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 THINKING OF SBCOMING A FRANCHISEE? Franchising in Australia involves 40,900 franchised outlets, 5,200 franchisor owned outlets, 553,200 employees, 708 franchise systems. $37.0 billion turnover and a better rate of success than business in general.* Impressive statistics, but not a guarantee of success. Not all franchises succeed. Before making a commitment, prospective franchisees should get all possible information on: franchising as a form of business ownership, and the mandatory Code of Conduct; Sources of information on franchising include the following: Books on franchising, and the Franchising Code of Conductare available from the Small Business Development Corporation (SBDC) Business Information and Licence Centre. Additional books are held in the SBDC reference library. Discuss the Code of Conduct, the franchisor’s disclosure document, the franchise opportunity, your feasibility study and your business plan with a Small Business Development Corporation Enterprise Development Officer or your local Small Business Centre consultant. SEEK PROFESSIONAL ADVICE BEFORE MAKING A COMMITMENT * Source: Franchising Australia 1999 Survey. The above statistics exclude motor vehicle & petrol franchises. DISCLAIMER The publishers, authors, consultants and editors, expressly disclaim all and any liability and responsibility to any person, whether a reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. ESSENTIAL READING
Can you risk making a major decision without reading up on these topics? And please - consult your accountant and solicitor BEFORE making a commitment. REGULATION OF THE FRANCHISING INDUSTRY: The Franchising Code of Conduct, compliance with which is mandatory under the Trade Practices Act, came into effect 1 July 1998. Minor amendments to the Code came into effect on 1 September 1999. A copy of the Code may be downloaded from the website of the Federal Department of Employment Workplace Relations & Small Business: www.dewrsb.gov.au/smallbusiness/publications: The Franchise Policy Council's review of the operations of the Code, and the Federal Government's response, was released 6 October 2000. See www.dewrsb.gov.au/smallbusiness/policy Some amendments, taking into consideration the FPC's recommendations and further views from the sector, are expected to be in place by July 2001. Australian Competition & Consumer Commission Publications are available at www.accc.gov.au/smallbus/smallbus.htm then click on franchising: Topics include · Franchising Code of Conduct · Frequently asked Questions - Franchising Code of Conduct & the Trade Practices Act · Franchisee's Guide to the Franchising Code of Conduct · Code of Conduct Training Manual - includes diskette with checklists. Disclosure documents & powerpoint presentation. $30 from ACCC · Code Compliance Manual $50 from ACCC · Guide to Unconscionable Conduct in Business Transactions Protection for franchisees provided by the Code includes provisions relating to disclosure documents, cooling-off periods, marketing-fund audits and dispute resolution. Prospective franchisees should compare disclosure documents received from franchisors with the requirements of the Code. They should seek advice on the significance and implications for the proposed business of the information presented in the disclosure document. Although compliance with the Code is the responsibility of the Australian Competition & Consumer Commission (ACCC), disclosure documents are not required to be reviewed by or registered with the ACCC before being issued by a franchisor. A statement of solvency of the franchisor will be included in a disclosure document complying with the Code. The thorough evaluation of a franchise opportunity will still include checking the credentials, background and financial stability of the franchisor company and the people behind it. Consider the ‘Dial-Up’ search services available for obtaining company searches and credit reports. Speak to all the existing franchisees in the system and evaluate their experience. Read at least two books or articles on how to evaluate a franchise, and ask the questions. Take time to make a really informed decision. SEEK PROFESSIONAL ADVICE BEFORE MAKING A COMMITMENT NOTE THINKING OF FRANCHISING YOUR BUSINESS? You are advised to seek help from professionals experienced in franchising if you are considering franchising as a form of expanding an existing business. The cost and time involved in the process of franchising depends on the complexity of the business, the proposed system and the current position. The process is likely to include: an independent objective, evaluation of the current situation and the business including the product or service, the protection of trademarks and other intellectual property, the market, the systems and the profitability; Then if you decide to proceed: development of an appropriate model for your franchise system, and
The Franchise Council of Australia's Franchisors' Manual and Greg Nathans "Profitable Partnerships",www.franchiserelationships.com are recommended as essential reading for intending franchisors. The ACCC's Franchising Code of Conduct Training Manual is also recommended. Listing of some of the issues to be considered 1. Product or Service Some different, special or unique feature 2. Intellectual Property and Business Structure Patents, trademarks, design registration 3. Code of Conduct Requirements and Membership of FCA Mandatory Code of Conduct 4. Systems The Franchisee is buying a system so he can concentrate on customers/clients. 5. Manuals Document the systems 6. Territories Number and definition of areas (don’t define as within a certain radius) 7. Royalties/Levies/Franchise Fees Consider tax implications 8. Recruitment Procedures Promotional material/advertising 9. Training Location 10. Pilot Operations To test the concept and systems 11. Franchise Agreement Promotional material 12. Continuous Monitoring and Improvement Monitor performance
FRANCHISING CODE OF CONDUCT - The Franchising Code of Conduct came into effect on 1 July 1998. As it is a mandatory code of conduct, prescribed under the Trade Practices Act, all franchise businesses are required by law to comply with its provisions. The Australian Competition and Consumer Commission (ACCC) is responsible for enforcing the provisions of the Code. The ACCC, or a franchisee, may take action against a franchisor for non compliance with the Code. All businesses covered by the Code need to be aware of their rights and obligations under the Code. It should be noted that the definition of a franchise agreement in the Code is sufficiently wide to catch some distributorship, licencing or similar arrangements, where parties may not otherwise consider themselves to be in a franchise relationship. The Code sets out requirements of franchisors in relation to disclosure, cooling off periods, copy of lease agreements, dispute resolution, association of franchisees, general releases from liability, marketing funds and the transfer and termination of franchises. The Code came into effect in two steps. From 1 July 1998, provisions relating to copies of lease agreements, association of franchisees, and marketing funds applied to all franchises existing at that date. The entire Code applies from 1 October 1998 to all franchise agreements in existence at that date. From that date, if an event occurs that is covered by the Code, such as a request by the franchisee for a copy of the latest disclosure document, the franchisor must comply irrespective of when the franchise agreement was entered into. The entire Code applies to franchises entered into, renewed, extended or transferred on or after 1 October 1998. The purpose of the Code is to assist franchisees and franchisors to make an informed decision before entering into a franchise agreement, and to provide a framework for dispute resolution. Under the Code, prospective franchisees are provided with a lot of information. They should seek professional advice in interpreting this information, and to assess the implications for the proposed business venture. The provision of a comprehensive disclosure document should not replace an evaluation of the franchise, and the preparation of a feasibility study and business plan by the prospective franchisee. A copy of the Code may be downloaded from the website of the Federal Department of Employment, Workplace Relations & Small Business, www.dewrsb.gov.au/smallbusiness/publications. Franchisors & intending franchisors are advised to seek professional advice on the implications of the regulations for their business. Franchise Council of Australia (FCA) Franchising Magazine Department of Employment, Workplace Relations & Small Business Publications Franchising Code of Conduct ACCC’s Web Site http://www.accc.gov.au/smallbus/smallbus.htm then click on the topic of franchising Franchising Code of Conduct The Office of the Mediation Adviser – Helping Franchisees & Franchisors to resolve their disputes: Phone: 1800 150 667, e-mail: office@mediationadviser.com.au Franchising publications available through Small Business Development Corporation A Guide to Buying a Franchise (ASCPA’s) Other Recommended Reading (SBDC Library) Buying a Franchise (Entrepreneur Centre) Web Sites Franchising Code of Conduct |
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