Big Brother Is Watching

FRANCHISING CAN BE a wonderful thing - we'''''''ve all heard the statistics, seen the success stories, read about the innovators, watched small organisations become international heavyweights. It is a powerful tool and provides those wishing to start up their own business a helping hand to guide them through what is essentially a steep learning curve.

For instance, groups like McDonalds, Pizza Haven, Midas, The Coffee Club, and Fastway Couriers could never replicate the growth they have already achieved, and indeed, continue to achieve if franchising was not chosen as the method of expansion. However, franchising does have a dark side. You don't hear much about the franchise concepts that do not succeed. You don't hear much about the disgruntled franchisees who have lost time and money, through investing into a scheme that was nothing more than a half-baked idea.

Potential franchisees demand two things -safety and security. They need to know what kind of group they are considering joining, how long they have operated, where they operate, what the background of the company directors is, where they plan to take the group strategically, and finally, what kind of support they will receive. In short, franchisees need and have the right to know that the group they are joining is ethical and reputable.

Enter the Federal Government's Department of Workplace Relations and Small Business. On the 1st July 1998, the federal government enacted the Franchising Code of Conduct, and in doing so acknowledged that franchising was an integral part of the Australian economy. This was the final stage of a series of events that took over seven years to reach some sort of conclusion and present day standards in the franchising arena,

To quote the forward of the code, it "marks a wholesale change in Australian franchising arrangements. The Code of Conduct will bring a new focus to improving communication and strengthening relationships between franchising industry participants," going on to add that, "the Commonwealth Government's approach to the problems which have beset the franchising industry allows franchisees and franchisors to work together to set and regulate industry standards."

The question begs, has it? Have the complex disclosure requirements and dispute resolution procedures really been of benefit? Whilst one could be snide and say that the lawyers have been the real winners, the truth is that the code has restricted the entry of sub-standard operators and improved the reputation of franchising. The cost involved with compliance - a process that often involves the work of lawyers, accountants and advisers - is one entry barrier. For a potential franchisor to invest that much time, effort and money is a strong sign that they have real faith in their ideas and systems.

Basically, the code offers some protection for participants. Many franchisors have stated that the code is too detailed, and question just why they are forced to disclose such details as any prior breaches of a franchise agreement, contravention of the Trade 1 Practices Act, contravention of the Corporations Law, misconduct, dishonesty, criminal record, bankruptcy and insolvency.

Many franchisors were arguing that the costs associated would hinder the growth of the industry and scare off potential franchisees. Scare off franchisees; it seems odd that some franchisors are worried that through providing details that outline the integrity of their business they would scare potential investors. If the system they are promoting is so good, so noble and honest, then the Disclosure Document would do nothing but back up the claims they make through advertising and promotional materials.

The code also allows the Australian Competition and Consumer Commission (ACCC) to take action on behalf of franchisees. In recent years the ACCC took action against four franchisors - Al Mobile Radiators, Simply No Knead, Cheap As Chips and Millennium Solutions - all being taken to the Federal Court for alleged breaches of the code. Al Mobile Radiators and its Director were found to be misleading in breach of the Trade Practices Act, with refunds ordered to franchisees.

Simply No Knead, it was alleged, went so far as to systematically refuse to negotiate reasonably and in good faith with franchisees in response to requests and complaints. Further allegations ranged from Simply No Knead refusing to supply product to its franchisees, causing the telephone numbers of its franchisees businesses to be removed from Telstra directory assistance, and selling or offering its products in the territories of some franchisees.

The ACCC also made allegations against Cheap As Chips that they treated franchisees in a heavy-handed manner and required compliance with conditions beyond what was reasonably necessary to protect the franchisors' legitimate interests.

In terms of Millennium Solutions, the ACCC alleged that the breaches included misrepresentation (in regards to the number of technical staff and locations), and unfounded claims (such as the size of its marketing, administration and support structure; and the potential to earn the stated income of $600 000 per annum).

I believe that in general the majority of franchisors are doing their best to comply, which shows that the industry in general is doing its best to be ethical and honest. No doubt some will be investigated and subsequently charged by the ACCC, but this is not a bad thing.

It is good to get rid of the dodgy systems and the conmen, the people who sell their businesses off the back of an industry that has defied economic trends and cycles and remained a strong, solid way of doing business for a long time. It is good to shake the advisers and lawyers who try and find every loophole, every possible emotive word or phrase to evoke a feeling of confidence in the prospective franchisee.

Although the trend for franchising is normally expected in countries like the United States or Europe, here in Australia these kinds of business directions are typically adopted with a little more caution. Business owners now have the understanding that franchising really does work and there are numerous examples of good quality franchises in operation around Australia.

Due to the high level of franchising publicity within international markets, Australia has well and truly tapped into this market frenzy and introduced this new style of business operation. Getting started in business franchising has never been as simple as it is today, and the variety of franchise offerings is growing constantly. If you are considering growing your business without the pain of additional stores, inventory, staff responsibilities and capital injection, franchising is the ideal method of further expansion. Business owners of today can be assured that Australia has well and truly adopted the strictest standards and regulations for business franchising. Conforming to these standards, a reputable franchising agency will ensure the path you take is the correct choice for your business.

The secret is finding the right franchise and the right adviser. Look for people who are willing to help - patient, kind and understanding. Buying a business, any business, is a big step,- you must take your time and shop around. All the hard work and research will be more than worth it when you find yourself in charge of your future, and most importantly, happy.

By Nickolas James of Which Franchise? Magazine