Legislation unlikely to be the answer to stronger franchise sector | Business Franchise Australia

Legislation unlikely to be the answer to stronger franchise sector

Kerry Miles, Franchise Ed

Labour wants extra penalties, up to $10 million, for dodgy franchisors, as outlined in an article in Smart Company by Shadow Minister for Employment, Industry and Small Business Brendan O’Connor, who was a committee member for the parliamentary inquiry into franchising.

He suggests the reality of franchising has seen “decent people struggling with failing businesses and facing financial ruin, because they were set up to fail.”

As someone who has worked in the franchise sector for nearly two decades, I couldn’t agree more.

And while no one wants to see any franchisee fail, I do agree that yes, some franchisors have played a very big part in this. 

Yet franchisees need to take greater responsibility too. Prospective franchisees have to take better control of their decisions and learn as much as they can before they buy a franchise. Both extensive research and the Parliamentary Inquiry Committee report reveals this to be the case.

Of the parliamentary committee’s 71 recommendations released in early 2019, several of these refer to the need for greater education and advice for prospective franchisees.  Education is likely to be equally, if not more powerful than legislation.

The Parliamentary Inquiry report says: “Education is vital in equipping prospective franchisees with the knowledge and skills to better inform themselves about the risks and responsibilities of becoming a franchisee. Many prospective franchisees do not have ready access to services that can help them understand those risks, and some franchisees have not undertaken sufficient due diligence, or sought sufficient and appropriate legal or accounting business advice.” 

Again, this is spot on. What's really important is prospective franchisees do their due diligence research on the franchise and educate themselves. It is not an easy task, but an essential one considering the sizeable investment of many franchises.

In many cases, where an unscrupulous franchisor exists, investing in the franchise could be avoided by speaking with existing and former franchise owners, and conducting other forms of thorough due diligence. No stone should be left unturned.

And while some in the sector argue there isn’t enough information and support available to franchisees, the truth is there are numerous resources available. Franchisees just need to look, and invest the time and resources into finding them.  The Australian Competition and Consumer Commission has sponsored a free franchise pre-entry program for nearly a decade, which prospective franchisees can complete online at their own pace.

There are independent franchise ranking systems which publicly promote their findings that can assist with making an informed business decision.

There are also a number of franchise specialists, who businesses are dedicated to assisting people to make the best business decision for their individual circumstances when buying a franchise, all offering services at a range of price points.  Again, with the smallest amount of research these expert practitioners can easily be found, and are indeed used by a number of prospective franchisees with great success.

In fact, many of Australia’s leading franchise experts are giving their time later this month, coming together online for the sole purpose of providing education and best practice tips to aid prospective franchisees with researching franchise opportunities.  So despite COVID-19 restrictions, it actually has never been easier for prospective franchisees to access education and advice, to empower themselves to make good business decisions.  

The Australian Competition and Consumer Commission (ACCC) are also participating revealing what prospective franchisees need to look out for, which other people are unlikely to tell them, and Small Business Commissioners from Victoria and Queensland, along with the Deputy Australian Small Business and Family Enterprise Ombudsman are also offering their advice via panel discussion.

One of the themes which comes across in the Parliamentary Committee report is advising people to better inform themselves about the risks and responsibilities of franchising.

The information, education and advice is all readily available for prospective franchisees, it’s the franchisees themselves that need to step up and access it, otherwise they’re setting themselves up to fail.