Author: Juston Jirwander

“The more I help others succeed, the more I succeed” – Ray Kroc, McDonald’s Founder

As chartered accountants who have had the privilege of guiding numerous business owners through their entrepreneurial journeys, we recognise that purchasing a franchise is a thrilling yet complex endeavour for any aspiring business owner.

At Bishop Collins, we firmly believe that no one should feel isolated in their business journey. We are here to help guide you in navigating the intricate landscape of franchise ownership in Australia.

This article is designed to provide you with valuable insights into the critical elements of franchise purchase.

You’ll gain a deeper understanding of what a franchise business model provides, learn how to evaluate various business opportunities, and discover how to make well-informed decisions that will set you on the path to your own business success as a franchise owner in Australia.

Understanding Franchise Businesses in Australia

A franchise business model offers aspiring business owners the chance to operate under an established brand with proven systems and processes.

In Australia, the franchise sector is a vital part of the economy, with over 1,200 franchise systems nationwide, offering diverse franchise opportunities for potential franchisees.

What is Franchising?

Franchising is a business structure where an individual or group (franchisee) pays a licensing fee to trade using the branding, trademarks, products, suppliers, and systems of an established business (franchisor).

This arrangement allows the franchisee to operate a business with a proven business model, leveraging the established brand and ongoing support from the franchisor.

Unlike starting your own business from scratch or buying an existing business, franchising offers a lower-risk option for entrepreneurs. By adopting a business model that has already demonstrated success, franchisees can benefit from the franchisor’s experience, resources, and market presence.

How Does a Franchise Work?

When you buy a franchise, you’re essentially purchasing the right to operate a business under the franchisor’s brand and system. This includes:

• Access to established business systems and processes (like McDonald’s detailed operating procedures)
• Use of the brand name and trademark
• Ongoing support and training
• Marketing and advertising assistance (such as Boost Juice’s national marketing campaigns)
• Supply chain and operational support

Benefits of Buying a Franchise

Buying a franchise offers several compelling benefits for aspiring business owners:

• Proven Business Model: Franchisees gain access to a business model that has been tried and tested, reducing the uncertainties associated with starting a new business.
• Established Brand: Operating under a well-known brand can attract customers more easily than building a brand from the ground up.
• Ongoing Support and Training: Franchisors provide continuous support and training, helping franchisees navigate challenges and maintain operational standards.
• Lower Risk: Compared to starting a new business, buying a franchise typically involves lower risk due to the established systems and support provided by the franchisor.
• Network Opportunities: Being part of a larger network of franchisees offers opportunities for collaboration, shared learning, and mutual support.

These benefits make buying a franchise an attractive option for those looking to enter the business world with a higher chance of success.

Key Considerations Before Making Your Purchase

Financial Considerations

Before diving into franchise ownership, it’s important to first understand the financial implications. The Australian Taxation Office (ATO) outlines several tax considerations for franchisees, including:

• Initial franchise fees
• Ongoing franchise fees and royalties
• GST obligations
• Income tax responsibilities
• Capital gains tax implications

Due Diligence Checklist

As your business advisers, we recommend thoroughly investigating these aspects:

1. Financial Performance

• Historical financial statements – Review at least three years of profit and loss statements, balance sheets, and cash flow statements of a comparable Franchisee location to identify trends and potential red flags
• Projected cash flows – Examine weekly and monthly projections for the first year, including seasonal variations and potential quiet periods
• Working capital requirements – Calculate specific amounts needed for stock, staff wages, rent, and other operating expenses for at least the first six months. Your Franchisor should supply you with these numbers. Review these with the help of a Chartered Accountant to ensure they are realistic and supported by evidence of other franchisee operations in comparable locations.
• Break-even analysis – Determine the exact sales volume needed to cover all costs, including franchise fees and loan repayments

2. Legal Documentation

• Franchise agreement – Review key terms including length of agreement, renewal options, and performance requirements with particular attention to termination clauses
• Franchise disclosure document – Examine the franchisor’s financial position, history of disputes, and current franchisee network details as required by the Code of Conduct
• Territory rights – Understand specific geographical boundaries and any online trading restrictions, including protections against other franchisees in your area
• Exit conditions – Evaluate goodwill payments, asset transfer requirements, and non-compete clauses that might affect your ability to sell or leave the business

