Dibbs Abbott Stillman and why franchises need secure systems

According to Dibbs Abbott Stillman , franchising is a style of operation that relies heavily on being systematic. One of the important ‘systems’ for franchisors and master franchisees involves planning to review the disclosure document at least once a year. Under the Franchising Code of Conduct franchisors and master franchisees must update their disclosure document within three months after the end of the financial year. If you have a June financial year-end, this means updating the disclosure document by 30 September 2005.

Where to begin?

Following is a list of points to be considered when updating the disclosure document:

· Update the date of preparation;

· Any of your details that may have changed – for example, your qualifications, experience, new senior personnel;

· Any current legal proceedings or arbitration relevant to the franchise;

· The number of franchisees and relevant details of each (if they have changed);

· Any franchise that was transferred, ceased to operate, terminated, not renewed, or bought back in the last financial year;

· Updating the breakdown of expenses for the marketing fund to show the breakdown in the 2004/2005 financial year;

· Updating the solvency statement at section 20 of the disclosure document. Where financial statements are included, update the statements to show results for 30 June 2005 and 2004.

Financial housekeeping

Also, where you operate a marketing or other cooperative fund, you must:

· Prepare an annual financial statement of the fund’s receipts and expenses for the last financial year, including the amount spent on production, advertising, administration, goods or services supplied by you or an associate and any other stated expense; and

· Have the statement audited by a registered company auditor within three months after the end of the last financial year (you do not need the financial statements to be audited if 75 percent of your franchisees in Australia, who contribute to the fund, agree that the statement does not need to be audited. If relying on this, make sure you clearly have the consent of the right number of franchisees).

You do not need to send all current franchisees a new disclosure document, but they are entitled to request a copy during the year if they wish.

Is there anything else?

The above list is not exhaustive. It is important to take the time to read through the whole disclosure document

to ensure that everything is up-to-date. You should also ‘step back from the details’ and make sure that the document is as clear and user-friendly as possible. There may be other important aspects of your business that franchisees need to know about in order to understand what they are investing in. It is possible to fill a disclosure document with correct information, complying with the ‘letter’ of the Code, and yet mislead franchisees by omitting important details that they would expect to be told.

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