Starting Your Own Business versus Buying a Franchise. Which is the better option?

Introduction
Advantages
Investment and Financial Considerations
Marketing and Branding
Operations and Management
Risk and Reward
Takeaways

As a franchisee, it is important to be aware of the financial health of your franchisor.

While there are certain pieces of information that must be included in the franchisor disclosure document, access to detailed information about a franchisor’s finances may be limited. This can leave you vulnerable if your franchisor suddenly becomes insolvent.

In this article we will discuss why it’s important as a franchisee to stay informed about your franchisor’s financial standing and what rights you have should your franchisor become insolvent.

Overview of Franchisor Insolvency

Rights and obligations arising from Franchisor Insolvency

Administration and Liquidation arising from Franchisor Insolvency

Marketing Funds

Takeaways

Are you thinking of buying a franchise? It’s an exciting proposition that can bring both rewards and risks. Before you make a commitment, it’s crucial to carefully consider all the elements involved.

It is a well established principle of Australian law that businesses that illegally exploit their employees can face serious penalties under the Fair Work Act 2009 (Cth) (“Fair Work Act”). It should therefore be unsurprising that franchisees who have engaged in behaviour that illegally disenfranchises their workers can be subject to penalties from the Fair Work Commission.

The Franchising Code of Conduct (the Franchising Code) contains numerous obligations which are penalty provisions, that is, if you fail to comply with these obligations, you may be charged a penalty.

Generally, the maximum penalty for failing to comply with a Franchising Code penalty provision is 600 penalty units or $218,400.00 (as of 1 July 2026 each penalty unit is worth $364.00).

The ACCC can also issue an infringement notice if a penalty provision of the Franchising Code  is not complied with.  An infringement notice is in most cases 60 penalty units or $21,840.00. 

We have set out below a number of the approaching Key Franchise Dates, related primarily to a franchisor's end of financial year reporting and disclosure obligations. 

On 1 April 2022 the Franchising Code of Conduct (the Franchising Code) was amended to insert a new clause 53 which sets out the requirements for the Franchise Disclosure Register.

[What is the Franchising Code?]

The long awaited dispute resolution provisions under the Franchising Code of Conduct (the Franchising Code) came into force on 2 June 2021.