THE REAL STORY

How can the challenges facing franchising reveal the way forward for the sector?

Franchising in the spotlight with FCA CEO Mary Aldred.

The current federal parliamentary inquiry into the Franchising Code of Conduct has created a springboard for a constructive national discussion about improving the standards, and therefore the standing, of franchising in Australia.

With franchising having received substantial media scrutiny, I have been carefully listening to the feedback and ideas put forward by Franchise Council of Australia members on how best to address these challenges. FCA members are keenly attuned to the broader franchising sector beyond the

management of their own businesses. In my brief time as CEO, I have come to understand that FCA members are passionate about franchising as a positive way of doing business and want to see meaningful and sensible steps taken to improve the sector.

There have been a number of thoughtful submissions to the parliamentary inquiry. There have also been some assertions made during the inquiry, and amplified by media, that are not correct or provide a skewed context of some issues. The FCA is currently preparing a supplementary submission to the inquiry to address these, with the intention that recommendations and conclusions made at the end of the inquiry are based on correct information driving any policy responses the government may wish to consider.

One of the key topics that comes up regularly in my conversations with FCA members is the need to ensure disclosure documents are up-to-date and franchise agreements are compliant. The FCA receives many calls a week to our office, particularly from franchisees, who seek information or advice. One of the first questions that we ask is “What does your agreement say?” Unfortunately, the response is often “I don’t know” or, worse, “I haven’t read my agreement”.

The FCA is committed to driving cultural change in the sector, particularly around the need for franchisees to be better informed in the business decisions they make. From an FCA perspective, this needs to include leading a policy discussion around mandating legal advice for prospective franchisees, to streamlining avenues of advice and mediation that better assist people seeking support on low cost, sensible outcomes.

Feedback from many franchisees who approach the FCA for advice often centres around where to access expert advice and information. Many franchisees are confused about which government or regulatory body performs which role. Often, they don’t know where to go. A one-stop shop that provides expert and confidential advice, reliable information and low-cost mediation needs to be further considered.

On the issue of disclosure and agreement compliance, there needs to be a frank conversation in the sector about being willing to embrace some sensible steps of reform. The FCA is actively looking at ways to address this. When the idea of a sector-wide register has previously come up in different forums, there has been some disagreement on the concept, but has to be considered in the current context. The aim is to drive higher sector standards, rebuild confidence and “social licence”, and set a higher benchmark for compliance from the moment a person starts to consider buying a franchise.

As the peak sector body representing franchisees and franchisors, it may be that the FCA has a role to play in helping to shape and lead a register, and to bring the sector along with it. Businesses are often more willing to share business information with a non-government entity.

No business venture is risk-free. Owning a business does not guarantee you the salaried wage of a regular job with regular hours. Emotion will always play some role in the decision-making process of buying a business. And regulation will never fully mitigate against any of these risks. But the sector does need to evolve, where a culture of entrepreneurism and enterprise can co-exist with effective risk-management and compliance. In its very essence, this is what franchising is all about: allowing people to realise their dream of owning a business, within a framework and system that supports, not stymies, innovation.

The Nine Network’s A Current Affair recently promoted a supposed “exposé” of franchising based on an “undercover” visit to the Franchising & Business Opportunities Expo in Brisbane. A reporter with a hidden camera spoke with exhibitors and visitors about their experience. What he came away with was a consistent and sensible message – be diligent in choosing a franchise and make sure it’s right for you.

Franchise exhibitions are one of many ways opportunities are introduced to prospective franchisees. Through seminars, information displays and presentations, they enable prospective franchisees to view and compare some of the 1100 franchise systems which operate in Australia.

Buying a business is a serious decision. The Franchising Code includes a comprehensive pre-contractual disclosure process to assist franchisees to make an informed decision, after taking legal and business advice. Industry statistics confirm that the vast majority of franchisees are satisfied with their business decision, but there are no guarantees of success.

Prospective franchisees must undertake proper due diligence before they commit to buying a franchise. To assist franchisees to make a considered decision and obtain advice, the Code contains a mandatory 14-day disclosure period, and provides franchisees with a further 7-day cooling off period from signing if they change their mind.

A Current Affair posed the question

“Do you deliver on your promises to franchisees?” While we can legitimately question their motivation, and no evidence was provided of franchisors failing to live up to their promises, this does not impact on the validity of the question. As a sector, we need the answer to be a resounding and demonstrable “yes!” In the current climate there is too much media-generated uncertainty around such a key question.

Franchising has successfully operated in Australia for decades. Through this, the sector has seen its way through recessions, the global financial crisis and crippling interest rates, while other businesses have fallen. A key reason for this is the sector’s ability to adapt and respond. Challenged by the latest need to respond, adapt and evolve, I have no doubt that franchising has the capacity to do it again.