Buying a Franchise in Australia: Check Supply Restrictions

Buying a franchise often means buying stock, equipment and services from suppliers chosen by someone else. These arrangements can protect quality across the franchise community, but they can also limit your ability to control costs or respond to shortages. Before committing, find out exactly what you must buy, who sets the price and what happens when the approved supply chain fails.

1. Map every compulsory purchase

Do not stop at the products you will sell. Required purchases may include packaging, uniforms, cleaning materials, payment terminals, software subscriptions, delivery services and replacement equipment. Small recurring charges can become substantial operating commitments.

Ask the franchisor for a written schedule covering each compulsory purchase. For every item, record:

• Whether you must buy from the franchisor, an associated business or an approved external supplier.
• Whether you can choose between suppliers or propose an alternative.
• Minimum order quantities, delivery charges and payment terms.
• Required stock levels and any obligation to buy promotional products.
• Who bears the cost of damaged, expired, obsolete or unsold goods.

Read the franchise agreement alongside relevant supply contracts and the operations manual provisions you are allowed to inspect. A broad obligation to follow the manual may affect purchasing decisions even when the agreement does not list individual products.

If an important document is unavailable before signing, ask your solicitor what uncertainty that creates. Do not substitute a salesperson’s reassurance for an identifiable contractual obligation.

2. Understand the Australian rules and rebates

Australia’s franchise community is specifically regulated by the mandatory Franchising Code of Conduct, made under the Competition and Consumer Act 2010. The current Code commenced on 1 April 2025, with some requirements applying from 1 November 2025. The Australian Competition and Consumer Commission administers and enforces compliance with the Code.

The Code requires disclosure of information about supply arrangements, including restrictions on what franchisees buy and from whom. It also requires information about relevant supplier rebates or other financial benefits received by the franchisor, subject to the applicable disclosure rules. Ask your solicitor to check that the disclosures address your proposed arrangement.

A rebate is a financial benefit linked to purchasing arrangements. It may reward the franchisor for purchases made by franchisees. Its existence does not automatically mean the arrangement is improper, but you should understand who benefits and whether any benefit is shared with franchisees.

Ask what the franchisor receives, how the arrangement works and whether it affects supplier selection. Distinguish a genuine purchasing discount passed to your business from a payment retained elsewhere in the system.

The Australian Consumer Law also prohibits misleading or deceptive conduct, and unfair contract terms protections may apply to standard form small business contracts. However, a compulsory supplier clause is not automatically unlawful simply because it restricts choice. Get advice on the actual wording and circumstances rather than assuming you can disregard it later.

3. Test the delivered cost, not the headline price

Obtain current price lists and sample invoices for an outlet comparable to the one you intend to operate. Check the dates, location and trading assumptions: freight costs for a regional Australian business may differ markedly from those for a metropolitan outlet.

Ask your accountant to calculate the full delivered cost of your main purchases. Include freight, handling, storage, wastage and any minimum-order requirement. Treat GST consistently when comparing prices and preparing cash-flow forecasts.

Then test practical pressures:

• What happens if supplier prices rise but customer prices stay unchanged?
• Can you afford bulk orders before customers pay you?
• Will promotional discounts leave enough margin after required stock purchases?
• How much cash could be tied up in slow-moving inventory?

Compare approved products with genuinely equivalent alternatives, taking quality, warranties and service into account. A lower external price is a useful question to raise, not proof that the approved arrangement offers poor value.

Request the price-change process in writing. Identify who can change charges, what notice is required and whether there is any mechanism for challenging an error or unexpected increase.

4. Secure a workable shortage plan

A reliable supply chain matters as much as a competitive price. Ask what happens if an approved supplier cannot deliver, loses a required licence or stops trading.

Look for a clear process to approve substitute products or temporary suppliers. Establish who grants approval, what evidence they need and how urgent requests are handled. Check whether warranties or technical support depend on using specified consumables or equipment.

Where supply continuity is critical, ask your solicitor to seek written protections before signing. These might address substitute purchasing, defective goods, delivery failures or stock made obsolete by a compulsory product change. Negotiation may not succeed, but the response helps you judge the risk.

Practical takeaway: Before buying, assemble a compulsory-purchase schedule, a delivered-cost assessment and a written shortage plan. Proceed only when you understand both the financial commitment and your contractual room to respond.