operations?
• Are major debts or other payments falling due soon?
• Does the business depend on continued funding from owners or related companies?

Rapid recruitment can produce cash while also creating obligations to open and support more outlets. Ask how the franchisor funds those commitments if recruitment slows.

Do not treat money collected for a specific purpose, such as a marketing fund, as freely available cash for the franchisor’s general operations. Your accountant should distinguish those funds from the resources available to sustain the central business.

Check which business carries the financial risk

A brand may sit within a group containing several companies. Financial strength in one company does not automatically mean that the company signing your franchise agreement has access to that money.

Have your advisers match the financial information to the contracting franchisor. If group accounts are supplied, ask what they reveal—and what they obscure—about that entity’s position.

Request a simple explanation of which entities employ support staff, operate essential systems and receive franchisee payments. Where the franchisor relies on another group company, ask how that support is documented and funded.

Be particularly careful with statements such as “the parent company backs us”. Ask whether this describes a legally enforceable commitment or simply the group’s current intention. Your solicitor should assess any guarantee or funding arrangement rather than relying on the brand’s reputation.

An ASIC company search can help establish corporate details and identify relevant lodged information. It does not, by itself, prove that a franchisor is financially secure.

Test the consequences before deciding

Translate the financial review into practical risks for your proposed outlet. What would happen if the franchisor reduced central staffing, delayed supplier payments or could no longer fund essential systems?

Ask your solicitor to explain your contractual position if the franchisor enters external administration. Do not assume you could immediately stop paying fees, continue using the brand independently or recover your initial investment. The outcome depends on the contracts, ownership arrangements and applicable law.

Before committing, obtain written answers to significant financial questions. Ask your accountant to separate normal commercial risks from concerns requiring further evidence, such as unexplained losses, reliance on uncertain funding or inconsistent financial information.

Practical takeaway: Assess the franchisor as a long-term business partner. Proceed only when you understand how it funds its obligations, which entity carries them and what financial weakness could mean for your outlet.