ASBFEO urges franchisees to do their homework

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, is urging prospective franchisees to do their homework before investing, after the ACCC found that franchisors are commonly providing inadequate information to potential franchisees.

The regulator reported that one-in-three franchisors in the food services sector had failed to disclose useful contact details of former franchisees to allow prospective buyers to conduct due diligence.

“It’s vitally important that potential franchisees know what they are getting into before signing off on a franchise agreement,” Ms Carnell said.

She noted that part of the due diligence process when considering buying a franchise is speaking to previous franchisees.

“If the franchisor is making it difficult to contact former franchisees, that’s definitely a red flag,” Ms Carnell said.

The ACCC also found a third of the franchisors failed to disclose key ongoing costs such as wages, rent and inventory.

“The cost of setting up a food service franchise can run into hundreds of thousands of dollars, so it makes good business sense to seek independent legal and business advice before making that significant investment,” Ms Carnell said.

“My office has received more than 50 complaints in the June quarter from franchisees in strife, highlighting the need for greater awareness in this space.”

She encouraged anyone who has been affected by these practices to contact ASBFEO.