In March of this year, the Federal Government launched an inquiry into the Franchising Code of Conduct looking at the current issues being faced by both franchisees and franchisors.
One submission to the inquiry by a franchisee mentioned how he was treated very poorly by the franchisor and was "set up to fail".
Before entering into the franchise, the franchisee rang other franchisees to hear their experiences with the business model. He received positive feedback from them. He later learnt that the franchisor had phoned those other franchisees that were unhappy with the franchise and therefore the franchisee was misled into thinking he was getting himself into a good profitable business opportunity.
The franchisee could not afford mediation or legal assistance. He ultimately had to sell his home when the business failed.
The inheritance the franchisee had received from his grandfather was going to go towards his children’s education, however, it had to be used to assist him to avoid bankruptcy due to the failure of the franchise. In his submission to the Government inquiry, the franchisee emphasised the need for changes to the current Franchising Code in order to hold franchisors more responsible for their actions.
If you are thinking about becoming a franchisee you must first do a lot of investigations (commonly called "due diligence"). Before signing the franchising agreement and lease, always seek legal advice as to whether they are fair and reasonable, and always get a professional business advisor and/or accountant to assess the likely future profitability of the business and most importantly, keep an open mind and be prepared to accept that advice, no matter how excited you are to commence your new venture. If you have any questions regarding a franchise agreement call us on (02) 9440 1202.