Code concerns

We have a new Code but what will be the challenges for the franchisor community over 2015? A legal and financial franchise adviser share their views on the big issues.

Janice Bywaters, Bywaters Timms

From a legal viewpoint I think one of the most difficult issues for franchisors over the next 12 months will be coming to grips with the consequences of penalty provisions in the new Franchising Code of Conduct. The old Code had no provision for the penalties that can be imposed under the new Code.

The ACCC will also have increased enforcement options with the availability of issuing infringement notices on franchisors ($8,500 each).

Apart from other administrative issues like overhauling documents, franchisors should be proactive about training their sales team, BDMs, managers and anyone else who deals with franchisees so those people do not engage in conduct that might attract an infringement notice or even worse a $51,000 penalty.

Kate Groom, SmartFranchise

It’s a generalisation, but new franchisees typically need more help with the business and financial side of things than franchisees did 15 to 20 years ago. Reasons include lack of broad business experience, and overseas backgrounds of franchisees. People from overseas may have business experience, but not of the Australian business environment.

The competitive economy means franchisees need higher levels of business and financial acumen, to be able to make good decisions. For instance, to perform the balancing act between squeezing costs on wages or purchases, and delivering good customer service.

The new Code will hopefully increase focus on financial due diligence, as prospects are being alerted to business risks. All business involves risk, and we believe franchising will be better for all when buyers think through and address the risks up front. Buying a franchise is the most significant financial decision a franchisee will make in their life, and it’s important to think it through.

I expect the Code changes will also increase franchisors focus on the financial aspects of their business, including management of advertising funds and franchisee understanding of how the funds are managed.