3. Market Analysis

• Local competition – Map out direct competitors within your territory, including other franchises and independent businesses offering similar products or services
• Target market potential – Analyse local demographic data including income levels, age groups, and spending patterns that align with your franchise’s target customer
• Territory demographics – Review population growth projections, local development plans, and changes in area demographics that could impact future performance
• Growth opportunities – Identify potential for multi-unit ownership, territory expansion, or complementary service additions within your agreement’s terms

Examples of Common Franchise System Arrangements

To better understand how franchises work, let’s explore two common arrangements in a bit more detail:

McDonald’s: The Global Fast-Food Giant

McDonald’s is an iconic example of a business format franchise agreement, where franchisees receive a complete blueprint for running the business, from operational systems to marketing and menu offerings.

• Support: Franchisees benefit from McDonald’s extensive training programs, global brand recognition, and ongoing operational guidance.
• Investment: In Australia, the initial cost to open a McDonald’s franchise can exceed $1.5 million, including the franchise fee and fit-out costs. Additionally, franchisees pay ongoing royalties based on gross sales.
• Commitments: Franchisees must adhere to strict operational standards, use approved suppliers, and follow corporate branding guidelines.

Jim’s Group: A Trusted Australian Brand

Jim’s Group is a homegrown Australian success story offering a variety of mobile service franchises, including Jim’s Mowing, Cleaning, and Dog Wash.

• Support: Franchisees gain access to a well-established customer base, marketing systems, and training programs tailored to the specific service industry.
• Investment: With upfront costs starting as low as $20,000 for some divisions, Jim’s Group is an affordable entry point for those new to franchising.
• Commitments: Franchisees operate under the Jim’s Group name and adhere to service quality standards. However, they often have more operational flexibility than business format franchises like McDonald’s.

These examples highlight the diverse opportunities in franchising, from structured systems to flexible arrangements.

Franchising Code of Conduct

The Franchising Code of Conduct is a mandatory industry code under the Competition and Consumer Act 2010 designed to protect franchisees and ensure fair dealings in the franchise sector. Administered by the Australian Competition and Consumer Commission (ACCC), the Code establishes essential guidelines for franchisors and franchisees, particularly for transparency during the pre-contractual phase.

Under the Code, franchisors must provide prospective franchisees with five key documents at least 14 days before signing a franchise agreement or paying any non-refundable fee. These documents are:

1. The franchise agreement
2. The disclosure document (containing critical details about the franchise system, costs, and obligations)
3. The information statement for prospective franchisees (outlining key risks and considerations when entering a franchise agreement)
4. The Key Facts Sheet (a summary of key financial and operational information)
5. A copy of the Franchising Code of Conduct

These requirements ensure that prospective franchisees have sufficient time and access to all necessary information to make informed business decisions before committing to a franchise opportunity.

Tax Planning for Your Franchise Agreement

The ATO provides specific guidance for franchise businesses. Here are just some of the key tax considerations, but it is always best to seek the guidance of a tax professional like Bishop Collins to ensure you are maximising your tax deduction and minimising your tax liabilities:

Deductible Expenses

• Initial franchise fees (usually capital in nature)
• Ongoing franchise fees
• Training costs
• Marketing contributions
• Equipment purchases

GST Considerations

• Registration requirements
• Reporting obligations
• Input tax credits

Owning Your Own Business: Making Your Decision

When evaluating a franchise agreement, here are a few things to consider before jumping in the deep end:

1. Self-Assessment

Reflect on your skills, interests, and financial capacity. Owning a franchise demands dedication, adherence to established systems, and often a substantial financial investment. Ensure that the franchise aligns with your personal and professional goals.

2. Research the Franchise

Investigate the franchise’s market presence, financial health, and reputation before entering a franchise agreement. Engage with current and former franchisees to gain insights into their experiences and assess the level of support provided by the franchisor.

