Franchise due diligence checklist for Australian buyers
Due diligence is the work that turns a good-looking brochure into a decision you can defend. This is the checklist we would run before committing a dollar.
What does franchise due diligence involve?
The checklist below groups that work into the four things you are actually testing: the system, the money, the agreement and the people.
1. The system and the franchisor
- Read the disclosure document and confirm the franchisor's entity on the ACCC Register and ASIC.
- Check network size and trend: how many outlets, and how many opened, closed, were terminated or bought back in the last few years.
- Review the solvency statement and any financial reports for signs of distress.
- Understand the model's unit economics: what a typical outlet turns over, its cost base, and how long it takes to reach profitability.
2. The money
- Build the all-in establishment cost: initial fee, fit-out, equipment, stock and working capital.
- Add ongoing fees: royalty and marketing levy, as a percentage or fixed amount.
- Model a stress-tested cash flow, what happens if the ramp-up is slower than promised.
- Compare the fees against category benchmarks so you know if they are normal or high.
- Have an accountant sanity-check every assumption before you rely on it.
3. The agreement
- Have a franchise lawyer review the franchise agreement alongside the disclosure document.
- Check the term, renewal rights and what happens at the end, including any restraint of trade and whether goodwill is compensated.
- Confirm whether your territory is exclusive and whether the franchisor can open nearby or sell online into it.
- Understand supply restrictions and whether the franchisor earns rebates on what you must buy.
- Know your exit: how you can sell, and what the franchisor must approve.
4. The people
The single most valuable due diligence step is talking to franchisees, especially former ones. The disclosure document must list their contact details for exactly this reason.
- Call at least three current franchisees and two who have left.
- Ask what they actually earn, how long it took, and what they wish they had known.
- Ask how the franchisor behaves when something goes wrong.
- Ask the ones who left why, the answer is often the most honest information you will get.
Red flags that should stop you
- High churn, more franchisees leaving than joining.
- Pressure to sign before the 14-day disclosure period is up.
- Reluctance to share the disclosure document or franchisee contacts.
- Earnings promises that the documents do not support.
- A territory the franchisor can crowd, or heavy supplier restrictions with hidden rebates.
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Frequently asked questions
How long does franchise due diligence take?
Use at least the mandatory 14-day disclosure period, and often longer. That window exists so you can read the disclosure document and agreement, take legal and accounting advice, and speak to franchisees before you sign or pay a non-refundable amount.
What is the most important due diligence step?
Calling current and former franchisees. The disclosure document lists their contacts precisely so you can verify the franchisor's claims independently, former franchisees in particular give you the most honest picture.
Do I need a lawyer to buy a franchise?
It is strongly advised. A franchise lawyer reviews the agreement and disclosure document together and flags terms, on territory, renewal, restraint and exit, that materially affect the value of what you are buying.