WNA Blog

Wed 11 Apr 2018

Franchising in the Spotlight

Legal Services

Over the last 12 months the franchising industry has been on of a number of occasions negatively spotlighted in the media.

A Franchised Business, like any business has a measure of risk and can be affected by numerous and various factors, some of which may be out of the control of the Franchisee/Business Owner, and/or sometimes even the relevant Franchisor.

While going into a Franchised Business generally provides no guarantees, generally I suggest being a part of a good franchise network has many factors that can make survival or success much more likely then for a business owner who is effectively going it alone.

While there may be some Franchisors who have not acted appropriately or have clearly breached their legal obligations, I suggest there are many more that are meeting their legal obligations and seeking to foster a strong and positive network.

Consequently, care should be taken when focusing on the negative to colour the whole of the industry, and as such, negatively impact franchisors, franchisees, employees, suppliers and all parties whose livelihood may be materially affected.

What I suggest is needed is for the good news stories to be promoted so as to get a balanced understanding of the industry, and a strong stance taken against those who clearly breach the laws with no regard and bring down the sector’s reputation.

For Franchisors, this is a reminder to ensure that you are cognisant of both what are and that you are meeting all your legal obligations, including having systems and processes to be aware of what your franchisees are doing and actively taking steps to foster a positive culture of compliance. This is also a reminder to take steps to ensure that your franchising model is relevant in today’s current climate and seek to be continually proactive rather than reactive in how you operate, grow and manage your system.

For franchisees, I cannot stress the importance of doing a proper full due diligence into the franchisor, franchise system, proposed franchise business and relevant territory and site before entering into any Franchise Agreement. While this involves an investment of money being spent with lawyers, accountants and potentially other qualified business advisors, given the commitment of money and time being made to become a franchisee, I suggest it is well worth it, and this may minimise and/or avoid problems down the track.

Franchisees also need to ensure that any agreement reached with a Franchisor clearly sets out their obligations, restrictions and rights. That they recognise that there is no guarantee and for them to be pro-active in how they operate and monitor their franchise and the franchise relationship.

Overall, we suggest most Franchisors and Franchisees want a positive relationship where both parties are benefiting. Therefore both parties need to always keep in mind not everything can be predicted or controlled, but steps can be taken, and should be taken, to deal with issues before they become unmanageable and/or at least reduce potential risks.


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