3. Understand the Costs

Beyond the initial franchise fee, be prepared for ongoing expenses such as royalties, advertising levies, and operational costs. For example, franchises like 7-Eleven may require significant investment but offer benefits like guaranteed income, which can offset initial costs.

4. Legal and Financial Advice

Consult with professionals to review the franchise agreement, disclosure documents, and financial projections. This step is very important for understanding your obligations and the franchise’s legal framework.

5. Training and Support

Evaluate the training programs and ongoing support the franchisor offers. Comprehensive training is vital for understanding the business operations and ensuring consistency across the franchise network.

How We Can Help

At Bishop Collins, we specialise in helping business owners make informed decisions about franchise agreements. Our expertise includes:

• Financial due diligence
• Tax structure optimisation
• Business planning
• Ongoing accounting and tax compliance
• Wealth management strategies

Moving Forward with Buying A Franchise

Making the decision to buy a franchise is exciting and, at times, overwhelming. But you don’t have to navigate it alone.

Our experienced team at Bishop Collins has the expertise to guide you through each step of the process, ensuring you make informed decisions that align with your goals.

Ready to explore franchise ownership? Contact our team of experts at Bishop Collins. We’ll help you evaluate your options and create a strategic plan for success.

“In business, opportunities don’t happen. You create them.” – Chris Grosser

For growth-focused business owners and high-net-worth individuals, purchasing an established company in Australia represents a calculated step toward scaling operations, diversifying investments, and achieving long-term financial growth.

Acquiring a business with proven systems, market presence, and profitability allows you to build on an existing foundation, accelerating your path to success.

However, success requires a disciplined approach. From finding the right business to negotiating a deal and knowing how you can improve that business with your skills and resources. This will require careful planning to minimise risks and maximise potential.

Why Buying a Business is a Growth-Focused Strategy

For ambitious investors and entrepreneurs, buying an established company offers distinct advantages:

• Proven Revenue Streams: Avoid the risks of start-ups by investing in a business with a track record of profitability.
• Scalability: Access established infrastructure, customer relationships, and supply chains to support growth.
• Strategic Diversification: Expand into new markets or complement existing ventures to build a robust portfolio.
• Efficient Entry: Bypass the high costs of setup, staff recruitment, and brand building with a ready-made business.

Yet, even with these benefits, buying a business requires a sharp focus on detail.

Key challenges include identifying overvalued goodwill, managing inherited liabilities, and ensuring the business is primed for your future goals.

How to Approach an Existing Business Acquisition Strategically

1. Identify the Right Business Opportunity

Begin with clarity about your goals. Are you seeking to:

• Diversify your investment portfolio?
• Expand your market reach and sales channels or product offering?
• Acquire intellectual property to complement your existing operations?

Look for opportunities that align with your vision. Factors such as the industry’s growth trajectory, the business’s geographic location, and its customer base are crucial.

2. Perform Rigorous Due Diligence

Due diligence is essential to evaluate the business’s value and ensure its viability. Key steps include:

• Financial Analysis: Scrutinise profit-and-loss statements, cash flow records, and balance sheets for at least three years.
• Asset Evaluation: Verify the ownership, condition, and value of equipment, stock, and intellectual property. Determine the efficient use of Inventory turnover and service delivery.
• Market Positioning: Assess the business’s competitive edge and growth potential within its industry.
• Legal Considerations: Investigate regulatory compliance, outstanding debts, and any pending litigation.

Work with seasoned accountants and lawyers to ensure your evaluation is comprehensive and unbiased.

3. Strategise the Purchase Price

Determining a fair purchase price involves a combination of factors:

• Profitability Benchmarks: Compare the business’s financial performance against industry standards.
• Growth Potential: Weigh the business’s potential for future earnings when considering goodwill.
• Tangible Assets: Evaluate physical assets to ensure the deal reflects their true market value.

This is a critical part of the negotiation and determination of the value of the enterprise both to the market and to yourself. Note that the best acquisition is one where the value to the market is less than to yourself . This is due to the fact that you can add or gain more value from the business than the market due to synergies or cost efficiencies that can be gained. Examples include not needing as many staff or being able to utilize existing rental space or providing additional expertise in efficiency or additional sales channels due to your expertise.

