Buying a Franchise in Australia: Value Opening Stock

Opening stock can turn an attractive franchise purchase price into a larger commitment than expected. Whether you are opening a new outlet or buying an existing one, establish exactly what inventory you must pay for and what it is worth to your business. Within the Australian franchising community, a recognisable brand does not make every item on the shelves saleable.

1. Establish what the stock price includes

Start by asking whether stock is included in the advertised purchase price, charged separately or estimated until a final count. An offer described as ‘plus stock’ leaves an important part of your commitment unresolved.

For a new outlet, request an itemised opening order showing quantities, unit prices, GST treatment, delivery charges and payment dates. Separate products you can sell from packaging, cleaning materials, demonstration units and other consumables. All may require funding, but they do not generate revenue in the same way.

For an existing outlet, ask the seller to explain the proposed valuation method. ‘Stock at cost’ needs a definition: does that mean the original invoice price, the price after discounts or a figure that includes freight? Ask your accountant how the proposed treatment affects the purchase budget.

Confirm who is selling each category of stock. The franchisor, an approved supplier and the outgoing franchisee may issue separate invoices. Reconcile those invoices against the sale agreement so you do not pay twice for the same goods.

2. Test whether the inventory is genuinely saleable

A stock list shows what is recorded, not necessarily what customers will buy. Request inventory quantities alongside recent item-level sales records, where available. Compare the proposed opening quantities with realistic sales expectations rather than accepting a standard package without explanation.

Pay particular attention to:

• Expiry dates and remaining shelf life.
• Damaged goods, incomplete sets and opened packaging.
• Discontinued products or superseded models.
• Seasonal items remaining after their main selling period.
• Products carrying old branding or outdated promotional packaging.
• Goods returned by customers but still recorded as available stock.

Ask why slow-moving items are included and whether they can be removed, discounted or exchanged. Do not assume the franchisor or supplier will accept returns: obtain the applicable policy and any specific agreement in writing.

For example, a large quantity of a seasonal product may have a valid supplier invoice but little immediate earning potential. Paying its full historical cost could leave money tied up until the next season, with no certainty of a sale.

3. Agree the stocktake and adjustment process

When buying an operating outlet, inventory will change between your inspection and completion. The sale contract should explain how the final quantity and price will be established.

Ask your solicitor to address who conducts the count, when it takes place, whether both parties can attend and how disagreements are resolved. For a substantial or complicated inventory, consider an independent stocktaker.

Agree the treatment of deliveries, sales, returns and damaged goods around the counting time. Otherwise, a delivery might be charged to you even though the outgoing owner sells part of it before handover.

The written arrangements should also identify:

• Items excluded from the purchase.
• The agreed valuation basis and any reductions.
• Evidence that the seller owns the goods being sold.
• Treatment of consignment stock or goods subject to third-party claims.
• How the final payment changes if the count differs from the estimate.

Consider negotiating a maximum stock purchase amount. That is a commercial protection to agree, not an automatic franchisee right. Ask your solicitor whether searches of the Personal Property Securities Register and any releases are appropriate for the transaction.

4. Check the franchise documents before committing

Australia’s Franchising Code of Conduct is a mandatory federal code regulating franchisor and franchisee conduct. The current Code took effect on 1 April 2025. The Australian Competition and Consumer Commission oversees compliance, and the Australian Consumer Law also applies, including its prohibition on misleading or deceptive conduct.

Read stock requirements alongside the disclosure document and franchise agreement. Check whether the proposed order matches the written obligations and ask for an explanation of any differences. A seller’s assurance that excess goods are ‘required by the brand’ should be verified with the franchisor.

Prospective franchisees generally must receive the franchise agreement, disclosure document and Code at least 14 days before signing or making a non-refundable payment. Have your solicitor confirm the requirements for your transaction, particularly where a separate business sale agreement is involved. Do not assume these rules automatically make every stock payment refundable.

Practical takeaway: Before committing, obtain an itemised stock schedule, evidence of condition and sales potential, and a written valuation and stocktake process. Budget for the inventory you are actually agreeing to buy—not merely the figure in the sales advertisement.