Research by the Franchise Advisory Centre indicates there are several key motivating factors for the decision to buy a franchise. While most of these factors will be present for different people’s decisions, the relative importance given to each of these will vary from one person to another, resulting in unique combinations which might arrive at the same destination, but take different paths to get there.

These key decision making factors are:

- Lifestyle
- Brand Security
- Self Direction
- Income
- Skills Development

One of the reasons for the failure of start-up franchisors cited in a study by UK academic John Stanworth was that new franchisors often underestimated the amount and cost of support required by franchisees.

Similarly, one of the greatest sources of franchisee complaints reported to the Australian Competition and Consumer Commission (ACCC) about their franchisor arises from a perceived lack of support.

The issue of support – and the form or forms it should take – exists as a challenge to both franchisors and franchisees. Franchisees can find that the support offered does not add value to their businesses or meet their expectations, while franchisors can find that the cost of support can quickly erode the profitability or other benefits of the franchise model.

The result is that both parties recognise the same issue from different perspectives, and often collide accordingly.

 The franchisee described it as a “dirty, filthy letter” and was seething about both the breach notice’s content and that such an abomination should be laid before him.

The franchisee was truly angry, and left the franchisor in no doubt about the displeasure the breach notice had caused.

But could this conflict and anger have been avoided by a better understanding by franchisees of breach procedures?

With many Australian franchise systems commenting on a lack of suitable franchise applicants domestically, and the economy still growing despite the impact of the Global Financial Crisis overseas, business migrants are attracted to Australia and buying franchises to meet their visa requirements. 

Migrants from around the world are increasingly attracted to franchising as a way of qualifying for an Australian business visa and are prepared to turn their lives upside down to settle Down Under.

Key changes to the Code and the Trade Practices Act announced today include:

1. The introduction of fines and penalties for unconscionable conduct and false and misleading representations;
2. Random audits of franchise systems to be conducted by the Australian Competition and Consumer Commission (ACCC);
3. Public warnings about rogue franchisors;
4. An acknowledgement of good faith in relation to franchise agreements;
5. A requirement to clarify end of term arrangements, including mandatory period of notice of renewal;
6. Provision to include all affected franchisees of a group to be included in ACCC actions;
7. The creation of an expert panel to advise on inappropriate franchising behaviours to be covered by the Code.

The changes to the Franchising Code of Conduct announced on November 5 by Federal Small Business Minister should send shivers down the spines of some participants in the franchise sector.

But it probably hasn’t, because those who stand to be most affected by the changes to the Code deny that that they are franchisors. That’s right. The people who are likely to be most impacted by the new regulation of franchising don’t believe that they are involved in franchising.

If you’re thinking about franchising your business, be prepared to make yourself redundant. In fact, try to make yourself redundant anyway.

That doesn’t mean that you sell a few franchises and retire. Far from it, when you franchise a business you escalate your commitment to the business, not decrease it. The difference is that the nature of the commitment will change so that instead of spending every day working in it, as a franchisor your job is to work on it – full time.

This means that someone else has to work in it, and that someone else needs to be as good as (and preferably better) than you at the things you did when you were working in it.

So how do you make yourself redundant from the daily operations? Consider the following:

Many small business owners exist in the misapprehension that franchising is easy.

At the point of receiving disclosure documentation, many potential franchisees are recommended by their franchisors to use the Franchising Code’s 14-day waiting period to undertake their due diligence on the franchise investment. 

The problem for many potential franchisees at this point is that they don’t know what due diligence is and may have never heard the term before. They may figure due diligence must be something that is expensive and complicated and therefore done by the lawyers or other professional advisors that they might engage to handle “the paperwork” of the sale. 

In other words, it’s something difficult done by somebody else. Nothing could be further from the truth.

The very existence, nature, size and extent of rebates can be a major source of conflict between franchisees and franchisors.

Firstly there is the question of whether or not rebates should be received at all. This is based around the idea that rebates inflate the cost of goods to franchisees, and therefore decrease franchisee profitability and or competitiveness.

The flipside to this argument is that the collective buying power of the group can generate discounts for franchisees that exceed the rebate amount, which means that the net price to the franchisee could still be lower than if they were not part of a franchise group.

An ongoing challenge in franchising is the lack of understanding among franchisees of their obligations under the franchise agreement.

The Franchise Advisory Centre has taken a great number of calls over the years all asking essentially the same question:

“My franchisor wants to me to do / change / stop doing / upgrade or divest something. Can they make me do that?”

Unfortunately the answer is almost always the same:

The traffic accident that is Kleenmaid continues to unfold with administrators Deloittes releasing a final report to creditors which states that the Kleenmaid group debt has swelled from an initial amount of $73 million to more than $100 million, and that the company traded whilst insolvent since June 2007.

In light of this information, it is laughable for the directors of Kleenmaid to blame the company’s woes on the Global Financial Crisis (GFC), as articulated in their now infamous YouTube video.

Unless the GFC started a year earlier, and in Maroochydore not Wall St, the claims by Kleenmaid directors represent one of the boldest examples of truth-bending in modern Australian corporate history.