Getting good advice on setting up a franchise can be a hit-and-miss affair. There has to be a better way.
What the franchising industry needs
I have often wondered how the average suburban solicitor sleeps at night.
As generalists they are asked to explain, interpret and advise on everything from family law to wills and probate, from leases and business sales to drink driving convictions and traffic accidents. The law is getting more complicated each year and demands specialised knowledge. For generalists, it is difficult to be specialised in anything.
So what happens then when Mr and Mrs Smith wander into their local solicitor’s shopfront and ask for advice on the franchise they saw advertised at the local franchise expo last weekend? They are both sick of their jobs, they almost own their home, so buying a franchising seems like a great way to achieve freedom from their boss and use the wealth they have to create some more.
When the couple give the lawyer a copy of the franchise agreement and disclosure document, will it be the first time he has ever read a franchise agreement? Will he know what it should contain and what’s missing? Does he understand franchising enough to predict the risks Mr and Mrs Smith face that need to be covered in the agreement?
Or will he read it and just say: “That seems to be in order, sign here.”
The same goes for the local accountant. Will he know enough about franchising to make sure that the Smiths ask the franchisor the tough questions, grill current and past franchisees, and do the calculations to make sure that this franchised business makes enough money for both the franchisor and the franchisee to take home a profit? He may, he may not.
New franchisees are often in business for the first time, so they are particularly vulnerable to bad advice. It seems that whether they get good advice is often a matter of luck. It shouldn’t be.
It’s time that franchising advisers – lawyers, accountants and consultants – raised their standards.
Last week the Howard Government released the report of the disclosure provisions of the Franchising Code by KPMG’s Graeme Matthews and its response (Click here to see the Franchising Review Committee’s report and the Government’s response ). The review made it clear that there is disquiet in the industry about the quality of advice that potential franchisees and franchisees are receiving.
The review rejected a submission that advisers should be subject to a certification process. It recommended that the Government tell the Franchise Council to “raise the level of understanding of their members of the particular requirements connected with advising potential franchisees prior to them entering into franchise agreements.” The Government agreed.
It’s a good idea but it’s probably not enough. A certification process would be better. The Franchise Council of Australia has introduced accreditation for professionals based on points. It’s also a good idea.
Potential franchisees need a way to determine who knows what they are talking about. Otherwise they could be wasting their money on well-meaning but uninformed advice, and getting into a business that they don’t understand.