FCA - Big Plans and Big Initiatives

Stephen Giles, Chairman

The Franchise Council of Australia’s (FCA) big goal for 2012 is to increase the size of the franchisee pool and to maintain confidence in franchising, while still ensuring the best possible people enter the sector.

Some initiatives - such as approaching a major employer who had announced major retrenchments with a specific franchising program – are somewhat reactive. Others are more proactive and structured.

In an exciting longer-term initiative, the FCA has encouraged the Federal Government to
implement a small business loan program along the lines of the Small Business Act program that has proven so popular in the US.

Since its founding on 30 July 1953, the US Small Business Administration (SBA) has delivered about 20 million loans and loan guarantees to small businesses. The SBA’s current business loan portfolio of roughly 219,000 loans (worth more than $45 billion) makes it the largest single financial backer of US businesses in the nation.

Over the past 10 years, the SBA has helped almost 435,000 small businesses get more than $94.6 billion in loans. No other lender in the US has been responsible for as much
small business financing as the SBA has during that time.

The FCA is not intending to ask government to be a lender, it is asking it to make use of an unused bank wholesale funding guarantee to provide a guarantee to business start-ups which lack the collateral to secure a loan but otherwise meet all lending and business ownership criteria.

In a franchise sense, it means getting over the line a franchisee who meets all approval criteria in a franchise system which has been appropriately accredited. We know many systems have quite a few candidates in that category. As Sam Kekovich said, “You know it makes sense!”

There seems to be some interest, but the Federal Government has budgetary constraints which need to be navigated. The FCA also appreciates that the program probably needs to be piloted in Australia and fine-tuned for our market dynamics.

One area of Government interest where funding appears to be available is the empowerment of our indigenous Australians through business ownership.

With this in mind, the FCA has approached the AFL, leveraging an old football friendship with indigenous leader and AFL Community Manager, Jason Mifsud.

The AFL has created best practice mentoring and support programs for indigenous AFL footballers that have been extremely successful.

The FCA feels that these programs, when combined with the structure and support of a well-run franchise program which has been accredited in a similar manner to the system operating in the US, would provide a solid foundation for business success.

Franchising is a teamwork business, much the same as a football team. Franchising provides training in the transition into business, and ongoing support, similar to football culture. As opposed to being in business on your own, we say franchising is being in business for yourself, not by yourself.

Stay tuned for news on this and other initiatives designed to increase the pool of potential franchisees.

Another discussion point for the FCA this year is to look at ways that the Franchising Code of Conduct (Code) can operate more efficiently. Some areas of the Code attract excessive compliance cost for no real benefit for either franchisors or franchisees.

For example, sometimes the mandatory 14 day disclosure and seven day cooling off period gets in the way of a deal proceeding with the haste both parties want.

It also seems ludicrous to require franchisors who grant a single master franchise to have to update their disclosure document annually, notwithstanding they have essentially ceased franchising.

Our FCA Legal Committee will be making an important contribution to this discussion.

Retail leasing reform remains an important priority. Consistent with our approach to franchising, we are seeking to have a collaborative rather than combative approach to reform, and hope the property sector will participate.

We concede current State-based regulation of retail leasing imposes unnecessary compliance costs, and we support efforts to harmonise legislation. In return, we expect the property sector should support the implementation of the Productivity Commission recommendations around the establishment of an Industry Code of Conduct.

We support the free and fair operation of the market, but this of course requires equality of information and prevention of abuses arising out of unequal bargaining power.

Toward the end of February the FCA held a retail issues forum to discuss all the pressing
concerns for the retail sector for 2012 and beyond to ensure those entering franchising can have confidence when entering the market.

At the forum, the possibility of a real payroll tax freeze was discussed, government assistance for small business was analysed and the FCA reaffirmed its commitment to continuing its push for a voluntary Retail Leasing Code of Conduct (see FCA Executive Director Steve Wright’s column).

The concept of a payroll tax freeze is not a difficult one, but is one State Governments are likely not to agree with.

The FCA is not asking for a reduction of payroll tax, only for a freeze, so that payroll tax bills paid by employers do not get any bigger. A freeze would remove any ‘threshold creeps’ which can be a disincentive to employ new workers - as the new employment may take a business above the threshold, and therefore incur the tax or even be dragged into paying payroll tax simply by granting a pay rise to employees, in order to keep them.