How to prepare your franchise business as a first-timer

If you are eager to buy into a franchise business, now is the time to prepare for major legislation changes potentially set to shake up the industry.

Following the sector’s turbulence and bad press in recent years, with companies such as Caltex, Retail Food Group and 7Eleven under fire, the Federal Government announced plans earlier this year to launch a taskforce in an effort to combat the systemic issues that appear to be plaguing the industry.

I look forward to see what, if any, effects the implementation of the taskforce will have on misbehaving franchisors and how effective the taskforce will be in enforcing the current codes and regulations.

The current codes and regulations have been revised and updated periodically over the last fifteen years to very little effect, and I believe that is more an issue of enforcement rather than quality of the regulation.

For too long, it has been left to individual business owners to try and enforce their rights through private litigation and that can be an expensive and daunting process for young punters.

I am hopeful that these changes will also provide businesses with clear and transparent guidelines to avoid any wrongdoing due to ambiguity.

One major call to action in respect of this taskforce will be the treatment of employees in the franchises, so it is important for businesses to ensure all employment contracts are compliant and rights are being properly implemented.

Franchisors should be alert and reflect best practice standards by consulting with their lawyer and continually reassessing their business operations and standards, guaranteeing they are all above board and avoiding any malpractice in the workplace.

Navigating through legislation, regulations and the common pitfalls of fledgling businesses can be complex, so here are some top tips that budding business owners should consider before setting up a franchise.

1. Learn the basic skills of running a business

Inexperienced business owners often assume franchises would offer support. This is not the case. A franchise does not teach you how to run a business. Good franchisors may offer mentoring and training on the brand and systems, but without basic business skills, novice punters are bound to struggle.

2. Do your research

Franchisors will provide you with an encompassing amount of information to read prior to signing a contract. Ensure you thoroughly read the material as it is your best chance to get a snapshot of the business and its potential.

3. Seek professional advice

The disclosure material you receive will contain financial information about the business. It’s strongly recommended to invest in professional legal and accounting advice early on to find out what your current financial position is and what it is projected to be.

4. Understand the franchise fee structure

A franchise that structures its fees based on a fixed percentage of your profits tends to be more committed to your success. Franchisors that just charge a flat rate no matter how well or poorly your business runs may not have your best interests at heart – simply ask the question.

5. Stay committed and prepare to work hard

Learn the company’s values and goals and get behind them. You will only get out of your business what you put in. Work hard and put effort into your business and your staff early on for a better chance of success.

Spencer Slasberg, Senior Associate and Commercial Litigator, Bennett & Philp Lawyers

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