Review for $128bn franchising sector

One of Australia’s most burgeoning business sectors needs to become more accountable, according to a government review.

The $128 billion dollar franchising sector, that keeps more than 600,000 Australians in employ, was found to be working efficiently. However, the report recommended potential franchisees are given greater powers to further investigate franchise businesses before committing to them.

Federal Minister for Small Business Fran Bailey said franchising was undoubtedly successful, but rising concern regarding information given by franchisors led her to commission the report.

The report recommended potential franchisees should be able to liaise with franchisees no longer in the system as part of their due diligence in investigating franchise business.

Ms Bailey said the recommendations would allow potential franchisees to make the right choices.

The broader scopes of knowledge divulged would reduce risk for the franchisees and contribute to the future feasibility of the franchising sector.

Potential franchisees would be able to ask about the franchisor’s fulfilment of promises, general helpfulness, and contribution to the franchisee’s success of failure.

Franchise Council of Australia CEO Richard Evans said he welcomed the report, stating that it confirmed the current strength of the Australian franchising regulatory framework.

Mr Evans said that although business failure could strike at any time for any of a multitude of reasons, this risk could be minimised by potential franchisees carrying out proper due diligence.

Further government recommendations in the report include:

• Authorisation for franchisees to review franchise marketing expenditure annually.

• Changes to the Trade Practices Act 1974 to address the dictatorial power of franchisors to alter agreements in their own favour.

• The length of time franchisors to notify franchisees of a change in their materially relevant circumstances to be shortened from 60 days to 14 days.

• International franchises are now required to adhere to the Franchising Code of Conduct.

• Franchisees to be given comprehensive details, including history, of the proposed business site.

The $128bn franchising sector accounts for 14 per cent of Australia’s gross domestic product.

There is further information available regarding buying a franchise and running a franchise.