Helping franchise businesses to evolve in a new landscape

After a testing year for franchising and small business,

2019 provides good prospects for those who evolve and risk for those who ignore the warnings of the past.

A number of recommendations came out of the 2018

Senate inquiry into franchising and the FCA is determined to be at the forefront of implementing change.

The FCA looks forward to working to effectively implement both the changes we have underway and the recommendations of the inquiry, including a franchising task force.

Two key initiatives by the FCA are the establishment of a registry of all franchises in Australia, and the mandatory requirement to obtain legal and financial advice prior to entering a franchise agreement.

The FCA has made it clear that we will not tolerate breaches of the franchising code or consumer law by either franchisors or franchisees, whether or not they are FCA members.

Any breach of the law by a franchise business reflects on the reputation of the majority in franchising who do the right thing. The FCA has requested that the ACCC consider improving its early intervention complaints handling and be more public in communicating progress in relation to complaints.

A new FCA Employment Compliance Helpline is now available to provide practical advice to members on how to meet day-today compliance obligations.

The FCA has also acted to more directly engage franchisees through a new Franchisee Advisory Committee and is encouraged by the response it has received from franchisees. Franchising works best when there’s open collaboration between franchisors and franchisees and the FCA is committed to ensuring their mutual success.

Fourteen days is the minimum, not the maximum time you have.

Investing in a franchise is a big decision that should not be rushed.

In fact, this 14-day minimum disclosure period does not begin until you’ve received the franchisor’s disclosure document, the franchise agreement (in final form) and a copy of the Franchising Code of Conduct.

Your disclosure document includes some of the key information for you to carefully consider before signing a franchise agreement. It must include the costs of setting up and operating the business plus any limitations on your supply arrangements.

Don’t rush into making a decision before you’ve done your due diligence. In fact, if the franchisor puts pressure on you to make a quick decision, you should consider this a warning sign to take extra care. Take your time and consider very carefully whether or not to sign the franchise agreement. Considering new business opportunities is exciting but also think about what will happen if you want to end your relationship with the franchisor.

So you’ve now taken your time to closely review the documents, but what is franchising like in real life, day to day? Your disclosure document can help you (see step 3). STEP 3: PHONE

A (FRANCHISING) FRIEND

Many franchisees speak with friends and family before deciding whether or not to buy a franchise. This has value because they know your strengths and weaknesses. However, it is vital that you speak with existing and former franchisees as well, because they know the strengths and weaknesses of the franchise system.

Existing franchisee contact details must be listed in the disclosure document. Use this information to speak with existing franchisees who are at different stages of their franchising lifecycle: for example, those who have been a franchisee for less than one year, some for two to three years and some for five or more years.

Ask them some key questions such as how they find life as a franchisee, and how many hours they work per week. Has it cost more than they expected? What would they do differently next time? And finally, ask whether their expectations before entering the franchise were met.

It also very important to speak with former franchisees who have left the system. Contact details of former franchisees (who left in the last three financial years) are also in the disclosure document. If they don’t want to be contacted they can ask the franchisor to keep their contact details private, so if the contact details are listed, don’t feel shy about getting in touch. This is very important for any former franchisees who were located at the site or in the territory you are considering. Be sure to ask them why they left the system.

If the details of existing or former franchisees are inaccurate or incomplete, ask the franchisor for the correct information, including current phone numbers. Don’t be deterred from making contact with as many existing and former franchisees as you can. STEP 4: GET ADVICE FROM INDEPENDENT PROFESSIONALS WITH FRANCHISING EXPERIENCE

Through our work regulating franchising, the ACCC has found that too many prospective franchisees do not obtain legal, accounting and business advice before signing up.

This is a real concern because professional independent advice can often help reduce the risk associated with such decisions. We strongly encourage

prospective franchisees to get qualified advice from professionals with franchising experience.

Before you select an adviser, ask them about their experience with the franchising sector and how they will provide their advice. Have a list of questions you wish to ask your lawyer, accountant and business adviser. Make notes about what you are told by the adviser.

If, after getting advice, you decide not to proceed with the franchise, you have not wasted your time. Think of all the money you’ve saved and the years of stress you have avoided.

If you do go ahead, you will be much better informed about potential risks relating to the business and how you can take steps that protect your investment.

ACCC AND FR ANCHISING

RESOURCES AND GUIDANCE ABOUT FRANCHISING

Education about franchising is part of the ACCC’s role.

We produce and distribute a range of guidance materials to help prospective franchisees (you), franchisees and franchisors understand their rights and responsibilities under the code. Visit the ACCC website for information on the code, FAQs, a manual for franchisors and factsheets: www.accc.gov.au/ franchisingcode.

The ACCC’s free pre-entry franchise education program delivered by FranchiseED can also help prospective franchisees assess franchise business opportunities. Visit www. franchise-ed.org.au/online-courses/ pre-entry-franchise-education/.

To keep up to date with events, court cases and changes to the law in the franchising sector, sign up to the ACCC’s Franchising Information Network at www.accc.gov.au/fin. ACCC’S ROLE IN

FRANCHISING SECTOR

Franchising continues to be a priority of the ACCC compliance and enforcement policy in 2019. We will be conducting proactive compliance checks of franchisors in the restaurant, cafe and takeaway food industry. The ACCC has chosen this industry because it receives more complaints from franchisees in this sector than in any other sector.

Anyone can contact the ACCC at www. accc.gov.au/contact-us for information about their rights and obligations under the code, to report alleged breaches or to report concerns that a business is not complying with the Franchising Code or the Competition and Consumer Act. Be aware that while we welcome and encourage reports, the ACCC cannot pursue all individual cases reported to us. Our role is to focus on issues that will or have the potential to result in widespread small business or consumer detriment.

Individual dispute resolution services are provided by the Australian Small Business and Family Enterprise Ombudsman. They can provide information on the dispute resolution processes under the code, options to resolve disputes and access to mediation services to franchisees and franchisors.

The information in this article is for guidance purposes only and does not constitute or substitute for legal advice. When considering a franchise opportunity, seek advice from a lawyer, accountant and business adviser with franchising expertise.