Buying a Franchise in Australia: Investigate Outlet Closures

A growing outlet count does not necessarily mean a franchise is a sound purchase. New openings can conceal closures, repeated ownership changes or locations taken back by the franchisor. Before joining Australia’s franchising community, investigate what has happened to individual outlets, not just how many operate today. The aim is to distinguish ordinary business changes from patterns that could affect your proposed investment.

1. Build an outlet history, not just a total

Start with the franchisor’s disclosure document. Review its franchisee details and information about changes in the network, including relevant transfers, terminations, non-renewals and businesses that have ceased operating. These events are not interchangeable: a successful sale is very different from an outlet shutting with unpaid bills.

Australia’s mandatory Franchising Code of Conduct regulates the franchising relationship and requires pre-contract disclosure. A new Code commenced on 1 April 2025, with some additional requirements applying from 1 November 2025. The Australian Competition and Consumer Commission provides guidance on these obligations.

Prospective buyers must generally receive the disclosure document, franchise agreement and a copy of the Code at least 14 days before signing or making a non-refundable payment. Use that period as a minimum review window, not a deadline to finish your investigation.

Create a simple table showing:

• Each outlet’s location and opening date, where available.
• Whether it is franchisee-operated or operated by the franchisor.
• Any ownership changes or periods of closure.
• Its current status and the explanation given for changes.
• The evidence supporting that explanation.

Ask for clarification where the disclosure information does not explain an outlet’s history. Keep verified facts separate from assumptions and unanswered questions.

2. Separate healthy turnover from warning signs

An owner may sell because of retirement, family circumstances or a profitable opportunity to move on. A closure may follow redevelopment rather than poor trading. Neither event alone proves that the franchise model is weak.

Look instead for repeated patterns. Several outlets closing soon after opening deserve closer attention. So do locations sold repeatedly within short periods, or a concentration of closures among businesses similar to the one you plan to buy.

Compare like with like. A mobile service franchise and a shopping-centre outlet may share a brand but face very different operating pressures. Separate locations by format, broad trading environment and maturity before drawing conclusions.

Be particularly careful with claims about “network growth”. Ask whether a quoted figure means gross openings or the net increase after closures. Also establish whether outlets acquired from departing franchisees remain included in the total.

For example, a location that remains open under franchisor management has not closed, but its original franchisee has still exited. That distinction matters when assessing the experience of franchise owners rather than the visibility of the brand.

Avoid calculating a failure rate from incomplete information. Without consistent dates, definitions and a reliable starting population, a percentage can mislead more than it informs.

3. Verify explanations without jumping to conclusions

Request a written explanation of significant changes. If the franchisor attributes several closures to unsuitable operators, ask what selection, training or operating changes followed. If it cites poor locations, ask how site assessment has changed and whether your proposed outlet shares the same characteristics.

Test explanations against available evidence. This might include former franchisees’ accounts, historical outlet directories, public notices and relevant company records. An ASIC record can help establish a company’s status, but it does not by itself explain why a particular outlet stopped trading.

Treat online reviews and social media posts as leads rather than proof. Likewise, one former owner’s experience may be important without being representative. Seek corroboration and allow for different perspectives.

Franchisors must not provide misleading or deceptive information. The Australian Consumer Law applies alongside the Code and contract law. However, an unexplained discrepancy is a reason to investigate, not automatically evidence of a legal breach. Give material inconsistencies to your solicitor to assess.

4. Turn the findings into a buying decision

Ask your accountant to connect any recurring causes of closure to your proposed business. If comparable outlets struggled with seasonal trade, rising occupancy costs or prolonged start-up periods, test those pressures in your own financial assessment.

For an existing outlet, establish whether it has previously changed hands or been operated by the franchisor. Clarify whether the records you are reviewing cover ordinary franchisee trading or a period with temporary financial support.

Before committing, record which concerns have been resolved, which remain uncertain and what evidence would change your decision. A refusal to clarify material inconsistencies should not be replaced with optimistic assumptions.

Practical takeaway: Follow the history of individual outlets. Proceed only when you understand the significant departures and closures, and have tested whether their causes could also affect your purchase.