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Under the
‘Franchising Code of Conduct’ a Franchisor must provide you with a
Disclosure Document that outlines the pertinent facts relative to
the franchise opportunity. If they do not offer you one, they
are breaking the law. Be sure you
ask for one and if it is unavailable, simply ask
why.
Non-availability
will mean that they are not complying with the ‘Code’. In any
event, find out the reasons. Non issuance
of a Disclosure Document is a sign that should read ‘Caution’ as it
does not comply with the law.
A Disclosure
Document is a legal requirement for all Franchisors to provide.
They must also provide you with a copy of the
‘Code’.
It is vital
that the concept should have been proved by at least one easily
assessed pilot operation run for a minimum of a year. The
pilot should be separated from the company's other operations and
the viability of the pilot should be able to be demonstrated by
certified figures and books.
Avoid
Franchisors seeking to franchise an untested idea without proof of
success. In this
situation, you are carrying the Franchisor’s risk - an unacceptable
practice in ethical franchising.
Check on how
long the Franchisor has been in business and in franchising. Check
on the number of company-owned and franchised outlets. Check
the length of time they have been operating and their record of
success or failure. The Franchise Council of Australia (FCA)
may be able to help you. Ask if the Franchisor is a member of
the Council, they have best practice as a condition of
membership.
Check on the
financial standing of the Franchisor through a bank enquiry and, if
possible, the company accounts. The Franchisor will only make
profits from the scale of the operation. If it is a new franchise,
are the financial resources strong enough to support the early
development of the system? Lack of resources is the most
common cause of failure among Franchisors. If the Franchisor
fails - you could fail - especially if you have just started up in
business or your supply of goods is jeopardised.
Consider the
Franchisor’s management:
- Does it have
sufficient experience?
- Can it
provide continuity and ongoing services?
- How effective
are the communication systems?
Make your own
arrangements to contact some, or all, of the existing franchise
owners. Wherever possible, visit them personally and try to
ascertain how successful they are.
- Were they
satisfied with the launch support?
- Does the
Franchisor keep promises, particularly with regard to long-term
support?
- How accurate
were his financial projections?
- The
Franchisor should be happy to supply a list of Franchisees. If not,
are they hiding something?
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