Executing a Seamless Acquisition

1. Negotiating the Deal

Focus your negotiations on ensuring:

• Comprehensive Asset Transfers: Include all essential items such as IP, customer lists, and operational systems.
• Mitigated Risks: Protect yourself with clauses addressing liabilities not disclosed by the seller.
• Continuity Plans: Agree on a transition period during which the seller supports the handover.

2. Finalising the Transaction

A successful acquisition isn’t just about signing contracts – it’s about ensuring the business is ready to operate under your leadership. Ensure the following:

• Customer and Supplier Engagement: Maintain relationships to secure continuity in operations.
• Employee Alignment: Meet with staff to communicate your vision and ensure a smooth transition.
• Operational Preparedness: Update licences, contracts, and systems to reflect the change in ownership.

Buying Into a Business: A Simplified Guide

Buying into an existing business means purchasing a stake in an existing company, rather than acquiring it outright.

This option is often ideal for those looking to benefit from a business’s growth without taking on full ownership or operational control. It may also be beneficial as it is a lower cost to acquire while still providing other benefits such as cost sharing or access to new markets.

When you buy into an existing business, you typically become a partner or shareholder, which allows you to share in the profits while also sharing the risks.

Unlike purchasing an entire company, buying into a business requires careful evaluation of the existing ownership structure, partnership agreements, and your role in decision-making.

Key considerations include:

• Ownership Shares: Determine what percentage of the business you’ll own and how profits will be distributed. Ensure the percentage owned provides protection such as ability to prevent actions that may be detrimental to you and require a 75% majority to pass. If you own 26^ you are able to have better control over major decisions.
• Partnership and Shareholder Agreements: Review agreements that define responsibilities, dispute resolution processes, decision making and exit strategies.
• Growth Potential: Assess the business’s scalability and how your investment will contribute to its success.

This approach can be a more affordable and less risky way to enter the business world, but it’s still essential to conduct due diligence and seek expert advice.

At Bishop Collins, we help clients navigate this unique opportunity, ensuring you make a sound investment decision that aligns with your financial goals.

Are You Ready To Purchase Your Own Business? Questions to Ask Yourself

To ensure you’re prepared to make a smart acquisition and ensure you are business ready, ask yourself the following:

1. Financial Position:
   • Do I have enough money or the financial backing to cover the purchase price and ongoing working capital to cover a period before profitability is reached?
   • Will I need to secure finance to complete the purchase?
   • Have I considered additional expenses such as legal fees, stamp duty, and working capital?
2. Strategic Fit:
   • Does this business align with my long-term goals and investment strategy?
   • How will this acquisition complement or enhance my existing ventures?
3. Operational Readiness:
   • Have I developed a plan to transition smoothly from the current owner and manage relationships with staff, suppliers, and customers?
   • Am I prepared to integrate the business systems and processes into my operations?
4. Risk Management:
   • Have I conducted thorough due diligence to identify potential liabilities or legal issues?
   • Do I have contingencies in place for challenges like supplier renegotiations or customer retention?
5. Expert Support:
   • Have I engaged experienced advisors, such as accountants like Bishop Collins and lawyers, to guide the process?
   • Am I clear on how I’ll navigate negotiations and structure the deal effectively?

If you answered “no” or feel uncertain about any of these questions, don’t go it alone.

At Bishop Collins, we specialise in helping business buyers get purchase ready, guiding you every step of the way to ensure you make a confident and informed decision.

Partner with Professionals for Smart Acquisitions

Acquiring a business in Australia is a strategic move that can transform your financial trajectory.

You need the right advice to move forward with confidence. When you’re ready to buy a business, you need a partner with the knowledge, expertise, and experience to navigate the complexities of buying and selling businesses.

At Bishop Collins, we offer advice you can’t get anywhere else – tailored to your unique goals and backed by years of experience negotiating successful acquisitions.

Get in touch with us today to ensure your next business purchase is a strategic and informed decision.

“Accounting is the language of business.” – Warren Buffett

As a business owner, your financial statements aren’t just paperwork; they’re a treasure trove of insights into your company’s financial health and future potential.

