Pre-entry education and professional advice is a worthy investment in your franchising future.
New research into due diligence published by Griffith University and the University of New South Wales found that more than half of the franchisees surveyed had no (or almost no) idea about where to get franchise training. This lack of awareness is a concern, since a bit of information and training can help franchisees get off to the best possible start and avoid problems down the track.
The Australian Competition and Consumer Commission (ACCC) has long recognised the benefits of pre-entry education. Since 2010, we have funded a free online prefranchise program run out of Griffith University’s Asia-Pacific Centre for Franchising Excellence. More than 10,000 people have now registered for the course. This is a significant milestone.
As franchising veterans can attest, it’s about going in with your eyes wide open and knowing where to look. What do your franchising documents say about site and territory selection? What are your retail leasing and marketing fund arrangements? And, how can you verify any financial information? All these issues are covered in the course. Pre-entry education of this kind doesn’t tell you where and how to specifically invest your money, but it can help you make a better overall informed decision.
Pre-entry training also lifts the lid on the practical demands involved in running a franchise business. Despite the fact that many franchising participants already have some form of business qualifications before they turned to franchising, the Griffith/ UNSW research found that 58 per cent of current franchisees had no realistic idea about what they were getting themselves into. Pre-entry training can provide firsttimers with more realistic expectations.
Pre-entry training also provides franchisees with important background on the Franchising Code of Conduct. The mandatory industry Code sets out the rights and obligations of all participants in the franchising industry. For example, the Code provides new franchisees with a ‘cooling off’ period and requires franchisors to disclose specific information to prospective and existing franchisees. The Code also provides a way for franchisees and franchisors to resolve disputes and requires that both sides act in good faith.
The Griffith/UNSW research also found that only 35 per cent of current franchisees consulted an accountant, lawyer or financial adviser prior to purchase or start up. This finding is surprising since the Franchising Code requires you to provide a statement that you have sought professional advice as part of the buying process.
Alternatively, you can sign a statement saying that you are aware that you should seek advice but have decided against it. The ACCC sees professional advice as imperative, particularly when you consider life savings are on the line and the complexity of some franchise agreements.
When it comes to the crunch, professionals can guide you through the finer points of contracts or the complexities of franchise finances. For example, if the franchisor has provided you with projected earnings, it must also provide you with information about the assumptions on which the projection is based. An accountant or business adviser will be able to assist you to compare and verify any figures or projections given to you. It makes sense to get some professional advice before making one of the biggest investment decisions of your life.
The Griffith/UNSW research is available at www.franchise.edu.au/home/research/due-diligence-research
You can sign up to the pre-entry program at www.franchise.edu.au/home/education/for-franchisees/pre-entry-franchise-education
Dr Michael Schaper is Deputy Chair of the Australian Competition and Consumer Commission.