Before committing to an existing franchise, verify three things independently: the outlet’s sustainable trading performance, the rights and obligations you will receive from the franchisor, and the premises, assets, employees and liabilities that will move with the business. A familiar brand and an operating history can reduce some start-up uncertainty, but neither proves that the price, remaining term or operating model is sound.

Treat the purchase as two linked transactions: buying a business from the seller and obtaining the right to operate within the franchise system. Do not make either unconditional until the evidence aligns and your advisers have reviewed the proposed structure.

What the buyer is assessing

First establish what is actually transferring. The ACCC explains that an existing sale may involve assignment of the current franchise agreement or a new agreement, sometimes only for the remainder of the seller’s term. The franchisor also has a role in approving the buyer and may impose transfer conditions, although it cannot unreasonably withhold consent under the Franchising Code. Review the proposed agreement, transfer deed and consent conditions together—not as separate administrative documents. See the ACCC’s guidance on selling or transferring a franchise agreement.

Then test whether the outlet’s reported earnings are repeatable under your ownership. Separate sales from margin, owner labour, local relationships and deferred maintenance. Compare the franchise term with the lease term and the period needed to recover the total investment. The ACCC notes that a franchise agreement need not be renewed unless its terms provide for renewal; an established customer base does not create an automatic extension right. Its ending a franchise agreement guidance also warns that cooling off from a franchise agreement does not itself end a separate lease.

Evidence to request

Ask for evidence covering the seller, franchisor and premises—not only a sales memorandum:

  • monthly profit and loss statements for at least three financial years and the current year, with BAS, income tax returns, bank deposits, POS or invoice data, payroll and royalty reports available for reconciliation;
  • the seller’s franchise agreement, disclosure document, operations obligations, notices of breach, correspondence about renewal or transfer, and all proposed transfer or replacement agreements;
  • a written schedule of transfer fees, training costs, refurbishment requirements, technology changes, marketing-fund charges and other capital expenditure;
  • the lease, disclosure statement, assignments or occupancy documents, rent ledger, outgoings, options, make-good obligations and landlord consent requirements;
  • an asset register with ownership, age, condition, service records, finance or hire arrangements, stock method and excluded assets;
  • rosters, employment contracts, award or enterprise-agreement coverage, accrued entitlements, leave balances and any wage or workplace disputes; and
  • customer, supplier and local-area data sufficient to test concentration, exclusivity, territory and channel conflict without mishandling personal information.

The franchisor’s disclosure document should be read alongside outlet evidence. ACCC guidance says it covers matters including system costs, supply restrictions, franchisee contacts, litigation, solvency and future capital expenditure. It also recommends speaking with current and former franchisees. Review the franchise disclosure document guidance and check the Franchise Disclosure Register, remembering that register information is supplied by franchisors and is not verified or endorsed by the Australian Government.

Questions to investigate

  • Will you receive an assignment or a new agreement, and exactly how much term and which renewal rights remain?
  • What must happen before the franchisor, landlord and any key supplier consent, and who pays each fee or rectification cost?
  • Has the seller received breach, audit, performance, refurbishment or non-renewal notices?
  • Which revenue and cost lines reconcile to external records, and which adjustments depend on management judgement?
  • How many hours does the owner work, what functions do they perform, and what market cost replaces that labour?
  • Are current margins achievable under required suppliers, pricing rules, royalties and marketing charges?
  • What sales disruption and capital spending are likely during transfer, training, refurbishment or rebranding?
  • Why is the seller leaving, and is that explanation consistent with the trading data and franchisor discussions?

How to assess the evidence

Use a claim-to-evidence test rather than accepting documents in isolation:

Seller or deal claim Evidence to compare Assessment
“The outlet is consistently profitable” Monthly accounts, bank/POS data, BAS, payroll and royalty reports Reconcile revenue, normalise owner labour and remove one-off or unsupported adjustments.
“The location is secure” Lease, rent ledger, franchise term, options, transfer and make-good terms Map both timelines and quantify rent resets, approvals and end-of-term exposure.
“No major spending is due” Disclosure document, franchisor correspondence, asset condition and service history Build a dated capital plan and test whether cash flow can fund it.
“Everything transfers” Sale agreement, asset register, licences, supplier contracts and written consents Mark each item as transferable, conditional, replaceable or excluded.

Run a downside case using lower sales, full market wages, current supplier costs, scheduled capital expenditure and a realistic transition period. A defensible price should rest on earnings that survive those adjustments—not on revenue, sunk fit-out cost or the seller’s asking price.

Also verify the legal entities. ASIC provides public searches for business names and companies through its register search. If equipment or other personal property is material, ask your lawyer whether searches and releases are required; a PPSR organisation search can identify registered security interests against an organisation’s assets, but does not state their value.

When specialist advice is needed

Use a franchise lawyer to review the franchise, sale, transfer and lease documents as one transaction, including conditions precedent, restraints, guarantees, termination rights and completion mechanics. An accountant should reconcile trading evidence, normalise earnings, examine tax records and test working-capital needs. Obtain technical inspections for material plant, fit-out or compliance issues, and valuation advice where the price cannot be supported by maintainable cash flow.

Employment advice may also be needed. The Fair Work Ombudsman explains that a sale can constitute a transfer of business where statutory tests are met, with consequences for applicable workplace instruments and employee entitlements. Review its business ownership change guidance before allocating employee liabilities in the contract.

Frequently asked questions

Does franchisor approval mean the outlet is a good investment?

No. Approval addresses the franchisor’s transfer process and selection criteria. It is not an independent assessment of the price, outlet earnings, lease or suitability for you.

Can cooling-off rights replace due diligence conditions?

No. The applicable timing depends on whether an agreement is new or transferred and on when possession and control pass. Other contracts may continue even if the franchise agreement ends. Have your lawyer confirm the rights and draft appropriate conditions before signing.

Is the seller’s profit and loss statement enough?

No. Reconcile it with external records, test adjustments and compare it with franchisor charges, payroll, lease costs and required capital spending. The question is what the outlet can sustainably earn under your ownership.

Sources

Disclaimer

This article provides general information only. It does not constitute legal, tax, accounting, financial, credit, valuation or other professional advice. Circumstances differ. Obtain advice from appropriately qualified advisers before acting or entering a transaction.