While franchisors are eager to bring new franchisees on board, certain practices can lead to misunderstandings and can have legal consequences.

Unsurprisingly the danger area for the franchisor is financial expectations. Watch out for any vague statements, and remember, every franchise buyer needs to assess the business opportunity and seek advice from a lawyer and accountant.

So don’t expect your franchisor to tell you these things – and if they do, ask for verification or clarification.

1. There’s no competition here

Be cautious of statements from the franchisor if they aren’t backed by hard evidence. Any claims about the business’s performance, lack of competition, market potential, trading expectations or site location should be substantiated.

Always ask for verification and don’t rely on assumptions or opinions.

2. This site is going to be profitable

Under Australian Consumer Law, any statement about the future must be substantiated by reasonable grounds. If a franchisor tells you that a particular location will be profitable or that you’ll see a certain level of business growth, they must have solid evidence to support these claims.

Ensure that the franchisor can back up any forward-looking statements, and don’t hesitate to question or ask for clarification on projections.

3. The financials show this is a really good business

While there’s a move for greater transparency from franchisors, they are sensibly cautious about sharing financial statements about specific businesses. Sometimes a franchisor will provide averages from across the network. Remember though that financial performance varies significantly across different locations and situations, so a broad sweep of financial performance isn’t helpful.

If you’re purchasing an existing franchise, insist on receiving profit and loss statements from the current franchisee rather than depending on the franchisor’s representations.

4. We guarantee you’ll make a profit

No one can guarantee profits, and franchisors should never promise a specific income or profit. If a franchisor makes such a claim, it’s a red flag. While the franchisor is providing you with a brand, systems, training and support, the success of your franchise will depend largely on your own efforts and market conditions.

So avoid making decisions based on any guarantee of future earnings.

Protect yourself

As a franchise buyer, it’s your responsibility to critically assess the information provided to you. Exercise due diligence and seek independent advice to protect yourself from potential pitfalls.

Don’t expect your potential franchisor to provide unsubstantiated data but if they do, ask for evidence. And be cautious. Franchisors know the rules, and their representatives should do too.

Ultimately, don’t rely on verbal assurances or unsubstantiated claims—making well-informed decisions is key to your success as a franchisee.