Are franchises a good investment?
Buying into a franchise can seem like a safer shortcut to start a business. The brand is established, there’s a ready-made customer base, and the model may have a proven track record of financial success. But are franchises genuinely a good investment?
According to a 2021 survey by the Franchise Council of Australia, they certainly can be. Approximately 35 per cent of respondents reported weekly sales of more than $20,000 that year, particularly in food-based businesses.
Various industry reports suggest franchise survival and profitability rates are substantially higher than those of independent start-ups, with many operators reaching profitability within the first five years.
However, those figures mask how sensitive many franchises are to broader economic conditions.
Small businesses Australia-wide have weathered a rocky period of interest rate hikes, increased operating costs, rising rents and lower consumer spending.
In 2025, nearly two-thirds of small businesses experienced a decline in profits, according to the Council of Small Business Organisations Australia (COSBOA).
Looking forward, the future of franchising seems a little brighter. IBISWorld projections suggest that after a period of decline, revenue is expected to pick up, with the number of new franchises set to grow by 1.4 per cent annually to 2029.
Franchise consultant Tereza Murray has noticed an uptick in inquiries for bricks-and-mortar businesses, too.
“The number of inquiries coming through for those types of franchises is back to where it was pre-COVID times,” Murray says.
Investor interest is also being shaped by the type of franchise on offer.
Food and retail remain investment staples, particularly in neighbourhood precincts and shopping centres.
Other emerging categories include health and wellness, childcare and early education, pet care, and trades and services such as plumbing and electrical work.
Pros and cons of owning a franchise
Even though there are plenty of potential upsides to owning a franchise, success is never a guarantee.
Several factors affect performance, but for premises-based businesses, property is typically the biggest.
“The brand and operating model matter, but the wrong site or an inflexible lease can destroy profitability, even for a strong operator,” said Phil Reichelt, founder and director of Tenant Leasing Group.
“Strong retail sites usually share a few fundamentals: proven foot traffic or a clear destination draw, good visibility and access, neighbouring businesses that drive repeat visits, and occupancy costs that make sense relative to realistic sales potential.
“Weak sites tend to show the opposite: poor visibility, awkward access, low dwell time, high rent based on ‘hope value’ rather than performance, or a centre mix that doesn’t match the customer.”
Long fixed leases, annual CPI increases (where rent rises each year in line with inflation) and make-good obligations (which require tenants to return the space to its original condition) can limit flexibility if trading conditions change.
Issues also crop up when the lease runs longer than the franchise agreement, particularly if the business needs to be sold or exited early.
“Treat the lease like a financial instrument – because it is,” Reichelt said.
“Get independent tenant-side property advice before committing to validate whether the rent is supportable, the site is right for the model, and the lease gives flexibility and exit protection.”
What makes a good franchise
Market timing also matters. Successful franchises typically launch or expand when trends and demand indicate a market opportunity, allowing operators to secure suitable sites before competition intensifies.
The recent growth of health and wellness franchises such as gyms and wellness clinics is a clear reflection of this.
FRANdata findings from the US revealed that new health and wellness franchise brands grew at a compounded annual rate of 18 per cent between 2020 and 2023.
While Australian market conditions differ, similar demand drivers, such as ageing populations and preventative healthcare, are influencing local site selection and leasing activity.
Ultimately, according to Murray, success (or failure) often falls on the operator.
The initial capital used to establish a franchise can accelerate growth if it allows for a strong site, adequate staffing and a cash buffer, or constrain it if those basics are underfunded.
“Most owners need a financial buffer for the first six to twelve months to get the business running,” Murray said.
She also said many prospective franchisees expect to be relatively hands-off and are surprised by the demands placed on them.
While some franchise buyers are passive investors, most models still rely heavily on direct involvement in day-to-day operations.
“The best performers treat it like a business, not a job,” Reichelt said. “They’re consistent with sales activity, strong with customer experience, good team leaders and backed by franchisors who genuinely support them.”
Finally, Murray adds that investors shouldn’t treat a franchise as easy money.
Returns can take time to materialise, and it’s normal to see a ramp-up period of about six to12 months before profits stabilise.
“The best way to think about it is not how fast can I get my money back, but how long until I see consistent, predictable weeks,” she said.
In the end, no franchise can provide certainty. But going in with clear expectations could be the difference between mere survival and strong performance.
