Before you buy a franchise, think about the end

By ACCC | 09 Jul 2020 View comments

You’re excited about the possibility of a new franchise and may not be thinking about what happens when your franchising journey ends. But it’s very important to consider your franchise exit strategy before signing up.

Your franchise journey could even end sooner than you planned. Your personal circumstances may suddenly change. Perhaps you discover that franchising is no longer for you.

Buying a franchise doesn’t come with the same level of autonomy as operating your own independent business. A franchise agreement may also only give you the right to run the franchised business for a limited time. It doesn’t necessarily give you all of the rights you expect.

Not all agreements give you the right to renew or extend your franchise. If it does let you renew or extend, there may be conditions attached, like refurbishing your store or paying an increased franchise fee. If you can’t meet the conditions, you may be unable to renew and could lose your investment.

Not all agreements give you an unconditional right to sell your franchise. Franchisors often have criteria for who they will allow to operate a franchised business. Make sure you understand any limitations and what impact they will have.

Some franchise agreements even contain non-compete clauses intended to stop you from working in the same industry for some time after your franchise agreement ends. It is important to get legal advice about these, as they may not always be legally enforceable or may raise concerns as a potential unfair contract term under the Australian Consumer Law. 

If you don’t check these things, you may suddenly find yourself unable to sell or renew your franchise, or be prevented from working freely in your industry post franchise.

Author: Australian Competition and Consumer Commission.

The information in this article is for general guidance only. It does not constitute legal or other professional advice, and should not be relied on as a statement of the law in any jurisdiction. As it is intended only as a general guide, it may contain generalisations. You should obtain professional advice if you have any specific concern.