Wizard conjures new mortgage life

The Australian dream of becoming self-employed can be the path to financial security, but it can also go disastrously wrong.

Sunday Star Times
January 25, 2009

Wizard conjures new mortgage life
Rob Stock

The Australian dream of becoming self-employed can be the path to financial security, but it can also go disastrously wrong.

For years franchising has been viewed as a reliable, somewhat less-risky option for small investors looking to start their own business. But the 500-plus complaints received by the Australian Competition and Consumer Commission every year arising from disputed between franchisees and franchisors show that franchising is often not the easy entry to business that some people think.

Franchisors on this year’s BRW Fast Franchises list believe the economic crisis may lead to an increasing number of people looking to become franchisees. However, prudent industry players and consultants alike say it is imperative that people do their homework before investing in a franchise system.

It is important for potential franchisees to understand all aspects of their contract, including what (if any) provisions exist for goodwill in franchised businesses.

Franchisors are currently not required to take into account the goodwill existing franchisees have built-up with their clients over the years when it come to ending a franchise agreement. But it is a point that has been taken into account in the federal government’s recent review of the sector.

Franchisors need to comply with the rules set out in the Franchising Code of Conduct, which is administered by the ACCC. They must also provide franchisees with details of the company’s health and the contact details of current and former franchisees. Potential franchisees are encouraged to contact he company’s existing and former franchisees and ask questions about working with the franchisor.

Last year alone there were three government inquiries into the sector. While they varied in content, all shared recommendations to improve the transparency of information given to new franchisees.

Recommendations included providing information to franchisees about their liabilities if a franchise collapses, solid policies for end-of-term agreements and imposing pecuniary penalties for breaches of the code of conduct.

While there are many success stories in franchising, like any industry, it still has its bad eggs. Doing proper research can help to identify the good, stable business opportunities.

The annual BRW Fast Franchises edition is in newsagents on Thursday.

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