Posted by Carolyn Dufton
on 6 October 2009
Are you enticing new Franchisees?
..........and if so are you breaching The Franchising Code of conduct?
"Want to go to Hawaii?" the headlines shout.
Is this an advert for a travel company or an airline?
No, this advert appears in the Business and Franchise Opportunities in a newspaper column. The "carrot" is, if you buy this franchise for $ 200K, you will also get a "free holiday."
This type of advertising for new franchisees is disturbing and hopefully not the beginning of a new trend.
Has the economic downturn driven Franchisors to desperate measures? And does this type of advertising really pay dividends for The Franchisor or the incoming Franchisee?
In addition to sensationalised advertising to entice new franchisees, it is also apparent that some Franchisors are finding ways to cleverly avoid certain aspects of the franchising code.
Whilst the Franchising Code of Australia dictates that Franchisors must disclose all materially relevant facts about their business, and encourages Franchisees to obtain professional advice before signing the franchise agreement, it would appear that some Franchisors are finding loopholes to avoid full disclosure before payments are made.
Take for example the recent case of a franchisee being offered training prior to the disclosure document and franchise agreement being provided. The Franchisee accepted the offer to undertake training as "training programmes are only offered periodically and you'll miss out".
The Franchisee then made a non-refundable payment for training and attended the course.
Some three weeks after training, the disclosure document and franchise agreement had still not been provided and the franchisee has not been able to commence business operations.
This company is not a small franchise company who could claim any form of ignorance of the Code. The company is a national company with 00's of franchises. This company is in breach of the Franchising Code.
One must ask, is this a deliberate policy of franchisee enticement?
It is also "standard practice" according to one franchising lawyer, that franchisees are asked to sign letters of intent and pay large sums of money to The Franchisor which according to the letters are "refundable less costs". Unfortunately, as the letter of intent is issued prior to the provision of the disclosure document, there is no way for a potential franchisee to ascertain what these costs could be.
Furthermore, how can a potential Franchisee conduct any meaningful due diligence until a full list of Franchisees has been obtained as is provided in the Disclosure Document.
One must ask the question, what is the intention behind the signing of a letter of intent and a large amount of money being paid?
Why is it not possible for a generic disclosure document and agreement to be provided before the letter of intent is signed?
Who are the franchising professionals putting this type of documentation together? And what are their intentions?
Surely, the Franchising Community should be working together to create a transparent, clear franchise recruitment process.
where Franchisors can find ways of engaging with sincere prospects' applications in an unambiguous manner.
where unsuspecting naïve potential Franchisees are not being "reeled in".
There are no winners here.
No Franchisor should want to "entice" franchisees into their network.
Franchisors should be seeking high quality Franchisees who will add value to their network and not compromise their existing Franchisees by recruiting the" first body with a wallet."
If times are tough and Franchisors cannot recruit new Franchisees, then they should recess and reassess.
They should use the time to re-evaluate their recruitment methods, and their offer as a Franchisor.
Enticing Franchisees is a destructive process that will end in tears.
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