Beware potential income claims, warns ACCC

By Sarah Stowe | 29 Oct 2015 View comments

Potential franchisees are being warned by the Australian Competition and Consumer Commission to take steps to substantiate franchisor claims about income levels.

The ACCC has received a number of complaints from franchisees alleging franchisors' minimum income guarantees did not eventuate, with their businesses bringing in litte or no income.

Many of the complaints are from within the cleaning and home services industry.

Acting ACCC chairman Michael Schaper said "The ACCC is investigating whether a number of franchisors in this industry engaged in misleading or deceptive conduct by making claims about potential earnings.

"Franchisors must have a reasonable bases for making all income representations to potential franchisees."

There can be severe financial penalties for franchisors found to be misrepresenting a potential franchise income, with fines of up to $1.1 million per contravention.

"The ACCC is particularly concerned by franchisors which appear to target people from non-English spekaing backgrounds who may not fully understand the agreements they are entering into," said Schaper.

How to get it right

"The ACCC strongly encourages anyone who is thinking about buying a franchise to talk to other franchisees – ask if they are earning as much as they expected.

"You should also discuss your franchise agreement with a lawyer and an accountant. If you don't understand it, don't sign it," said Schaper.

You can check out a free online education program funded by the ACCC and run by Griffith University to help prospective franchisees make informed decisions.

5 top tips

  1. Beware of promises that you will earn a guaranteed income, as well as 'get rich quick' schemes that claim you can make large amounts of money with little effort 
  2. If the franchisor makes verbal claims, ask them to confirm those claims in writing
  3. Get advice from a lawyer and accountant before entering into a franchising agreement or handing over any money
  4. Speak to existing and past franchisees. Their contact details should be in the disclosure document that the franchisor is required to give you before you enter into your agreement
  5. Know your cooling-off rights: you can terminate an agreement within seven days of entering into it or making any payment under it, whichever occurs earlier

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