Stand Tall, Hold Fast and Engage

In my parting piece as Chair, I would like to focus on the future and some solid tips, but my perspective has to come from a base of our achievements (and failings) to date.

The theme of the FCA Board during the past couple of years has been 'inclusion' and we have taken solid steps toward meeting the needs of franchisees, suppliers, consultants and women in franchising. They are real, meaningful and actionable, and they have stood us in good stead throughout the West Australian, South Australian, and now Federal Parliamentary inquiries into franchising – as well as the Retail Tenancy Inquiry and the successful High Court Ketchell appeal. This is the 'Representation' pillar of the FCA and it remains absolutely essential in the mix.

What's frustrating is that the degree of attention to Representation has been diverting. Franchising is one of the big engine rooms of the Australian economy. Historically franchised business is better equipped to survive downturns, and this is not the time for further regulation of this nation's true entrepreneurial sector.

The Rudd Government recently announced a grab bag of minor small business tinkering. But what does franchising want? Not handouts. Now that the 'perfect storm' has hit, we want government to simply 'get out of our pockets and out of our way,' so that we can get on with what we do best as entrepreneurs... building wealth for Aussie families.

Out of our pockets!

When the introduction of GST effectively appointed us unpaid tax collectors, the upside was supposed to be abolition of the myriad state taxes on leases, banking transactions, payrolls... the list is endless. Some states have helped to a minor degree but all have taken different stances, which only makes the red tape worse.

Payroll tax was intended to apply only to big business, but bracket creep has meant that these days you need only around ten staff to 'qualify' for this blatant small business rip-off. Licensing dictates – fantastically complex and expensive to satisfy – were supposed to have been 'harmonised' state-by-state, by both the previous and current federal governments. It hasn't happened. We see an intention toreduce educe immigration to protect Australian jobs, whereas immigration creates demand, which creates jobs. Give us relief on payroll tax and franchising will easily absorb the inflow, and employ many 'newly unemployed' Australians to boot. The Matthews Inquiry into franchising concluded in March. Then we had West Australia, South Australia and the Federal Parliamentary Enquiry hot on each others' heels. How many inquiries do we need?

In these darkening days, the steps franchising needs government to take include:

• Getting GST to do what it was supposed to do. Abolish arcane state taxes
• Harmonising state legislation, particularly that related to licensing
• Maintaining – no, increase current immigration. It creates demand
• Implementing the Voluntary Code suggestion by the Retail Leasing Inquiry. Put landlords and franchising on a level playing field (now that's where some real attention should be focused)
• Ending this seemingly unending series of duplicative enquiries. Any sane person would have to agree that four enquiries operational within a twelve month period is a farce

Current status

Of late, I have been referring to 'The Perfect Storm' – an economic circumstance in which some franchise systems will set themselves up for the recovery by grabbing market share from suffering or defunct competitors, while those less agile or in particularly vulnerable industries might not survive.

The `foodies' say they're doing fine. The high-end luxury market seems okay. Some businesses like PoolWerx have experienced a short hiccup but we're insulated by a business-to-business element of the market and our retail stores, and things are well into growth mode again.

Unfortunately, some pure service outfits and certain industries, like finance providers are likely to do it tougher. But remember, franchised business will always be in a better position to survive because we're closer to the customer than big business, and typically have many advantages over stand-alone small businesses.

What's next?

As they say, 'this too shall pass.'

• Stay positive. Stand tall. You can use this situation to your advantage. If your customers are spending less, then go get more customers
• Selectively pare costs until the business is as lean as it can be without sacrificing either marketing, or services to franchisees
• If your position is stable, consider actually boosting marketing while others are out of the picture
• Get closer to your franchisees. Help them monitor their cash flows. Be on high alert for franchises that might be getting into trouble so that you can provide intensive assistance. Lead.
• The last people franchisors should lose are their own staff members. They are the system's reservoir of knowledge and experience and will be difficult to replace when the tide turns
• Should any franchisee become emotionally disputative, remember that mediation is available at a very low cost via your FCA membership. Act early.

Franchise recruitment

Traditionally, when unemployment starts to rise, so do franchise enquiries. But we are in uncharted waters. Many people remain frozen in the headlights. How easy will it be for potential franchisees to get finance? Obviously banks are going to be cautious, but they do still have to lend to make money and comparatively, franchising is a pretty good option. Franchisors who do not have a strong relationship with one or more lenders should put their hands up for a preferred finance arrangement for incoming franchisees. Those who already have such arrangements should develop ever more creative securitisation options.

Do not be tempted to relax your recruitment standards. Now is not the time to have people with questionable mind-sets or unsteady finances entering the system. Give those franchisees who wish to sell every assistance and consider making their franchises available to the more successful members of your existing group.

Remember, now is a great time for suitable, financially capable people to be making the step into a franchised business. You have a strong proposition to sell.

Future for PoolWerx

I have been asked, "So how does PoolWerx intend to ride this out," In fact we have been preparing for around 18-months, and encouraging others to do so as well. So we do not have to do anything much differently now, given the changes we have been making progressively.

However we are always trying to stay ahead of the game, and right now we are revisiting our financial model with the intent of temporarily partnering existing franchisees into additional territories, and new franchisees into the system. The franchisor takes a solid slice of equity in the new (or resold) franchise – possibly a majority holding –and very actively partners in that franchise, progressively selling down equity as certain benchmarks are met.

That's putting your money where your mouth is and achieves a number of things:

• It is less expensive/risky for existing franchisees to expand their interests in the system, and for high-potential intending franchisees to enter;
• The new or re-sold business has very solid support from a franchisor partner who has 'skin in the game' and budget/human resources allocated, independent of the system at large;
• There is less likelihood of misunderstanding or dispute;
• Transition is made easier should franchisees decide that the arrangement is not for them; and
• Through direct involvement, the franchisor remains very close to the coal face, across the board.

FCA focus

I think the main regret I have concluding my time as Chair, is that in dealing (well) with urgent and complex matters, the FCA has not delivered to its own expectations in terms of its Education program. Progress has been made, but not as much as might have been the case had resources not been diverted.

Franchise specific education is so important to new franchisors, intending franchisees, consultants and advisors that I am confident the FCA will see it as a priority when (hopefully) the last of these government inquiries into the sector is done and dusted for a while.

Thanks

I have enjoyed my period as Chair of the FCA and have been delighted to contribute. I am immensely grateful to the many, many people who worked to make my role easier, particularly the Board and the FCA team. And there is a special accolade to PoolWerx Franchisees and the staff of our National Support Office, who have kept the good ship afloat and sparkling during my many absences on FCA­business.

John O'Brien, CEO - PoolWerx