Reward for effort despite looming franchise regs

The franchise sector is regularly under review, yet it has been a successful pathway for many small business owners. 

With his trademark red bandana, Tony Moreton takes a personal approach to his business as a Jim’s Antennas franchisee, particularly enjoying the human interaction his job involves. 

Mr Moreton immigrated to Australia from Zimbabwe in 2002 with his wife and two children, hoping to use his experience as an IT professional working in big banks to land a similar job in Australia. However, after struggling to get a foot in the door, he decided to look into owning his own business. 

Jim’s Group appealed to him because of its good reputation, a work assurance guarantee and a positive word-of-mouth recommendation (a friend had told him the man from Jim’s Mowing who looked after his lawn every week was one of the happiest guys he knew).

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Seventeen years later Mr Moreton says he is in a good place, with enough income to pay his bills and sufficient work in the pipeline.

But it was the customer contact that he particularly enjoyed. 

“I enjoy that, sitting down for a cup of tea with my customers,” he said.

“It’s certainly a complete change from the white collar job I had before where I was locked in an office analysing spreadsheets and churning out statistics.

“I find this far more rewarding.”

Mr Moreton owns one of the 354 Jim’s Group franchises in Western Australia, the biggest franchise in the state, according to BNiQ data (see next page).

Jim’s Group, as well as other domestic services franchises, including CleanTastic Perth and Jani-King Australasia, have consistently topped the BNiQ largest franchises list, which is ranked on the number of WA franchises.

Business Development Alliance director Mark Fernandez, who advises franchisors and franchisees on business decisions, said he called these businesses the ‘man in the van’, as they needed only a small investment compared with food outlets, which could require an initial investment of millions.

Jim’s Group franchises have an initial investment of between $11,000 and $50,000, while a Cleantastic Perth business costs around $5,225. 

In contrast, setting up a Subway store costs between $195,000 and $365,000, while $500,000 to $750,000 is required to establish a Red Rooster outlet. 

Despite the high investment costs, fast food outlets and cafes are popular, with half of the top 30 franchises on the BNiQ list falling into this category.  

Mr Fernandez said some franchises in Perth had been adversely affected by economic conditions.

“There are lots of issues around the Perth CBD area with all the construction there and a lack of foot traffic,” he said. 

“We have also got Subiaco; that whole area is a ghost town almost. 

“So there are a couple of pockets that are hurt, but [overall] franchising is still going well.”

However, the sector faces the prospect of more regulation after a number of scandals involving franchises underpaying staff, including 7-Eleven, Domino’s, Caltex and Retail Food Group. 

A federal parliamentary inquiry released in March delivered a report that made more than 70 recommendations for change and greater regulation.  

The parliamentary committee identified systematic exploitation of some franchisees by a subset of franchisors, and a regulatory framework that does not provide adequate protection against these practices. 

Regulatory changes proposed in the report seek to address issues of: disclosure; franchise registration; supplier rebates; whistleblower protections; unfair contract terms; cooling-off periods; exit rights; collective action; dispute resolution; binding commercial arbitration; alignment of industry codes; churning; education; and leasing arrangements.

Mr Fernandez said while the sector didn’t need more regulation, he agreed it should be mandatory for franchisees to seek professional advice.

“Franchisees have said they have lost their home, they’ve lost their whole life savings, they’ve been wronged by the franchisor and maybe misrepresented in some of the information,” he said. 

“This certificate page says, ‘Well, did you get any advice? Did you take the numbers from the franchise system, go to your accountant, did you take the franchise legal documents and go to a lawyer who can understand it?’ 

“And if you don’t want to spend the $500, or $800 or $2,000 to go and get advice, then the onus is on you.”

However, any new recommendations needed to be made cautiously, Mr Fernandez said.

“We certainly don’t want to stifle people getting into small business and getting into franchising because there is more regulation,” he said.

In April, the government established a franchising taskforce to determine the feasibility and implementation of the recommendations.