Buying a Franchise System? Here’s What You Need to Know Before You Take the Leap
Purchasing an entire franchise system (not just a single outlet) can be an exciting growth move. Done well, it can give you a strong brand, a network of franchisees, and an established revenue stream from royalties and fees. But it also comes with real legal and commercial risks that need careful management.
At our firm, we often advise entrepreneurs and investors on buying, selling, and running franchise systems. One of the most common issues we see is that buyers don’t always know what to ask the seller—and miss critical risks that could affect the value of the business long after settlement.
In this article, we’ll briefly outline some of the key areas you should review and why they matter.
1. Franchise Network Health
How many franchisees are currently operating?
How many have left in the last 3–5 years, and why?
Are there current disputes or complaints with franchisees?
A system with constant churn or unhappy franchisees can signal deeper issues.
2. Compliance With the Code and Register
From 1 April 2025, an updated Franchising Code of Conduct took effect.
While a number of the requirements from the old Code remain, there are changes major legal and financial penalties if processes and documents have not been updated to reflect the new Code requirements.
Furthermore, all franchisors should be listed on the on the Franchise Disclosure Register, which has to be annually updated.
So checking if they are properly disclosed on the Register and looking at when was their last update to their franchise agreement and disclosure document are some of the essential questions to look at, and then have your franchising expert lawyer check. If these requirements aren’t being met, the franchisor may already be at risk of ACCC penalties—and you don’t want to inherit that problem.
3. Franchise Agreements
Connected with the earlier point a question that needs to be looked at is whether their existing agreements comply with the current Code?
Do all their franchisees have a valid and current franchise agreement.
When do they expire, and what are the renewal terms for their various franchises?
Are all franchisees current or are some on holding over?
Are all franchisees on consistent terms, or are there risky variations?
Clear, consistent, and compliant agreements make future growth much smoother.
4. Intellectual Property Ownership
The brand is usually the most valuable part of a franchise system—so it’s essential to confirm who actually owns it.
Are trademarks and business names registered in the franchisor entity’s name or are they held in a separate company or by the founder personally?
If there’s a separate IP entity, has the franchisor been granted an exclusive licence to use the IP—and is that licence transferable to you?
Getting this wrong can leave you with a franchise system but no legal right to use the brand.
5. Marketing Fund(s)
If the system has a marketing fund/s:
Is it/are they each held in a separate bank account?
Are audited statements available for review?
How are contributions used and reported to franchisees?
This is a common area of dispute between franchisors and franchisees, so it’s vital to know the fund is properly managed.
6. Systems, Processes and Support
The value of a franchise system is more than just the brand. Strong operations manuals, training programs, and scalable technology systems are what give the network consistency and room to grow. Check how robust and up-to-date these are.
7. The Commercial Future
Ask:
Why is the franchisor selling?
What growth opportunities (territories, products, services) are left?
What risks could threaten the model?
A great system should offer not just today’s cashflow, but a pathway to future expansion.
Next Steps for Buyers
Buying a franchise system is a big decision. The right due diligence can protect your investment and set you up for success.
We’ve prepared a Franchise System Due Diligence Checklist that will help you start this process, covering various legal and commercial questions you should be asking before you buy or sign any documents!
If you’d like a copy—or want tailored legal and commercial advice on your purchase—get in touch with our team. We’ve worked with franchisors and franchisees across various industries over the last 25 yeas, so we know the pitfalls and the growth strategies that work.
Franchising can be a powerful way to expand and build value, but the risks are real if the groundwork isn’t checked properly. Whether you’re buying, selling, or managing a franchise system, good advice early can save you costly headaches later.
Contact us to discuss your plans and request our Franchise System Due Diligence Checklist.
Please note that this is a general and brief update; it does not purport to be comprehensive legal advice of all information and/or relevant to your circumstances. Consequently, specific legal advice for each of your circumstances should be obtained first before taking or not taking any action with respect to this area.