The Franchise Council of Australia released its independent audit financial report late Friday afternoon, revealing the true state of the organisation’s finances. And it’s not pretty.
In a statement to the members, auditors DFK Collins drew attention to a loss of $1,351.040 during the year ending 30 June 2024, and cash out flow from operations of $444,938.
The auditors have indicated that there is a “material uncertainty” that may cast doubt on the group’s ability to stay afloat.
The report highlights the FCA’s capacity to continue operating is dependent on a number of factors: future profitability, possible financial support from members and the continued support of the Australian Tax Office.
On 29 October the FCA agreed with the ATO a $10,000 monthly payment plan (plus interest) to repay its $190,752 debt.
Richard Thame, chair of the Franchise Council of Australia, admitted the board had not responded quickly enough last year to the deteriorating financial situation.
“I look back and see it took too long,” he said.
A board director, Thame, took over the chair role in September 2024. When asked about the auditors’ remarks, Thame said in the five months since the reporting period measures have been put in place by management that are having a positive impact on the financial position of the FCA.
“It’s also important to note that membership renewals have been very strong and this is the primary source of income for the FCA and that new revenue streams are also being implemented.”
The FCA’s spending rocketed last year as then-CEO Matthew Monaghan set out to meet an overly-ambitious strategy goals.
Thame said in a message to members there had been an “unacceptably high staff turnover and significant cost over-runs”.
The FCA loss includes about $900,000 in employment expenses. This includes team restructure and the costs associated with some terminations.
“Normally this would be expensed over more than one year, but we had recruitment and exit costs in one year. That inflates the cost,” Thame said in an exclusive interview with Franchise Executives.
IT costs also ramped up last year, hitting $200,000.
“For a number of years we were operating legacy systems and we have replaced the membership platform. The FCA can only grow and communicate well with members if it has a fit-for-purpose system,” he said.
Thame also pointed to a change in accounting practice at the FCA.
“Previously bad debt hadn’t been recorded; we’ve only recently adopted an accrual accounting practice,” he said.
Stronger oversight, smaller team: the path to recovery
Delivering better results with a smaller team is one step forward.
“The team got too big,” said Thame. “We have a small team now, and it’s about having a level of corporate control about appointing team members – we’ve tightened up that.”
Thame said the board has also strengthened financial oversight.
“We’ve gone from cavalier to very conservative,” he told Franchise Executives. “One of the first things I did when we appointed Jay [Westbury, new CEO], was set very clear authority limits, and a clear charter so he understands the remit and we understand the role of the board.”
Thame has plans to tighten up processes even further, and for the board to be more transparent.
“We should report to members quarterly alongside a strategy update,” he said. “That provides an opportunity for feedback, and members can see what’s going on – how many people have joined the FCA, who they are, the sponsors, what and how we are spending. That will give members a greater level of comfort,” he said.
Thame has initiated a review of the board structure and skills required from directors. He has indicated to members that a skills-based board would best serve the FCA.
“Initially the board has had a lot of discussions. I’ve engaged with some of the legal committee and we are going to members for feedback, to the AICD and governance bodies, to set out a best practice charter,” Thame told Franchise Executives.
“Last time we tried constitutional change we didn’t do it very well. The reality is we have been hard at work addressing financial issues over the last couple of months. Now is the time to say how do we get the structure right? If we don’t bite the bullet on change, nothing will ever change.
“My aim is not to hang in there as long as I can, it is to do what I can to bring about the change we need, and set up the next generation to make a strong contribution.
“We are heading into an election year. We can’t afford to put this off to the next AGM, we need to be more agile than that.”
He expects change to take place in the first half of 2025.
This year’s AGM is set to be held on Thursday 28 November and Thame is expecting “robust feedback”.
“I’d like to see a good thorough explanation of last year to the audited accounts, then a good summary of what we’ve done since and what we’re working on and the future. It then opens the door to ask about how we should be structured to achieve these goals.
“We have had significant turnover on the board and it is important to balance renewal with continuity to provide the CEO with support, but no-one on the current board wants to stay beyond their welcome,” Thame said.
