Interview with Jeff Waters, Daily Business Essentials Podcast

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NICOLE GOODMAN:

Taking a franchise can involve big relationship risks. Will the franchisor be reasonable or too demanding? Will litigation become costly or even end up in court? Well, the government promises to end the imbalance of power with big changes coming. From SoundCartel, I’m Nicole Goodman, and this is Business Essentials Daily.

In June of this year, the federal government made changes to the franchise system that it says are designed to make life easier for franchisees. Federal Small Business Minister Stuart Robert says the changes were designed to help correct the power imbalance that has tended to favor franchisors.

A soon to be implemented Franchise Disclosure Registry promises to give potential franchisees full knowledge of all franchise systems and disclosure documents available. The minister said he would help franchisees choose the systems that would work best for them. Stuart Robert begins by explaining to Jeff Waters why the government felt the changes were necessary.

STUART ROBERT:

It came from a 2019 parliamentary report. The government responded and passed – most of the changes were made on July 1 of this year. Franchising, as you know, employs over half a million Australians – 1,200 different systems and 90,000 different franchisees. It is therefore a very large part of our business ecosystem. And like all parts of the business, we must constantly and conscientiously reform and change to keep up with modern demands, to face challenges.

We keep finding small issues in the franchisor / franchisee relationship, and this is another set of reforms to try to balance that power imbalance for what is a very important part of the corporate sector.

JEFF WATERS:

So, in a broad sense, what is the nature of the reforms that have been recently adopted?

STUART ROBERT:

The reforms implemented on July 1 are fairly generalized. A number of them go to the automotive side where the requirements are mandatory and no longer voluntary. We capture the agency network when it comes to the dealer supply chain, and we have tried to achieve some consistency across the large multinational OEMs and, of course, the dealer network in Australia.

Regarding the larger franchise system, we are introducing the franchise disclosure register from next year. We have a series of transparency measures in place that include soft money, if you will – that is, if there are any discounts, they have to be disclosed to franchisees. There are a series of prohibitions, for example, a franchisor cannot force the franchisee to pay his legal fees. A range of these changes that are designed just to level the playing field of power imbalance once again.

JEFF WATERS:

So, could you explain in a little more detail what the Franchise Disclosure Registry is and what it is designed for?

STUART ROBERT:

There are so many potential franchisees looking for a system. They believe – and rightly so – that they are alternating a franchise system with an established brand and an established presence, it is an easier route for them to go into business. They are not necessarily wrong. But which franchise or which system to choose? The disclosure registry consists of setting up a single registry that potential franchisees can go to. They can see the various disclosure documents, they can see the key documents, the key metrics, a range of other information, and we’ll finalize the information that needs to be there. But it is designed that a franchisee has full knowledge and concurrency of all franchise systems, all information documents, not to stop the competition but to give them as much information as a franchisee can. get to choose which franchise system would be best for them.

Nothing replaces the buyer’s attention, nothing replaces the know your customer process from the franchisor’s perspective. But this is designed to make better educated franchisees. Hopefully there will be less franchisee failures. And from the franchisor’s point of view, the franchisees who come in are better informed and they self-select so they want to be present in this franchise system.

JEFF WATERS:

So it sounds like a one-stop-shop for people interested in investing in a franchise?

STUART ROBERT:

It is designed as the only place where you can get all the key documentation you need on these 1,200 franchisor systems. So if you are a potential franchisee – your moms and dads – and you want to invest, all the information is there. But, again, that doesn’t prevent the franchisee from getting proper legal and accounting advice, and I strongly encourage them to do so and come in with their eyes wide open. But this is designed to shine a little more light.

JEFF WATERS:

So apart from the legal and financial costs that you just mentioned, are there any other costs associated with participating in the registry?

STUART ROBERT:

We have not yet finalized the full scope of what the registry will include and whether it will include such things as key factsheets or other areas of disclosure. But we will be working on it over the next few months to ensure great transparency for potential franchisees.

JEFF WATERS:

So if I’m an investor interested in franchising, where can I find this new ledger?

STUART ROBERT:

Again, we’ll be finalizing this in the coming months. It will be either business.gov.au or in Treasury. We will find the most logical place for it to sit, and when the time comes, we will broadcast it everywhere. The bottom line is that starting next year, if you’re a potential franchisee, we would very strongly encourage them to use the registry so that they can determine which franchise system they want. And for franchisors, we should never, ever be afraid of transparency and doing your best. This is designed so that franchisees can self-select or self-select, so franchisees embarking on a franchise model should be better informed, should understand the requirements of that franchise model and, while going well, should make better franchisees.

JEFF WATERS:

What does all this mean for existing franchisees and franchisors? Will they have to do something to comply with these reforms?

STUART ROBERT:

For franchisees, no. For franchisors, there is no cost, but they will be required to upload their main disclosure documents and any other set of documents determined by the government. Now, it won’t be an onerous process, but, again, it’s designed so that a full registry exists, there is full transparency. And for franchisors who look at it very carefully and very intentionally, they will find it a great platform to encourage and attract the right franchisees for their model.

JEFF WATERS:

So what is the deadline for franchisors to upload this information?

STUART ROBERT:

We want all of this to be done by the middle of next year. So, once the system is finalized, once we finalize the sets of documents that we want to see, we will communicate to franchisors that they should expect to upload in the first quarter of next year.

JEFF WATERS:

So it seems that everything is going well, the new system will be operational from the end of the fiscal year?

STUART ROBERT:

That would be the intention, absolutely.

NICOLE GOODMAN:

It was the federal Minister of Small Business, Stuart Robert. This episode of Business Essentials Daily is produced by the team at SoundCartel. Thanks for listening. I am Nicole Goodman. We will bring you more BEDaily tomorrow. Follow the BEDaily podcast on social media and visit bedaily.com.au to learn more about the daily Business Essentials podcast.


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