Unleashing the franchising taskforce: How you can prepare your business as a first timer
If you are eager to buy into a franchise business, now is the time to prepare for major legislation changes potentially set to shake up the industry.
Following the sector’s turbulence and bad press in recent years, the Federal Government announced plans earlier this year to launch a taskforce in an effort to combat the systemic issues that appear to be plaguing the industry.
Bennett & Philp’s franchising law expert Spencer Slasberg said he is looking forward to seeing what, if any effects on the industry the implementation of the taskforce will have on franchisors and how effectively the taskforce will be able to enforce the codes and regulations that are currently in place.
“The current codes and regulations have been revised and updated periodically over the last 15 years to very little effect, and I believe that is more an issue of enforcement rather than quality of the regulation,” Mr Slasberg said.
“For too long, it has been left to individual business owners to try and enforce their rights through private litigation and that can be an expensive and daunting process for young punters.
“I am hopeful that these changes will also provide businesses with clear and transparent guidelines to avoid any wrong-doing due to ambiguity.
“One major call to action in respect of this taskforce will be the treatment of employees in the franchises, so it is important for businesses to ensure all employment contracts are compliant and rights are being properly implemented.
“Franchisors should be alert and reflect best practice standards by consulting with their lawyer and continually reassessing their business operations and standards, guaranteeing they are all above board and avoiding any malpractice in the workplace.”
Navigating through legislation, regulations and the common pitfalls of fledgling businesses can be complex, so we sat down with Mr Slasberg who shared his top tips that budding business owners should consider before setting up a franchise.
Learn the basic skills of running a business
People who wish to start their own business but are hesitant because of their inexperience, often turn to franchises as they view them as well-established companies that would offer support. This is not the case. A franchise does not teach you how to run a business. Good franchisors may offer mentoring and training sessions on the brand and systems, but without some basic business skills, novice punters are bound to struggle. Undertaking further studies, such as a Diploma of Business, may help you gain a better understanding of what you’re getting yourself into.
Do your research
Franchisors will provide you with an encompassing amount of material and information to read prior to signing a contract. Make sure you read the material provided in great detail as it is your best chance to get a snapshot of the business and find out if you have any further enquiries before committing to the investment. Further, ensure you research the proposed location to view foot traffic, peak times and competitors.
Seek professional advice
The disclosure material you receive as part of your due diligence will contain financial information about the business. It’s strongly recommended to invest in professional legal and accounting advice very early on to find out what your financial position actually is and what it is projected to be in the first 24 months. This is where most young businesses fail, because people do not receive enough guidance on what their cashflows are going to be until they establish themselves. While many only account for the initial costs, they don’t consider what life will be like without any real income until the business gets off the ground.
Understand the franchise fee structure and ask questions
A franchise that structures its fees based on a fixed percentage of your profits tends to be more committed to your success and confident of getting more money out of its successful franchisees. Franchisors that just charge a flat rate no matter how well or poorly your business runs may not have your best interests at heart. That’s not to say they don’t, but it does raise another question for you to ask.
Stay committed and prepare to work hard
Learn the company’s values and their goals and get behind them. You do not buy into a franchise to assert your own ideals. Chances are, you have seen something in a franchise business that connects with you. People often want to run their own business for the freedom it offers, time wise. Try and think of that freedom at least two years in advance. You will only get out of your business what you put in. Work hard and put effort into your business and your staff early on, and the business has a better chance of reaching ‘critical mass’ and being sustainable.
For more information and tips on buying into a franchise, Mr Slasberg’s Survival Guide can be found here: https://www.bennettphilp.com.au/blog/lawyers-survival-guide-franchisees
Bennett & Philp is a leading provider of solutions-focused legal services to large corporates, small and medium enterprises and individuals.
Since founded in 1984, Bennett & Philp has grown to meet the changing needs of both Australian and international clients. Its success has largely been achieved by the ability to develop and maintain close business relationships with clients and deliver tailored solutions specific to business needs.
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