Homework key for franchise buyers
The ACCC also advises potential franchisees to beware of 'get rich quick schemes', and know their cooling-off rights. Photo: Sasha Woolley
THE consumer watchdog is urging would-be franchise buyers to watch out for inflated franchise-income claims. The warning follows complaints to the Australian Competition and Consumer Commission from franchise owners who say they were promised a minimum "guaranteed" income from their franchise but had earned little or nothing. Many complaints involved cleaning and home services.
''The ACCC is investigating whether a number of franchisors in this industry engaged in misleading or deceptive conduct by making claims about potential earnings,'' acting ACCC chairman Michael Schaper said, adding the watchdog was particularly worried about franchisors targeting people from non-English speaking backgrounds.
While most franchisors are honest, a growing number seem to be making untenable promises, Dr Schaper said.
Anyone thinking of buying a franchise should discuss their franchise agreement with an independent lawyer and an accountant, he said.
He also suggested consulting other franchisees to ask if they were earning what they initially expected.
Franchise lawyer Elizabeth Gore-Jones echoed Dr Schaper's warnings. "It is imperative that a potential franchisee speak to current franchisees within the system," she said.
Information about former franchisees should also be in the disclosure document, unless they have requested it be withheld, she said. If a franchisee had left the system, there will be a reason - find out what it was. Ms Gore-Jones said it also paid to investigate what any earnings information a franchisor supplies is based on, in light of three questions.
"Do those figures reflect the demographics of the area the potential franchisee will be operating in? How many weeks, months or years was a franchisee operating before they earned that amount? How old are the figures?" Ms Gore-Jones said.
Ensure you get the figures in writing, she said. Then check any disclaimers the franchisor includes.
Management accountant Heather Smith said the ACCC's warning highlighted many of her own concerns.
Ms Smith, who coaches new franchisees on accounting, said anyone with money was "a possible target" for deception. The current economic environment meant many laid-off workers with redundancy payments may be considering buying a franchise, she said.
According to the ACCC, franchisors who distort the potential income of a franchise can be subject to litigation and court-imposed penalties of up to $1.1 million per breach.
The ACCC also advises potential franchisees to beware of "get rich quick schemes", and know their cooling-off rights.