When franchise buyers are reviewing business opportunities they are encouraged to see any franchisor non-compliance as a red flag. They would be quite justified to stop and reconsider signing up to the franchise. 

So it’s crucial for franchisors to ensure that documents and procedures are compliant.

6 ways to fix franchise buyer concerns

Esther Gutnick, senior associate, corporate advisory and franchising team at MST Lawyers, suggests franchisors consider six key areas of compliance:

• Ensure your business complies with the Australian Franchising Code of Conduct and other applicable laws
• Provide franchisees with a disclosure document in the same format as set out in the Code and ensure it has been updated after the last financial year
• Give franchise buyers the correct form of Information Statement at the earliest relevant opportunity as required by the Code
• Provide potential franchisees the necessary documents at least 14 days before asking them to sign the franchise agreement or make any non-refundable payment
• Ensure your team acts in accordance with the Code’s good faith obligations
• Consider if there any terms in the franchise agreement which may be considered unlawful under Unfair Contract Terms laws

A professional and well-organised franchise system attracts good franchisees. Gutnick suggests you make sure you have a comprehensive, formal and structured recruitment process, from the initial expression of interest in the franchise and continuing throughout the application submission; the completion of all assessments and training and all other steps right up to signing documents.

Gutnick says “If the franchisor seems disorganised and does not have a thorough, systematic procedure for appointing new franchisees, this is another sign that the franchise may not be all that has been promised.”

And this can have consequences down the track.

“Frequently, when a franchisee becomes disgruntled, the cause of their discontentment is the franchisor’s failure, real or perceived, to fulfil certain promises or assurances which the franchisee believes was made to them during the course of the application and sale process.”

Gutnick points out typical representations or inducements made (or claimed to have been made) relate to:

• the projected costs to establish the franchised business and/or ongoing operating expenses
• a specified number of leads or sales the franchisor will provide
• income guarantees or estimated profits that the franchised business can expect to generate
• exclusive rights or territories to be granted
• technology or products that the franchisor will develop and/or provide to franchisees
• franchisor’s training, support and assistance
• discounted or special fees 

However, representations can be made regarding any matter relevant to the franchise, she says.

A franchise lawyer can review the documents provided and advise you on Code compliance and other relevant legal requirements.