If you’re considering buying into a franchise in NSW, you’re looking at a significant business decision that comes with unique legal complexities. Unlike starting your own business from scratch, becoming a franchisee means entering a tightly controlled legal relationship where you’ll operate under someone else’s brand and systems. Before you sign on the dotted line, it’s crucial to understand exactly what you’re getting into, and what you’re not.

What Does Becoming a Franchisee Really Mean?

Becoming a franchisee involves entering into a legal agreement with an established business (the franchisor) that allows you to operate a business using their brand, systems, and intellectual property (IP). It’s important to understand that you don’t own the brand or the underlying business systems. Instead, you’re obtaining a licence to use them for a specified period.

Understanding the Financial Commitment

The payment structure for a franchise arrangement typically includes several layers of fees that you need to factor into your business planning:

• Initial Franchise Fee: A one-time payment made at the start of the agreement for the right to use the brand and systems
• Ongoing Royalties: Regular payments (often monthly) calculated as a percentage of your sales or revenue
• Marketing or Advertising Fees: Additional regular payments to contribute to the franchisor’s marketing efforts, which benefit the entire franchise network

These costs can add up significantly over time, so understanding the full financial picture is essential before committing.

Your Rights and Obligations as a Franchisee

What You Get

Licence to Operate: You receive a licence to use the franchisor’s trademarks, business systems, and proprietary methods for a set term (typically 5 or 10 years).

What You Don’t Get

No Ownership of IP or Business Assets: You don’t acquire ownership of the brand, business systems, or intellectual property. These remain the property of the franchisor, no matter how successful you make your franchise location.

No Right to Retain Clients or Data: You generally cannot keep the clients, customer lists, or any business data acquired during the franchise period, as these are considered assets of the franchisor.

What Happens When the Agreement Ends

Return of Assets Upon Expiry: At the end of the franchise term, you’re typically required to cease using the franchisor’s brand and systems entirely. All materials, customer lists, databases, and other proprietary information must be returned to the franchisor. This can come as a shock if you’ve spent years building what feels like “your” business.

The Reality of Following Someone Else’s Playbook

As a franchisee, there’s usually a strict obligation to operate the business in accordance with the franchisor’s operations manual and prescribed procedures. This requirement is fundamental to the franchise model, as recognised by the Franchise Council of Australia, as it ensures consistency and quality across all franchise locations, protecting the reputation and value of the brand.

Unlike an independent business owner who can pivot and adapt as they see fit, you don’t have the freedom to make significant changes to the way the business is run. You must adhere to the franchisor’s systems, processes, and standards at all times. While this can provide valuable structure and proven systems, it can also feel restrictive if you’re naturally entrepreneurial.

Failure to comply with these requirements can result in breaches of the franchise agreement, which may lead to penalties or even termination of the franchise. That’s why understanding these obligations upfront is so critical.

Key Questions to Consider Before Signing

If you’re thinking about becoming a franchisee, you need expert legal advice about crucial matters including:

• What will it really cost you in the beginning, including hidden or unexpected fees?
• What your ongoing costs will be during the term of the agreement
• What happens when the agreement comes to an end, and what you’ll walk away with
• The specific manner in which you’re allowed to run the business day-to-day
• Your options if things don’t work out as planned

Beyond legal advice, the NSW Small Business Commissioner offers additional resources and support for prospective franchisees in NSW.

Get Expert Legal Advice Before You Commit

Franchise agreements are complex legal documents that can bind you for years and affect your financial future. Don’t sign before you check the fine print. Our experienced business law team can review your franchise agreement, explain your obligations in plain English, and help you understand whether this opportunity aligns with your business goals.

Ready to discuss your franchise opportunity? Book a consultation with our team today. We’ll help you understand exactly what you’re signing up for, so you can make an informed decision about your business future.