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Are franchisees well protected from rogue franchisors in Australia?

Thursday, 24 March 2011 | By Graeme McCormack

I’ve read a lot recently about new laws coming in to protect franchisees. I wondered, are franchisees wellprotected from rogue franchisors in Australia, comparatively speaking? Is the industry in good shape with its governance?

 

Generally speaking, franchisees do enjoy some moderate level of personal protection through the governance the ACCC has over the sector.

 

In this regard, franchisors are required to disclose certain information about themselves, their management team, their backgrounds and their franchise business model through a formal Disclosure Document.

 

This Disclosure Document forms a key part of the overall Franchise Code of Conduct.

 

Notwithstanding the existing of this long-standing process, the ACCC continues to regularly communicate to the public the need for them to undertake their own personal and detailed due diligence on the back of the information provided to them in a Disclosure Document.

 

The ACCC strongly advocate, as do I, that franchisees obtain expert independent legal, accounting and business/franchise operations advice prior to entering into any formal commercial arrangement with a franchisor.

 

In short, the franchise industry in Australia is in good hands with the ACCC when it comes to high-level governance, however the onus is still well-and-truly on the individual to ensure they have undertaken all of the necessary due diligence to accurately assess any franchise opportunity.

 

In essence, the best way to look at it is this; the ACCC will assist through the Franchise Code of Conduct and Disclosure Document process to provide you with some “headlines” of the story going-in, however it’s then up to you to find out all of the remaining details in order to make the most considered commercial decision possible.

 

With the odd exception, I don’t hear of a lot of “horror stories.” However you do often hear of franchisees who are disappointed with the success and/or commercial return from their investment into franchising.

 

In short, it simply doesn’t meet a lot of people’s high expectations. Depending on who you talk to, franchisor or franchisee, this lack of performance can be due to many and varied factors, depending on the nature and maturity of the franchise and the associated systems, support, or lack thereof, and personalities involved.

 

In terms of genuine “rogue franchisors”, I haven’t come across any personally, however I have little doubt they exist.

 

That said, Australia has one of the most highly regulated franchise sectors in the world, so in that regard I am confident that any truly unscrupulous franchisors will eventually be found-out.

 

The Australian franchise market is strong and growing every day, however it is up to the prospective franchisee to ensure they undertake all of the necessary detailed due diligence before they commit.  They must have their eyes-wide-open going in.