Recognising Dodgy Franchisor Disclosure Practices and Knowing When to Walk Away
Established since 2004, at Top Snap, we pride ourselves on our honesty and integrity and always aim for full transparency. Though the latest findings from the Australian Competition and Consumer Commission (ACCC) has found this is not always common among franchisors.
Firstly, it’s crucial to understand that a franchisor won’t disclose specific information or provide you with sensitive data without signing a confidentiality agreement or in some instances, paying a deposit as well. They need to protect their brand and trust that this information won’t end up in the wrong hands.
Once you have signed documents and possibly paid a deposit, how do you recognise dishonesty when it comes to franchisor disclosure?
Firstly, the Franchise Council of Australia (FCA) recommends dealing only with FCA members – this increases protection for franchisees from unscrupulous operators. You can see a copy of the latest Membership list here.
The latest research by the ACCC has identified three key areas where franchisors are not disclosing adequate or accurate information that is crucial for potential franchisees to conduct comprehensive due diligence.
Franchisors must disclose contact details of all former franchisees (unless they wish to opt-out) to allow potential franchisees to contact them to discuss their experiences and get a realistic idea about franchising.
Majority of franchises will have supply restrictions in place for essential goods, this allows them to monitor and control consistency of what can be sold through a franchise and where it must be sourced from, though this must be disclosed so that potential franchisees know what they can and cannot shop around for, before they sign up.
Unavoidable recurring costs such as wages, superannuation, rent and inventory should be detailed in disclosure documents if these costs are within the knowledge or control of the franchisor and are reasonably foreseeable.
The ACCC also found that over 40% of prospective franchisees do not seek any independent, third-party professional advice before entering a franchise.
It is important to understand franchising as a whole, the relationship (and responsibilities) between the franchisor and franchisee, and be sure that franchising is right for you. Buying any business is a significant and life-changing move that should be thoroughly researched.
To find out more about the Top Snap’s opportunity, contact our franchising team today.