Franchises could be 'worthless'

MANY business franchises, including those in the Gympie area, are effectively worthless because of a lack of protection in new guidelines for the franchise industry, Gympie Chamber of Commerce was told yesterday.

Chamber President Simon Young, of the Channon Street legal firm Cooloola Law Pty Ltd, told guests at a business breakfast that franchises with expiry dates had the potential to leave franchisees with nothing at the end of the franchise term.

And with more than 100 Gympie businesses believed to be based on franchise agreements, Mr Young told the crowd at the Gympie RSL of significant problems with the new federal Franchising Code of Conduct 2010.

“It shows the way they treat small business,” he said.

“A lot of people think the code’s provisions are poorly drafted, badly considered and pretty much useless.

“Everybody else thinks they’re bad.

“When your franchise ends, it’s like a lease. A lot of franchisees are surprised to find that on expiry, their business stops because they are not running a business under their own name.

“Can you sell your business? How can you sell a business when you don’t own one, you are only leasing?

“You may find out that at the end, you have what you had at the beginning – nothing.

“You need to work out if you can recover your franchise payment in the first term of the franchise, because you don’t know what the next agreement will be.

“You need to be able to recoup your investment plus a profit in the first term.

“For a lot of franchises around here, the answer is no.

“So people say, ‘What’s the good of it?’ and I say, ‘Exactly’,” Mr Young said.

However, franchises remained a vitally important, $160 billion a year component of the Australian economy, he said.

The code was intended to plug holes in the franchise law, including end-of-term arrangements, mediation procedures and disclosure requirements.

Describing himself as a franchising fan, he warned that “some franchisors in Australia are known to be less than reasonable in mediation. So if you’ve got a five-year term, you need to know you can get your money back in the first five years”.