Room to grow

Intheblack, Sep 2008 by Parker, Derek

"Many franchisors just see the prospect of growth fuelled by franchisee capital," Gehrke says. "But what makes a successful franchise chain is a strong foundation. The ones who move too fast are the ones most likely to fail."

Gehrke points to recent amendments to the disclosure document stipulated under the code that require franchisors to provide potential franchisees with contact details of former franchisees. "Potential franchisees need to be realistic, and this can be a very effective reality check," he says.

"In speaking with former franchisees, a potential franchisee should understand that there will always be some areas of dissatisfaction - that goes with the territory.

"But if a former franchisee is still angry and upset after several years, then that's a big warning sign. If someone who has been there and done that has a positive message, then that should be listened to as well."

The regulatory framework of the franchising sector continues to evolve. In June, the parliamentary joint committee on corporations and financial services announced that it would hold an inquiry into the code of conduct (even though a round of changes from the previous examination was made only a few months ago).

An issue to be considered by the inquiry, and which is currently being considered by the government, is the requirement of "good faith" payments by franchisors to franchisees on the termination of a contract, to recognise the goodwill that a franchisee has established for the brand.

The joint committee will also look at the dispute resolution mechanisms, and the interaction between the code and section 51AC of the Trade Practices Act, which deals with unconscionable conduct.

Closing date for submissions to the inquiry is 12 September, and the joint committee plans to report in December.