Franchisee guide: Key questions before joining a franchise

Published Tuesday 9 September 2025

Table of contents

• What is a franchisee?
• Franchise reality check
• Becoming a franchisee can be hard
• Questions for you
• Questions for the franchisor
• Questions for other franchisees
• Questions for a lawyer
• Questions for an accountant
• Getting your franchise finances right
• FAQs on becoming a franchisee

Key takeaways

• Evaluate your financial capacity thoroughly by calculating not just initial franchise fees and setup costs, but also ongoing monthly franchise fees, operational expenses, and ensuring you have sufficient cash flow to survive the first few lean months while revenue builds.
• Conduct comprehensive due diligence by speaking directly with multiple existing franchisees in similar markets, spending at least one full day with operators to understand real-world challenges, profitability, and the quality of franchisor support beyond their preferred references.
• Secure professional guidance from lawyers with specific franchise experience and accountants familiar with franchise financial structures before signing any agreements, as these contracts define all your rights, obligations, and exit options with limited room for negotiation later.
• Assess the franchisor's business model strength by requesting detailed financial data including current performance metrics, franchisee profit margins, proven business systems, and clear key performance indicators that demonstrate their commitment to franchisee success.

What is a franchisee?

A franchisee is a person or business that buys the right to use a larger company's brand, products, and business systems. You pay a fee to the main company, known as the franchisor, to open your own branch of their established business.

For example, if you open a new location of a well-known coffee chain, you are the franchisee. This lets you start with a recognised brand instead of building one from scratch.

Franchise reality check

Franchise risks are the potential financial and operational challenges that can impact your success as a franchisee. Key risks include:

• Pay high startup costs, including initial franchise fees, equipment and setup expenses
• Meet ongoing financial obligations, such as monthly franchise fees and staffing costs
• Manage performance pressure from demanding sales targets in low-margin businesses
• Operate with limited autonomy, as most agreements exclude franchisee goodwill
• Rely on variable support quality, as some franchisors provide minimal ongoing assistance

Not all franchises offer the same level of support. Some provide strong advice, support and business systems, while others offer less guidance, so it’s important to check what’s included.

Becoming a franchisee can be hard

Successful franchises typically have higher standards for potential franchisees because they protect their proven business model, and this selectivity exists in an environment where the total number of franchisees declined by 5.2 per cent from 2014 to 2023.

Quality franchisors with consistently profitable locations often require:

• Bring business experience, such as management or entrepreneurial background
• Understand the specific market or service area
• Show enthusiasm for representing and promoting the franchise

If you join a successful franchise chain, you may have limited control over the business. Ask questions to make sure the franchise is right for you.

Here are some questions for you, the franchisor, other franchisees, an accountant, and a lawyer.

Things to consider when becoming a franchisee

When you own a franchise, you need to assess three major commitment areas before proceeding.

Financial commitment: Significant upfront investment plus ongoing fees and operational costs.

Legal commitment: Binding contractual obligations that limit your business autonomy.

Personal commitment: Intensive work requirements and long-term business involvement.

Other areas to consider:

• Decide what level of support you need. Are you comfortable taking the initiative and figuring things out on your own, or do you want a franchise that provides a detailed manual?
• Assess how much risk you are comfortable with. Will you be comfortable taking on debt to buy into the franchise and hire staff? This is not like starting as a sole trader, where overheads can be relatively low.
• Check if you trust the franchisor. Get to know them, check they are not involved in court proceedings, ask other franchisees about their experience, and make sure you will work well together.
• Decide how you want to run the business. Some franchisors give you a lot of freedom, others set strict parameters. Make sure their management style fits your personality.

Work out how much you can afford. The first few months may be lean, with launch costs, ongoing franchise fees, and low income as revenue builds. Make sure your first budget is realistic and check that you have enough cash (or finance) to get through it.

Questions for the franchisor

When you evaluate the franchisor, you can see whether the company has a sustainable business model and is committed to franchisee success. Quality franchisors welcome thorough questioning because they want informed, committed partners.

How's the business doing?

Business performance data reveals the franchisor's financial health and growth trajectory, which is critical as many of the 1,712 franchisors operating in Australia have a turnover of less than A$10 million. Request:

• Review current financials, including sales reports, revenue figures and growth rates
• Check future projections, such as forecasts and expansion goals (treat as estimates, not guarantees)
• Assess leadership credentials, including management team backgrounds and industry experience

What's the outlook for new franchisees?

