Buying a franchise
When you buy a stand-alone business or franchise, it’s essential to carry out your own checks to verify that the previous owner or franchisor has a solid underlying business system.
To help you get started, our checklist covers the six most important things to consider: Financial information, fees, other franchisees, legal, compliance and contractual issues, premises and track records.
1. Key financial information
Current financial statements, preferably going back three years:
- Balance sheets
- Profit and loss statements
- Business tax returns
- Projected sales and profits of the franchise, and the method used to calculate them
- Current fees
- Ongoing fees
- What do you get for them?
- Promotional material
- Shop fit-out
- What are the conditions of the relationship?
- Are there transfer fees if you sell?
- How are royalties determined?
3. Other franchisees
- Does the disclosure agreement include a list of current and previous franchisees?
- What do they say about the business?
- Are their sales growing?
- How is the industry performing?
4. Legal, compliance and contractual issues
- Is the franchisor involved in any current or potential litigation?
- Do you need licences or permits to operate the business?
- Check all existing contracts such as leases and mortgages, especially on the business premises
- Get your lawyer to check the franchise agreement.
- What are the restrictions on selling, staffing, pricing and supply arrangements?
- Is a lease involved?
- If so, check the lease. Is there a right to renew?
- Who owns the fit-out?
- Are there other inclusions?
6. Track record
- How long has the franchise business been established?
- Does it comply with the mandatory Franchising Code of Conduct?
- Obtain a credit reference on the franchisor
Where to find out more
As this advice has been prepared without considering your objectives, financial situation or needs, you should, before acting on the advice, consider its appropriateness to your circumstances. All products mentioned on this web page are issued by the Commonwealth Bank of Australia; view our Financial Services Guide (PDF 59kb)