Changes to the franchising code of conduct to be implemented next month will provide potential franchisees with far more information about the businesses they purchase than is currently available.
Changes to the franchising code of conduct to be implemented next month will provide potential franchisees with far more information about the businesses they purchase than is currently available.
Following consultation with the franchising industry, the federal government will amend several of the code’s disclosure provisions governing information a franchisee receives about the parent business, such as the spending of marketing budgets.
Many within the industry regard the proposed changes as formalising what is already common practice.
According to Total Franchise Solutions manager Michael Paine, there is a lot more transparency now, compared with the early days of franchising, with a better understanding of individual obligations.
“I think from a potential franchisee’s perspective, since they introduced the code it cut out a lot of the cowboys. There’s more accountability,” Mr Paine said.
Worldwide Online Printing chief executive officer Mark Manderson said it was important to be accountable for franchisees’ money, although most franchisors were already abiding by the code.
“My feeling is, a lot of the things that have come through in the recommendations, we were already practicing,” he told WA Business News.
“A lot of the issues coming up at the moment are people not communicating or taking the right advice before taking the plunge.”
Mr Manderson said it was important for franchisees to obtain professional legal and financial advice from industry specialists.
One change that has prompted debate is the proposed mandatory disclosure of a company’s previous franchisees.
Quick Colourprint.com.au franchisor Richard Huggins said the change was unnecessary and unfair.
“We are the only business in the world where you have to disclose disgruntled clients,” he said.
Mr Huggins said there was already recourse for franchisees to register a complaint through the FCA, and any legitimate complaints would prevent a franchisor from doing business in the future.
However, owner of card and gift retailer WILD, Lawrence Boyle, said he welcomed the amendments to disclosure, although he called for further changes, saying potential franchisees were often misled by gross turnover figures.
“The day that average profitability is included in disclosure documents, we will be thrilled,” he said.
While most within the franchising industry agree the code should be amended to create better transparency, smaller operators are concerned about the potential cost to their business.
Party Plus franchisor Andrew Foote said his franchise would be affected by the introduction of a compulsory marketing fund audit, which is being considered for inclusion in the code.
Currently, marketing funds do not have to be audited if 75 per cent of franchisees agree to waive the audit.
For Party Plus, a compulsory audit provision would mean spending at least $2,500 and getting nothing in return, according to Mr Foote.
“For us, that was going to represent potentially 5 per cent of the money that franchisees put in each year, to get a piece of paper back,” he said.
Mr Foote said that, historically, the management of franchise marketing funds had been a major point of contention for many franchisees, who felt they had no input on how money was spent.