They provide clarity on how money flows through your business, what assets you hold, and the areas where growth or cost-cutting could make a difference.

This walkthrough will simplify the core financial statements you need to know and explain how to interpret them effectively.

What Are Financial Statements?

Financial statements are formal records of your business activities and financial position over a specific period. These include:

1. Balance Sheet: A snapshot of your company’s financial position at a specific point in time, showing assets, liabilities, and shareholders’ equity.
2. Profit and Loss Statement (P&L): Also called the income statement, this document outlines your revenues, costs, and profits over a given period.
3. Cash Flow Statement: Tracks the movement of cash in and out of your business, segmented into operating, investing, and financing activities.

These three documents together offer a comprehensive view of your company’s financial performance.

https://www.xero.com/au/templates/balance-sheet-template/

Understanding the Balance Sheet

The balance sheet presents your business’s assets, liabilities, and shareholders’ equity at a specific moment in time.

• Assets: Include cash, accounts receivable, inventory, and long-term assets such as property and equipment.
• Liabilities: Capture money owed, such as loans, accounts payable, and other financial obligations.
• Shareholders’ Equity: Represents the net value of your business (assets minus liabilities).

Example:

A small retail company might show:

• Total Assets: $500,000
• Total Liabilities: $300,000
• Shareholders’ Equity: $200,000

This indicates the company is operating with a solid equity position of $200,000 ( Assets Less Liabilities) . The Equity position is supposed to represent the position a company is in if it were to sell all assets and pay off all liabilities. It would be left with $200,000.

https://www.xero.com/au/example/profit-and-loss/

Profit and Loss Statement (P&L)

The P&L statement outlines your company’s total revenue, costs of goods sold (COGS), operating expenses, and net income over a period.

• Gross Profit: Revenue minus COGS.
• Operating Expenses: Costs for running the business, excluding production costs.
• Net Income: The profit (or loss) after all expenses are deducted.

Example:

For a consulting firm:

• Total Revenue: $100,000
• Operating Expenses: $30,000
• Net Income: $70,000

This shows the profitability of the business and reviewing the Operating Expenses will show areas of expenses that may be reduced to increase profitability.

Source: https://www.xero.com/nz/example/cash-flow-statement/

The Cash Flow Statement

Cash flow is the lifeblood of any business, and this statement highlights how cash is being used and generated. It breaks down into three categories:

1. Operating Activities: Cash earned from day-to-day business operations.
2. Investing Activities: Purchases or sales of long-term assets.
3. Financing Activities: Changes in loans, equity, or dividends.

For an example of a cash flow statement and to download your own template – check out this one from Xero.

Why It Matters:

A positive cash flow ensures the business can pay salaries, meet debt obligations, and invest in future growth.

International Financial Reporting Standards (IFRS) and Australian Accounting Standards

In Australia, companies are required to comply with the Australian Accounting Standards, which align with IFRS. These standards ensure consistency, transparency, and comparability of financial reports. Adhering to these guidelines is critical for:

• Accurate reporting.
• Meeting legal obligations.
• Attracting investors or securing loans.

Case Study: A Tale of Two Cafés

Imagine two café owners, Sarah and Jake. Both have similar revenues but vastly different financial outcomes.

• Sarah’s Financial Statements:
  Her P&L shows strong profitability, but her cash flow statement highlights significant outflows for new equipment, leaving her with minimal liquidity.
  Action: Focused on managing operating cash flow by renegotiating supplier terms and delaying non-essential investments.
• Jake’s Financial Statements:
  His balance sheet shows high liabilities compared to assets, while his P&L reveals tight margins.
  Action: Jake consolidated debts to reduce interest payments and streamlined his menu to cut costs.

By understanding their financial statements, both business owners made data-driven decisions to improve their financial health.

You’re Not Alone In Business

Mastering your financial statements isn’t just for accountants – it’s a vital skill for every business owner.

These documents are your roadmap, highlighting strengths, exposing weaknesses, and pointing the way forward.

At Bishop Collins, we’re here to ensure you’re not alone in business.

If you need guidance on interpreting your financial statements or optimising your company’s financial performance, contact us today for expert advice.