Franchising sells a proven system. What it doesn't sell is a guaranteed profit. The brand, the fit-out and the training all come with fixed costs that run whether you have a good week or a bad one: royalties on every dollar of sales, a marketing levy, rent, and wages set by an award. The difference between a good franchise and a trap is usually visible in the numbers before you sign, if someone looks.
What goes wrong for franchisees?
These are the problems we see most often.
- Paying too much for an existing store. The price is based on a profit figure that includes the owner working 70 unpaid hours a week, or a year with an unusual spike.
- Royalties on sales, not profit. A royalty and marketing levy taken from gross sales doesn't shrink when margins do. A store with thin margins can be turning over well and still losing money.
- Wages underestimated. Retail and food franchises run on award staff with penalty rates. Getting the roster cost wrong by a few percentage points of sales wipes out the profit.
- Leases that outlast the franchise. A lease term, rent review or make-good obligation that doesn't line up with the franchise agreement.
- Refurbishment and renewal costs that the franchisor can require part-way through the term.
- Award underpayments. The Fair Work Ombudsman has focused on franchise networks for years, and franchisors can be liable for their franchisees' breaches, so many now audit their network.
What do we do for franchisees?
Before you buy:
- Review the disclosure document and agreement from a financial angle: fees, levies, required suppliers, refurbishment obligations, transfer and exit costs.
- Test the franchisor's earnings information or the seller's figures against point-of-sale data, bank statements, BAS and tax returns.
- Build a monthly profit and cash flow model for your site, including your own wage.
- Check the purchase price allocation (goodwill, plant, stock) and whether the sale can be GST-free as a going concern.
- Recommend a structure before anything is signed.
Our business purchase due diligence agent works through the documents and produces a red-flag risk register. A qualified accountant reviews every flag with you. The legal review of the agreement and lease is done by your franchise lawyer; we brief them on what the numbers show.
Once you're trading:
- Bookkeeping in Xero, updated daily, in the chart of accounts the franchisor requires
- BAS, payroll, Payday Super and single touch payroll
- Monthly management reports against your budget and the network's benchmarks
- Tax returns for your company, trust and you personally
- Annual award compliance checks
Which numbers should a franchisee watch?
These are the measures we report on monthly. Most franchisors give you some of them; we add the ones that tell you whether you are actually making money.
| KPI | Why it matters | Typical way to measure |
|---|---|---|
| Weekly sales and like-for-like growth | Trend you can act on fast | This week vs same week last year |
| Gross margin (sales less cost of goods) | Waste, theft, supplier pricing | (Sales − COGS) ÷ sales |
| Wages as % of sales | The cost you control most | Total wages, super and payroll tax ÷ sales |
| Occupancy as % of sales | Whether the site can carry its rent | Rent, outgoings and make-good provision ÷ sales |
| Franchise fees as % of sales | Fixed drag on every dollar | Royalties + marketing levy + tech fees ÷ sales |
| Break-even sales per week | The number you must beat | Fixed costs ÷ gross margin % (after variable fees) |
| Average transaction value and customer count | Why sales moved | Sales ÷ transactions |
| Owner's real return | Whether this beats a job | Profit after a market wage for your own hours |
Worked example: what's left after the fees
Say a food franchise turns over $1,200,000 a year. These percentages are hypothetical but common.
| Line | % of sales | $ a year |
|---|---|---|
| Sales | 100% | 1,200,000 |
| Cost of goods | 30% | (360,000) |
| Wages, super and on-costs | 32% | (384,000) |
| Rent and outgoings | 10% | (120,000) |
| Royalty | 6% | (72,000) |
| Marketing levy | 2% | (24,000) |
| Other running costs | 8% | (96,000) |
| Profit before your wage, interest and depreciation | 12% | 144,000 |
Pay yourself a market wage of $90,000 for the hours you work and the store makes $54,000. If you paid $450,000 for it, that's roughly an eight-year payback before interest and tax. Now move wages from 32% to 35% of sales, which is a few extra shifts a week, and the profit after your wage falls to $18,000. That sensitivity is exactly what we test before you buy.
What does the Franchising Code require before you sign?
The Franchising Code of Conduct gives you documents and time. The franchisor must give you an information statement within 7 days of you expressing interest. You must receive the franchise agreement, the disclosure document and a copy of the Code at least 14 days before you sign, and nobody can sign during that 14-day period. If there is a marketing or other specific-purpose fund, the franchisor must prepare an annual statement within 4 months of the end of its financial year and give it to franchisees within 30 days after that.
Use those 14 days. The disclosure document lists current and former franchisees; call some, especially the ones who left.
How are franchise fees and royalties taxed?
The ATO's position is clear on the main items.
| Payment | Income tax | GST |
|---|---|---|
| Upfront establishment fee | Not deductible. It forms part of the cost base of your franchise rights, a capital asset | GST credit if the franchisor charges GST and you're registered |
| Transfer fee when buying an existing franchise | Not deductible; added to the cost base | GST credit as above |
| Renewal fee | Generally not deductible where it forms part of the cost base | GST credit as above |
| Ongoing royalties | Deductible | GST credit |
| Marketing or advertising levy | Deductible | GST credit |
| Ongoing training fees for staff | Deductible | GST credit |
| Fit-out and equipment | Depreciated; items under $20,000 may qualify for the instant asset write-off | GST credit |
Two traps to watch. If the franchisor is overseas and you pay royalties or interest to it, you may need to withhold tax and report it. And when you buy an existing store, the way the price is split between goodwill, plant and stock changes your future deductions, so agree the allocation in the contract rather than leaving it to guesswork.
