How to become a franchisee: Key steps and what to consider

Published Thursday 11 September 2025

Table of contents

• Franchise reality check
• Becoming a franchisee can be hard
• Questions for you
• Understanding franchise costs and financing
• Questions for the franchisor
• Questions for other franchisees
• Questions for a lawyer
• Questions for an accountant
• Taking the next step in franchise ownership
• FAQs on becoming a franchisee

Key takeaways

• Conduct thorough due diligence by speaking with multiple franchisees, reviewing financial performance data, and asking specific questions about profitability rates, common challenges, and key performance indicators before making your investment decision.
• Assess your financial capacity and risk tolerance honestly, ensuring you can handle not only the initial franchise fee and setup costs but also ongoing royalties, marketing fees, and operational expenses during the business growth phase.
• Engage franchise-experienced legal and accounting professionals to review the franchise agreement and financial projections, as they understand industry-specific requirements and can identify potential red flags that general advisors might miss.
• Evaluate whether the franchise's operational requirements and management style align with your preferences, as successful franchising requires genuine enthusiasm for the brand and comfort

Franchise reality check

Franchise risks are the potential downsides and challenges that come with buying into an established business system. While franchises reduce some startup uncertainty, they create new financial and operational obligations.

Key franchise risks include:

• High startup costs: initial franchise fees plus setup expenses
• Ongoing financial obligations: monthly royalties and marketing fees
• Staffing requirements: immediate need for employees and payroll management
• Limited business control: strict operational guidelines and brand requirements
• Sales pressure: high-volume, low-margin business model expectations
• High startup costs: Initial franchise fees plus setup expenses
• Ongoing financial obligations: Monthly royalties and marketing fees
• Staffing requirements: Immediate need for employees and payroll management
• Limited business control: Strict operational guidelines and brand requirements
• Sales pressure: High-volume, low-margin business model expectations

Not all franchises offer the same level of support. Look for those that provide strong advice, support, and proven business systems.

Becoming a franchisee can be hard

Self-assessment is the critical first step in franchise evaluation. Before investing significant time and money, you need to honestly evaluate your readiness for franchise ownership.

Key areas to assess:

• Financial capacity: Can you handle the initial investment and ongoing costs?
• Risk tolerance: Are you comfortable with debt and business uncertainty?
• Management style: Do you work well within structured systems?
• Decide what level of support you need. Do you prefer to work independently, or do you want detailed guidance from the franchisor?
• Consider your risk tolerance. Are you comfortable taking on debt to buy into the franchise and hire staff? Franchises often have higher overheads than starting as a sole trader.
• Get to know the franchisor. Speak with other franchisees and check their reputation to ensure you feel confident working with them.
• Decide how much freedom you want in running the business. Choose a franchisor whose management style matches your approach.
• Work out how much you can invest. Plan for launch costs, ongoing fees, and a realistic budget to support your business as it grows.

Understanding franchise costs and financing

Before you dive in, it's important to get a clear picture of the costs involved. Franchising isn't just about the initial purchase price. You'll need to budget for a range of expenses to get started and keep the business running smoothly.

Common franchise costs include:

• Initial franchise fee: A one-time payment to the franchisor for the right to use their brand and systems.
• Setup costs: This can include fitting out your premises, buying equipment, and initial inventory.
• Ongoing royalties: A regular percentage of your revenue paid to the franchisor for their ongoing support.
• Marketing fees: Contributions to a central marketing fund that promotes the brand.

Consider options like a business loan, personal savings, or investment to cover these costs. Ask an accountant to help you create a realistic budget and find the best way to finance your franchise.

Questions for the franchisor

Franchisor due diligence means thoroughly investigating the franchise company's business health and support quality. A reputable franchisor welcomes detailed questions because they want successful franchisees.

Your investigation should cover their financial stability, growth track record, and ongoing support systems.

How's the business doing?

Business performance data reveals the franchise system's financial health and growth trajectory.

Request these key documents:

• Financial reports: Current sales, revenue, and profit data
• Growth metrics: New location openings and system expansion
• Future projections: Forecasts and business goals (verify assumptions)
• Management credentials: Leadership team experience and track record

Focus on actual performance data, as projections are only estimates.

What's the outlook for new franchisees?

Franchisee performance data shows how individual locations perform financially and operationally.

Essential questions to ask:

• Profitability rates: What percentage of franchisees are profitable?
• Revenue models: How do they predict earnings for new locations?
• Operating costs: What does a typical franchisee budget include?
• Performance benchmarks: What are average sales figures by location type?

Some franchises may not have detailed data available. Make sure you are comfortable with the level of information provided before you decide.

