Why Compliance Is So Important In The Franchising Space

A franchisor creates a network of franchisees to systematically build a brand and reputation that accompanies a credible and well-established business. Those that become a part of this network uses and benefits from the brand, its reputation, and management systems. It enables branching out into new product areas, widens the scope of the brand and expands the business model.

This process of growth and expansion needs to be backed by a robust compliance system, without which it will not be possible to achieve the desired business targets. A franchise attorney is an expert who can educate you about your compliance responsibilities. Here are a few questions you need to ask yourself if you want to become a franchisee.

Know The Franchise Agreement In Detail

  • Are you willing to make sure that your business practices conform with the Franchising Code of Conduct and the Australian Consumer Law?
  • Is it possible for me to comply with every clause of the franchise agreement?
  • Have I gone through the franchise agreement with an eye on every detail and without ignoring the fine print? You can seek the assistance of a franchise attorney if necessary).
  • Have I thoroughly scrutinised the disclosure document? You need to read the agreement and other related documents carefully, even if you have hired the services of a franchise attorney.
  • Have I received an operations manual from the franchisor and checked it? The manual details the respective responsibilities of the franchisor and franchisee and how they cooperate to fulfill those responsibilities. By checking the manual, you are accepting the system as legitimate and tested as well as agreeing to abide by the rules and regulations. A franchise solicitor can help assess your ability to work according to the manual.

You need to remember the primacy of the operations manual. In case, the franchisor denies you the right to review the operations manual before signing the agreement, request to view it at the franchise headquarters.

Reading the disclosure document is critical as it enables you to make sure that a particular system complies with the Code of Conduct. If you find that you cannot grapple with these issues yourself, do not hesitate to ask a franchise attorney to help you.

How To Check Whether A Franchise Network Is Code Compliant

Here is a check-list that will help you determine whether the franchise system is compliant:

  • Provides full disclosure of the franchise system’s important events including sales data, a list of current franchisees as well of those that have terminated their agreement for various reasons
  • Can furnish the last two financial statements or an audit of the previous six months.
  • Make available a full disclosure of legal issues encountered by the franchise in the past
  • Able to tell you whether the Franchisor’s Code of Conduct applies at all times
  • Provides financial reports for proper auditing of the advertising fund

An agreement (regardless of the name), that satisfies the overall definition of an agreement as per the Code, will be governed by the franchising Code. It means that any agreement (written or otherwise) that abides by a set of management rules, pays regular fees and uses the trademark of an established company to run its operations is probably a franchising business.

Franchising, like other commercial relationships, works within the framework laid down by the Australian Competition and Consumer Commission. It is a watchdog over non-compliance. Any breach in compliance is subject to hefty penalties such as fines. If you have any doubt about the compliance aspect of the franchisor system you are working under, consult your franchise solicitor to avoid being liable to penalties.

It is true that when the franchisors are non-compliant with the systems that comply with the law, it is their fault. But this may result in them being made to introduce a robust compliance agenda that affects the franchise system working under them, that you are part of.

In Closing…

It is essential for you to be well-versed with the code that applies to your franchise business. The Code is your franchising bible. It provides you guidance and makes you aware of your rights and responsibilities as a franchisee. Try to get complete details about the working of the franchise system from the ex-franchisees who have run their business successfully.

They can provide invaluable insight into how the system works and the things you need to be looking at to keep your bases covered. In turn, this will help you make a well-informed decision and embark on your franchising venture with your eyes open.

When you perform due diligence before entering into a franchising agreement, it helps you avoid pitfalls and gives you a solid footing. You will be more confident while entering the system and will be able to make an early success of your franchisee venture.

If you want to know more, feel free to get in touch with us at The Franchise Institute. You can call us on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.

Thanks for reading,
The Franchise Institute Team
1300 855 435

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