Franchise business in financial trouble?

The franchise business, once viewed as lucrative, is in trouble, with many franchisees close to bankruptcy. Thirty franchisees are concerned they would go bust as franchisors obtain government funding in their name.

http://www.theedgemalaysia.com
September 9, 2009

Franchise business in financial trouble?
Bernama

KUALA LUMPUR: The franchise business, once viewed as lucrative, is in trouble, with many franchisees close to bankruptcy.

Thirty franchisees are concerned they would go bust as franchisors obtain government funding in their name.

They are calling on Perbadanan Nasional Bhd (PNS) to stop funding franchise businesses as they were not bringing any benefit to the franchisees.

Former franchisee owners of Marrybrown, Jukebox, Watershop, VV Shop, Camps Apparel, Sinma and Kwikstop hope that by bringing their plight to light, the authorities would investigate their claims and find a solution to the problem.

The franchisees claim they are in debt of between RM100,000 and RM450,000 as a result of agreements that favour the franchisors.

"In the franchise business, it should be a win-win situation for both parties but now the situation is more favourable to the franchisor," a former franchisee of Jukebox, Hapsah Jaafar, told reporters here on Sept 8.

She claimed franchisees were running into losses as a result of the franchisor's actions.

"For instance, we end up owing franchisors for stock purchases which we have no control over. Excessive and unsupervised stock purchases, almost daily, result in stock overruns.

"Ultimately, the franchisee ends up in debt to the franchisor," she lamented.

Hapsah, who had to close down her Jukebox business along with eight other franchisees, hoped PNS would not continue with the franchise system involving parent companies in order to save others from going bust.

"Three others in the business are struggling to survive and may soon face the same fate," she added.

Harian Shoes Sdn Bhd is the franchisor for Jukebox which retails shoes and accessories for men, women and children.

The franchisees are usually fresh graduates.

"Imagine at a young age, we are already saddled with debts," said a former franchisee of Marrybrown Restaurant, Mohd Hizal Mustafa.

He said eight Marrybrown outlets were forced to shut down within two years of operations.

"If we were not capable of doing business, PNS would not have placed their trust in us and extended us loans.

"Some of us even invested our own money to start the business before PNS sanctioned our loan applications," Mohd Hizal said.

He claimed that millions of ringgit in government funding, via PNS, have "gone down the drain" without any returns.

"If franchisees succeed and are able to repay their loans, will it not benefit all parties?" he asked.

The Muslim Consumers Association of Malaysia called on the relevant authorities to solve the impasse between franchisees and franchisors.

"The financiers should look at the overall franchise system to determine its level of success. Will it suffice just to provide funding and leave the franchisees on their own?" asked association secretary Datuk Nadzim Johan.

Franchisees are made to understand that PNS and franchisors will both offer various forms of assistance to ensure they succeed.

With the current deadlock, it seems that the relevant authorities and the Franchise Association of Malaysia are washing their hands off the problem, despite numerous representations made to them.

"Perhaps, the Franchise Act should be amended," suggested Nadzim. — Bernama

http://www.theedgemalaysia.com/business-news/148939-franchise-business-in-financial-trouble.html


Brought to you by WikidFranchise.org

Risks: Bankruptcy, Call for franchise law, Churning (serial reselling), Debt traps, Don’t buy any franchise?, Forced ordering, Franchisor association not trusted by franchisees, Franchisor association public relations machine, No franchisor support , Refuses to accept complaint, Government guaranteed loan program very attractive to fraud, Government guaranteed loans, No program evaluation being done by government, Trade association fronts and defends best and worst franchisors, Trade association membership a bogus "Good Housekeeping Seal of Approval"., Malaysia, 200900909 Franchise business

Unless otherwise stated, the content of this page is licensed under Creative Commons Attribution-ShareAlike 3.0 License