Franchisee profitability data shows whether existing operators are financially successful. Ask for:

• Profit margins: Average earnings across different locations and timeframes
• Operating budgets: Detailed cost breakdowns including all fees and expenses
• Revenue models: Location-specific earning predictions and performance benchmarks

If the franchisor cannot provide much data, your investment risk is higher and you need to be comfortable with uncertainty.

How strong is your data?

A franchisor may show you market research and financial projections but don't accept it at face value. Make sure the data is reliable by asking:

• when the research was done
• how many customers (or stores) were involved in the study
• what the assumptions were

If you're not confident interpreting data that they give you, take a copy to an accountant.

What are the main teething problems?

Ask them what franchisees struggle with in the early days. A good franchisor will be happy to share this information. They'll want you to avoid common traps and pitfalls. If they can't give you specific direction, it's a sign they're not concerned about their franchisees.

What are the key performance indicators (KPIs)?

These will be three to five key things that, if you get them right, will greatly increase your chance of success.

Can I speak to other franchisees?

Speak to franchisees in similar locations before you decide. If the franchisor’s list does not include relevant contacts, ask for more options.

Do you provide proven business systems?

See if the business has established processes to guide you through things such as:

• Manage recruitment
• Run payroll
• Carry out marketing
• Deliver customer service
• Maintain health and safety

It is even better if they provide automated systems for accounting, time recording, payroll, inventory management and customer relationship management. Efficient systems for these business functions can save you time and money and increase your chance of success.

How will growth be handled?

Will the franchisor provide good marketing support to help grow the business? And when growth happens, how will the franchisor manage it? You probably don't want another franchisee to move in across the road, so see if you'll get exclusive access to the local market.

Questions for other franchisees

When you interview franchisees, you get unfiltered insights into day-to-day operations and franchisor relationships.

Speak with multiple recommended franchisees, spending at least one full day with operators in similar markets

Find additional franchisees on your own to get more balanced perspectives beyond the franchisor's preferred contacts

How did you get through your first year?

This is like the 'teething problems' question you asked the franchisor. It'll be reassuring if the answers are similar but you might get some more practical insights from the franchisee.

What are your KPIs?

If they list just 3–5 KPIs, you'll know you're dealing with a savvy, focused business. The franchisee should give you many of the same KPIs as the franchisor.

What are your big challenges?

Every business has challenges. Ask franchisees where they face difficulties, especially those that affect costs or revenue. Also, ask about their experience with the franchisor’s support and communication.

Questions for a lawyer

You need to review the franchise agreement carefully because it defines all your rights, obligations and protections as a business owner. Use a lawyer with specific franchise experience who understands industry standards and can identify problematic clauses.Make sure you understand the agreement thoroughly before signing, as it becomes your only recourse if disputes arise.

Does this agreement say what I think it does?

Before you hire a lawyer, you may have already researched your rights and responsibilities. Share your understanding with the lawyer and ask if the agreement matches it. If there are differences, ask the franchisor for clarification.

What happens if things don't work out?

Even if you are excited about the business, consider what could go wrong. Ask how you can exit the franchise, how debts will be handled, and what happens if the franchisor buys back your franchise. Clear exit terms protect you if circumstances change.

Use Xero to get your franchise finances right

Franchise ownership requires genuine passion for the business model and significant personal commitment, not just perceived safety.

When you make your decision, follow these steps:

• Gather all available data from multiple sources
• Secure legal and accounting advice before signing
• Document your analysis to identify opportunities and risks

Xero cloud-based accounting software can help you track your financial performance and support informed decision-making throughout your franchise journey.

Try Xero for free at the end of the section.

FAQs on becoming a franchisee

Here are answers to some common questions about becoming a franchisee.

What is the difference between a franchisee and a franchisor?

A franchisee is the individual or company that buys the right to operate a business under the franchisor's brand and system. The franchisor is the original company that owns the brand and licenses it out.

What is the main role of a franchisee?

The main role of a franchisee is to run the day-to-day operations of their specific location. This includes managing staff, serving customers, and following the business model and quality standards set by the franchisor.

Is buying a franchise less risky than starting my own business?

It can be. You're buying into a proven business model with brand recognition, which can reduce some risks. However, it also comes with high startup costs, ongoing fees, and less control, so it's important to do your research.