The $20,000 instant asset write-off is permanent law from 1 July 2026 for businesses with aggregated turnover under $10 million. More in our guide to the instant asset write-off.
Why is award compliance such a big deal in franchising?
Because the law reaches past you. Under the Fair Work Act, a franchisor with significant influence or control over its franchisees can be liable for their underpayments if it knew or should reasonably have known and didn't take reasonable steps to stop them. That's why many franchisors now run payroll audits and can treat underpayment as a breach of the franchise agreement.
For you, the exposure is back pay, super, interest and penalties, and in serious cases the end of the franchise. Our award underpayment audit agent checks every employee's pay against the award and quantifies any back pay and super shortfall. A qualified accountant reviews it with you, and an employment lawyer is involved where needed. Since 1 July 2026, under Payday Super, super must also be paid close to each payday; see our payday super guide and our employment and award compliance service.
What is the best structure for a franchise?
Many franchisors require a company to sign the franchise agreement, with you giving a personal guarantee. A common setup for a profitable store:
| Option | Suits | Main catch |
|---|---|---|
| Company owned by you personally | One store, simple | Profit stuck in the company is taxed again when paid out |
| Company owned by a family trust | Profitable store, family to share income | Trust running costs; annual resolutions; the proposed 2028 trust tax, which is a Bill and not law |
| Separate company for each site | Multi-site owners | Payroll tax grouping still adds up wages across related businesses |
Personal guarantees on the lease and franchise agreement sit outside any structure, so don't assume a company protects your house from those debts. Check with the franchisor that your preferred structure is acceptable before you sign, because changing the franchisee entity later can trigger transfer fees. Our business structure advice and guide to sole trader vs company vs trust go further.
Multi-site owners should also watch state payroll tax. Thresholds differ by state; see our payroll tax guide.
How does working with BPAG work?
- Free strategy call. Tell us what you're looking at. If the numbers don't stack up, we'll say so early.
- Due diligence and model for a fixed fee agreed upfront, delivered before your 14 days run out.
- Set-up. Entity registrations, ABN, GST, PAYG withholding, Xero, payroll and the franchisor's reporting.
- Ongoing. Daily bookkeeping, BAS, payroll and monthly reports, with an annual tax plan before 30 June.
Most single-store franchisees sit on Business Insights, which includes weekly payroll for up to 10 staff and monthly management reports. See our pricing. If the franchisor's system already produces good reports and you have few staff, Compliance Essentials may be enough.
"It's been wonderful working with the BPAG team! They are true experts and have provided incredibly valuable business advisory and tax services, helping my business grow." Mitchell King, Google review
What should you send us?
If you're buying: - Information statement, disclosure document and draft franchise agreement - The lease or the agreement for lease, with any incentives - The franchisor's earnings information, or for an existing store: two to three years of profit and loss, BAS, point-of-sale reports and bank statements - Staff list with award classifications, hours and pay rates - Asset list and the proposed price and allocation - Your own finance approval or loan terms
If you're already trading: - Xero access and the franchisor's reporting requirements - Payroll records and rosters for the last 12 months - The latest marketing fund statement - Your franchise agreement, so we know the renewal and refurbishment dates
When you come to sell, start with our guide to tax on selling a business.
Frequently asked questions
Should I buy a new franchise site or an existing one?
An existing store has a trading history you can test, which removes a lot of guesswork, but you'll pay for its goodwill and inherit its staff, lease and equipment. A new site is cheaper to enter but its sales are a forecast. Either way, insist on real sales data from the point-of-sale system and the bank statements, not just a summary.
Can I use my own accountant if the franchisor recommends one?
Usually yes. Some franchisors require you to use a particular chart of accounts, software or reporting format, and we can work within that. Read the agreement to check what reporting you must provide and when, because missing it can be a breach.
Is the GST on my franchise fees claimable?
If you're registered for GST and the franchisor charges GST, you can generally claim a GST credit for the GST on the upfront fee, royalties, marketing levies, training and transfer fees. You need a valid tax invoice. Claiming the GST back doesn't make the upfront fee itself deductible for income tax.
What happens to tax when I sell my franchise?
The sale is usually a CGT event for the goodwill and franchise rights, and the sale can often be GST-free as a going concern if the conditions are met. The small business CGT concessions may reduce the gain significantly. Plan the sale a year or two out, because structure and timing change the result.
How much should I have in working capital?
Enough to carry the store through the ramp-up and a slow quarter without missing wages, rent or royalties. We build a monthly cash flow forecast for the first 12 to 24 months, so you can see the lowest point in your bank balance before you commit.
Official sources
General information only, current as at 18 October 2026. It is not personal tax, legal or financial product advice and doesn't take your circumstances into account. Talk to us before you act. Where a recommendation needs a licensed financial adviser or a solicitor, we work alongside them.