NICOLE GOODMAN:
Today’s episode is brought to you by Mazars.
Taking on a franchise can come with big relationship risks. Will the franchisor be reasonable or too demanding? Will any disputes become costly or even end up in the courts? Well, the government is promising to end the power imbalance with big changes ahead. From SoundCartel, I’m Nicole Goodman, and this is Business Essentials Daily.
In June this year the federal government brought in changes to the franchising system that it says are designed to make life easier for franchisees. The federal Small Business Minister, Stuart Robert, says the modifications have been designed to help correct the power imbalance that has tended to favour franchisors.
A soon‑to‑be‑implemented franchise disclosure register promises to give potential franchisees full knowledge of all the franchise systems and disclosure documents that are available. The minister says it will give franchisees help to choose which systems would be best for them. Stuart Robert starts by explain to Jeff Waters why the government found the changes to be necessary.
STUART ROBERT:
It came out of a parliamentary report from 2019. The government responded and enacted – most of the changes went in on the 1st of July this year. Franchising, as you know, employs over half a million Australians – 1,200 different systems over 90,000 different franchisees. So it’s a very large part of our business ecosystem. And like all parts of business, we need to consistently and conscientiously reform and change it to keep up with modern requirements, to keep up with challenges.
We continue to find small issues in the franchisor/franchisee relationship, and this is one more set of reforms to try and even out that power imbalance for what is a very important part of the business sector.
JEFF WATERS:
So in a broad sense, what’s the nature of the reforms that have recently been adopted?
STUART ROBERT:
The reforms that came in on the 1st of July are fairly widespread. A number of them go to the automotive side whereby the requirements are mandatory, no longer voluntary. We capture the agency network when it comes to the dealer supply chain, and we’ve tried to get some evenness within the large multinational OEMs and, of course, the dealer network in Australia.
In terms of the wider franchise system we’re introducing from next year the Franchise Disclosure Register. We’ve put in place a range of transparency measures that include soft money, if you like – ie, if there are rebates, they need to be disclosed to franchisees. There’s a range of prohibitions, for example, a franchisor can’t make the franchisee pay their legal costs. A range of these changes that are designed just to levelling the playing field of the power imbalance once more.
JEFF WATERS:
So could you just go into a bit more detail about what the Franchise Disclosure Register is and what it’s designed to do?
STUART ROBERT:
There are so many potential franchisees that are looking for a system. They believe – and quite rightly – they alternate a franchise system that’s with an established brand and an established presence it is an easier road for them to enter business. They’re not necessarily wrong. But which franchise or system do you choose? The disclosure register is all about putting in place a single register that potential franchisees can go to. They can see the various disclosure documents, they can see the key documents, the key measures, a range of other information, and we’ll finalise what information is to be on there. But it is designed that a franchisee will have full knowledge and concurrency of all the franchise systems, all of the disclosure documents, not to stop competition but to give them as much information as a franchisee can get to choose which franchise system would be best for them.
Nothing replaces buyer beware, nothing replaces the know‑your‑customer process from the franchisor point of view. But this is designed to make better educated franchisees. Hopefully it will have less franchisee failure. And from a franchisor point of view, the franchisees that are coming through are better informed and they’re self‑selecting so they want to be there in that franchise system.
JEFF WATERS:
So it sounds like a one‑stop shop for people interested in investing in a franchise?
STUART ROBERT:
It’s designed as the one place you can go to get all the key documentation you need across those 1,200 franchisor systems. So that if you’re a potential franchisee – your mums and dads – looking to want to invest, all the information is there. But, again, that doesn’t stop the franchisee getting proper legal and accounting advice, and I strongly encourage them to do so and to walk in with full eyes open. But this is designed to shine a bit more light in.
JEFF WATERS:
So apart from those legal and financial costs that you’ve just outlined, are there any other further costs in taking part in the register?
STUART ROBERT:
We haven’t finalised yet the full extent of what the register will include and whether it will include things like key fact sheets or other areas of disclosure. But we’ll work through those in the coming months to ensure there is great transparency for potential franchisees.
JEFF WATERS:
So if I’m an investor interested in franchising, where will I find this new register?
STUART ROBERT:
Again we’ll finalise that in the coming months. It will be either business.gov.au or in Treasury. We’ll find the most logical place for it to sit, and when the time comes we’ll advertise it far and wide. The key thing is that from next year, if you’re a potential franchisee we’d be encouraging them very strongly to use the register so they can determine what franchise system they want. And for franchisors, we should never, ever be afraid of transparency and putting your best foot forward. This is designed for franchisees to self‑select themselves out or self‑select themselves in, so the franchisees coming forward into a franchise model should be better informed, should understand the requirements of that franchise model and, all going well, should make better franchisees.
JEFF WATERS:
What does all of this mean for existing franchisees and franchisors? Will they need to do anything to comply with these reforms?
STUART ROBERT:
For franchisees, no. For franchisors, there’s not a cost construct but they will be required to upload their key disclosure documents and any other document sets that government determines. Now that won’t be an onerous process, but, again, it’s designed so that a full register exists, there is full transparency. And for those franchisors that lean into this very carefully and very intentionally, they’ll find it a great platform for them to encourage and attract the right franchisees for their model.
JEFF WATERS:
So what’s the time frame for franchisors insofar as uploading this information is concerned?
STUART ROBERT:
We’ll want this all done by the middle of next year. So once the system is finalised, once we’ve finalised the document set constructs we want to see, we’ll be communicating to franchisors that they should be expecting to be uploading in the first quarter of next year.
JEFF WATERS:
So it sounds like all things going well the new system will be operational from end of financial year?
STUART ROBERT:
That would be the intent, absolutely.
NICOLE GOODMAN:
That was the federal Small Business Minister, Stuart Robert. This episode of Business Essentials Daily is produced by the team at SoundCartel. Thanks for listening. I’m Nicole Goodman. We’ll bring you more BEDaily tomorrow. Follow at BEDaily Podcast across social media and head to bedaily.com.au for more from the Business Essentials Daily Podcast.