Many of today’s franchisees are staying longer and achieving greater success than their predecessors did, according to those within the sector.
However, one of the perennial mistakes made by potential franchisees is a failure to obtain legal and financial advice from industry specialists.
Deacons partner Tamra Seaton, whose firm often acts on behalf of franchisors, says franchisees should always obtain independent legal advice, from someone with expertise in franchising, before entering into an agreement.
“(Especially) if they’ve not looked at franchising before, perhaps not recognising franchising will include a lot of protection for the franchisor and, for that reason, might be weighted in favour of the franchisor,” she said.
One Perth lawyer, whose client base includes franchisees, told WA Business News that, while superficially agreements may be drafted in favour of the franchisor, it was often in the interests of all franchisees.
“Like any agreement anywhere, the solicitor concerned will draft it and consider the client’s instructions,” he said.
“The franchisor does not have just its interests to protect – it has to protect the interests of the other franchisees.”
Franchising Council of Australia chief executive officer Richard Evans said while franchising mitigated the risk inherent in small business, it did not eliminate it.
“The greatest reason why people fail in small business is, they don’t do the due diligence prior to going in,” he said.
“(Franchising is) a very compliant-driven sector. For people to be successful at it, they need to understand, prior to going in, the demand.”
Mr Evans said the FCA was considering asking franchisors to insist that potential franchisees undertake a pre-entry education program.
However, he said the rate of franchisees leaving within three years of purchasing a business was lower than it had been previously.
“The failure rates are less because there are more systems that help and support franchisees – it’s less than a one in five failure rate,” Mr Evans said.
