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Franchising: WA MP Peter Abetz Issues Warning To Prospective Franchisees

MP slammed over “rogue” warning to budding franchisees

By Michelle Hammond
Monday, 23 May 2011

Franchising experts have questioned the motives of WA Liberal MP Peter Abetz, who has warned prospective franchisees that “rogue elements” may “prey” upon them.

 

The Perth Franchise Expo was held over the weekend, prompting Abetz to issue a warning to prospective franchisees as he described the sector as a “minefield”.

 

“There are people out there who prey on the inexperienced and naive business operator,” Abetz said in a statement.

 

“Franchising is not a level playing field and although I am sure the majority of exhibitors at the franchise expo are people of integrity, there is every likelihood that some rogue elements will be there as well.”

 

“While there is a Franchising Code of Conduct, franchisees need to be aware that there are no penalties for breaches of the code, which results in some franchisors thumbing their nose at the code.”

 

“I would caution anybody who is contemplating buying a franchise to take all precautions and seek independent advice before making a commitment.”

 

Late last year, Abetz introduced a private member’s bill in the WA State Parliament, calling for state-based legislation to protect WA franchisees from “rogue” franchisors.

 

The proposal has been met with criticism from the Franchise Council of Australia, which claims state-based legislation would duplicate national regulation and cripple the WA franchising industry.

 

The Franchising Bill 2010 is currently being examined by a Parliamentary Committee, which is expected to report back to Parliament by the end of June.

 

FCA chairman Stephen Giles says Abetz could be attempting to push his own agenda, questioning the validity of his argument.

 

“It says more about the fact that Mr Abetz’s attempts to introduce the laws are likely to prove unsuccessful as the weight of the argument and the logic of the argument dawns on people,” he says.


“We object to constant use of the term ‘rogue operators’ when there is no one being named and no evidence is being produced.”

 

“We don’t mind people pointing out that franchising is not a guaranteed ticket to success... But using the franchising expo was an inappropriate, ill-chosen, almost grandstanding opportunity – he’s damned every exhibitor.”

 

Jason Gehrke, director of the Franchise Advisory Centre, agrees Abetz could be “pushing his own wheelbarrow”.

 

“I think Mr Abetz’s warning is extraordinary given that he’s a member of the committee in WA which is conducting the inquiry into franchising,” Gehrke says.

 

“As a participant in the sector, I would find it very worrying indeed if Mr Abetz’s comments are in some way pre-emptive of the official findings of that inquiry.”

 

Gehrke says he doesn’t disagree with Abetz’s argument that any potential franchisee must undertake due diligence.

 

“That is recommended in all cases, but I find Mr Abetz’s comments in this regard to be out of order given the current inquiry,” he says.

 

“I would hate to think that he’s promoting his bill ahead of the due process of the inquiry. I would like to think not, but there is the possibility that Mr Abetz’s comments could be read outside the context of which they’ve been made and consequently lead people to an incorrect view of franchising.”

Comments (2)

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ChristineSutherland
I will stick my head out and totally agree with the spirit of Abetz' warnings and the effort he is injecting into helping people avoid financial, professional and personal wipeout. I visited the franchise expo in Perth this last weekend and was utterly dismayed by the quality of the offerings, and the start-up costs for the value offered. In the main these so-called franchises were an expensive way to buy a low-paid and stressful job. Even those that claimed they were not buying a job.

These franchises may be operating within the law, but any comprehensive due diligence assessment would rule out almost all. Look at product/service differentiation, proof of market, track record, financial strength of company, credentials of founders/key staff, level of support/training/mentoring, future of the industry including technological advancement and changing consumer buying patterns, and so many other factors.

If you look at what you need to invest, including start-up, running costs, and the dreaded monthly fees (whether you earn profits or not), and compare that to the measely ROI, you begin to see that if that's the business you really want to be in you'd be better off building it yourself. The claim that you're paying for goodwill is just so much nonsense in most cases because the franchise is totally unknown.

Alternatively, there are any number of proven, leveraged businesses out there that you can apply the same due diligence testing to, and enjoy a vastly more satisfying ROI, without a franchisor hanging over your head and your bank balance.

I don't know whether Abetz' bill will ever come to anything, but I for one would like to see the franchise industry a lot more heavily regulated that it currently is, including a far more comprehensive due diligence process being an arbitrary step, compulsorily executed by an entirely objective 3rd party.
a guest , May 24, 2011
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Ray Borradale
Pretending problems do not exist does not make them go away and in fact it escalates the problems because those rogue operators are reinforced by the lack of effective law and nonexistent regulation. The numbers of victims here and overseas are substantial and the financial consequences of rogue franchisors to small business investors is potentially and often everything. Taxpayer welfare here and abroad has to pick up the rest of the pieces.

Mr Giles is playing with words. The FCA and those who reap the benefits of the current franchising environment designed to hide the problems forget that franchising abuse in Australia has a long history and one which is supported internationally where we see exactly the same problems facing all franchising nations including the US and Canada. This is not local.

Any suggestion by Mr Gehrke that Mr Abetz is acting improperly is outrageous and not only self-serving but forgetful of Mr Giles’ performance in WA last year where his dirty tricks campaign attacked anyone supporting a Bill to protect the little guy from rogue operators and not every franchisor.

This took courage and I congratulate Mr Abetz. He would have been well aware that the FCA would call in all those who would benefit from the maintenance of franchising’s status quo. No doubt he balanced the vitriol against getting the truth out when WA small business investors were the immediate target.

I hope people’s politicians follow suit in every state. Make franchising clean up. Is that such a big ask or does Australia continue to pander to the few that take from the mostly silent many because the few are given free rein to do so.
Ray Borradale , May 24, 2011
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