Code Not The Culprit In Failed Franchises

The Australian:

FRANCHISING has been a true Australian success story, and now accounts for about 10 per cent of the country’s gross domestic product, but that doesn’t prevent it from coming in for a kicking when things go wrong.

When businesses go to the wall, it is easier for many to point the finger at the model rather than accept that their downfall may instead be the result of failings more close to home. Despite its unquestioned success in this country, many are still quick to point out the problems with franchising rather than acknowledging that like all business ventures, franchises are susceptible to mistakes made by those who run them.

When the franchising code of conduct was introduced in 1998 to deal with concerns plaguing the industry, the nay-sayers claimed specific regulation would harm growth of the sector. It did not, and the level of complaints to the Australian Competition and Consumer Commission has fallen over the period since 1999, although it remains substantial.

The current government review of the disclosure requirements of the code should therefore not be seen as a sign that the code has failed. Rather, it is a case of fine-tuning a good model that has served the sector well.

As the body responsible for administering the code, the ACCC has had ample opportunity to observe many of the factors leading to problems faced by franchisees, from individual or group issues through to system failures.

The most common cause of franchising problems can be broken down into two broad categories: firstly, scams masquerading as legitimate franchise investments, and secondly, genuine systems experiencing severe pressures from expanding too quickly or from structural flaws not sorted out in the early phases of the business.

Regardless of the cause, once things go wrong, it is the franchisee that is predominantly the loser.