Franchise watch

With over 950 franchise systems in Australia to choose from, how can you determine which is the right one for you? How can you be sure you are investing in a bona fide franchise system?

When there is close analysis of why new franchisees fail, one common reason prevails. It seems excited folks moving into their own business don’t do enough due diligence on the business prior to entry. They tend to be so excited about the prospect of going into a new business that they fail to satisfy themselves fully that they are making the right decision.

If there is one lesson to be had from another’s unfortunate business failure it’s that you must do the due diligence prior to going into business. Running a small business is hard work. It requires effort and capital investment, and many new entrants don’t acknowledge this important element prior to entry.

Franchising like any other business is risky. Yet Griffith University’s 2006 research indicates that strong growth remains in franchising.

At present, the sector provides $128 billion to the Australian economy, equalling 14 per cent of GDP. With franchising growing at 14 per cent, the competition for your investment is increasing, allowing time to consider all the opportunities. So take your time and do the due diligence.

The word ‘entrepreneur’ can raise the ire of many people within Australia who have been burnt by the scoundrels of the past, such as Connell and Skase. Governments have fallen having dealt with these crooks. Yet, even though we know these scam merchants exist, we still play fast and loose with our funds – investing in their ‘too good to be true’ schemes. Crooks can be found in any walk of life and, in business, we have a litany of them currently serving jail time.

Crooks will always want the easy buck, and they will take yours rather than work for it.

The Australian Competition and Consumer Commission (ACCC) provides a regulatory framework for business to operate under, yet crooks still exist. Even though we have a regulator, we still hear stories of people being tricked or wronged out of their life savings in schemes that were structured to be nothing more than a device to fleece money.

Why? Why do investors still lose money to scam artists? I’d suggest the reasons lie behind the following two things, which will always lead to financial misery:

1. Many investors want an easy dollar; and

2. They don’t want to do the due diligence before investing.

Franchising is no different to any other business – it is risky. We have the most regulated franchise market in the world. It is considered to be world’s best practice, having been adopted by other countries. We have a Franchising Code of Conduct (the Code) that ensures franchisors must provide information and meet the requirements of the Code. In many of the failed cases, the easy dollar and lack of due diligence prevailed.

The Code asks that a franchisee seek due diligence advice before signing the document. So if a franchisor resists you getting advice, walk away. If a franchisor does not provide a disclosure document, walk away. If a franchisor does not spell out the costs associated with running the business, walk away. If a franchisor does not want you to talk to other franchisees, walk away. If you are not fully satisfied with the business proposition, walk away.

The Franchise Council of Australia (FCA) goes one step further to help you select a franchise system. If a franchise system does not subscribe to increased standards by being a member of the FCA, then you should ask why. If you aren’t satisfied, then walk away.

Access the wealth of information in the buying a franchise and running a franchise pages.