How strong is your data?

Ask for details about market research and financial projections to check the data is reliable. Ask questions such as:

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

If you want help understanding the data, ask an accountant to review it with you.

What are the main teething problems?

Ask them what franchisees struggle with in the early days. A supportive franchisor will share this information to help you avoid common challenges. If you do not receive clear guidance, ask for more details or examples.

What are the key performance indicators (key performance indicators (KPIs))?

The franchisor should know what drives success in their business and share these key performance indicators (KPIs) with you. Focusing on these 3–5 KPIs can help you succeed.

Can I speak to other franchisees?

Franchisee references provide real-world insights into daily operations and franchisor support quality.

How to approach franchisee interviews:

• Request specific matches: Ask for franchisees in similar markets or demographics
• Seek multiple perspectives: Don't accept just one or two references
• Choose your contacts: Request additional names if initial suggestions don't match your situation

Plan comprehensive discussions: Spend substantial time with at least one franchisee

Do you provide proven business systems?

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

• recruitment
• payroll
• marketing
• customer service
• health and safety

It's even better if they give you access to automated systems for things like accounting, time-recording, payroll, inventory management and customer relationship management. Efficient systems for these business functions can save you a lot of 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

Franchisors may introduce you to franchisees they have a good relationship with. Try to speak with a range of franchisees to get a balanced view. This research is valuable before you become a franchisee.

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?

Ask franchisees about the challenges they face and how they overcome them. Find out if they are satisfied with the franchisor’s support and communication.

Questions for a lawyer

Legal review of your franchise agreement is essential because this contract governs your entire business relationship. The agreement defines your rights, obligations, and exit options.

Why professional legal help matters:

• Franchise-specific expertise: Specialised lawyers understand industry standards
• Red flag identification: They spot problematic clauses quickly
• Contract interpretation: Complex legal language needs professional translation
• Protection planning: Your only recourse if problems arise is what's in writing

Does this agreement say what I think it does?

Share your understanding of the agreement with your lawyer. Ask if the document matches your expectations and clarify any differences with the franchisor.

What happens if things don't work out?

Consider what would happen if you decide to leave the business. Ask about your options for selling the franchise, how debts are handled, and what the franchisor would pay if they buy it back.

Review the agreement carefully before you sign, so you understand your financial obligations and options if you choose to exit the franchise.

Questions for a franchise-experienced accountant

Franchise-experienced accountants understand the unique financial structure and tax implications of franchise businesses. They provide specialised guidance that general accountants might miss, as their professional training can include workshops focused on essential business management and regulatory obligations.

Benefits of franchise-specific accounting expertise:

• Tax optimisation: Knowledge of franchise-specific deductions and obligations
• Financial benchmarking: Understanding of typical franchise financial performance
• System familiarity: Experience with your specific franchise's financial model
• Peer insights: Access to performance data from similar franchisees

Ask them:

• how best to structure your finance
• what key performance indicators to use
• how to track those KPIs
• how to automate business functions like payroll, POS and accounting data entry

Read our franchise accounting tips for more.

Taking the next step in franchise ownership

Franchise ownership misconceptions can lead to costly mistakes. Franchising requires commitment and genuine enthusiasm to succeed.

Essential mindset requirements:

• Product passion: Genuine belief in what you're selling
• Brand alignment: Comfort with the company's values and approach
• Work commitment: Readiness for long hours and hands-on management
• Business dedication: Treating it as a serious business venture, not a passive investment

Use every bit of information you can gather to make a smart decision. Including this information in your business plan can help you see the opportunities and drawbacks. Get professional advice from a lawyer and an accountant before you commit, so you understand all the details.

Once you're up and running, having clear financial visibility is key to your success. With tools like Xero, you can easily track your performance, manage cash flow, and stay on top of your finances, giving you more time to focus on growing your business. Try Xero for free to see how it can support your new venture.

FAQs on becoming a franchisee

How do you become a franchisee?

1. Assess if you are a good fit for franchise ownership
2. Research different franchise opportunities
3. Secure financing
4. Complete due diligence by speaking with the franchisor and other franchisees
5. Review the franchise agreement with a lawyer
6. Sign the contract

What does it cost to start a franchise?

Costs vary widely depending on the brand, industry, and location. You can expect an initial franchise fee, plus costs for setting up your location, purchasing inventory, and working capital. Total investment can range from a few thousand dollars to over a million.

Which franchise is most profitable?

Profitability depends on factors like industry, location, and your management skills. Look for a franchise that matches your skills and interests, offers strong support, and has a track record of consistent performance.