The Current State of Franchising in Australia

By Garry Williamson - The Franchise centre

I thought it was about time, somebody was brave enough to stand up and tell the enquiring public, some home truths about the current state of franchising in Australia.

Although you would think including a chapter with this title would automatically date my book, the truth is, nothing much has changed over the last 23 years I have been paddling the franchising awareness canoe!

I know you may be shocked, but there are still very few strong and professional franchise systems, not because franchising only works in a limited number of industries. In fact nothing could be further from reality. You can franchise just about any type of business, but our biggest job, is still convincing businesses both big and small to give franchising as a different yet very dynamic and extremely versatile marketing tool a serious LOOK!

My firm, The Franchise Centre, has the longest track record of advising both potential franchisors and at the other end of the equation unhappy franchisees and it often saddens me when I hear so many half truths and overly optimistic claims made about the growth of franchising in Australia.

If we start with the reality NO One knows how many franchise systems there are as there is no government registration requirements it is extremely difficult to draw any accurate picture.

Although we have been working very hard to keep track of all the comings and goings of franchisors and have built perhaps Australia's most comprehensive data base of known franchisors currently standing at 1350 business format franchisors, we would be the first ones to acknowledge that data base is not an exhaustive list and frankly we hear about or read an advertisement for some new franchise system it seems every week!

In some ways it is TOO easy to franchise your business in this country although many existing franchisors seem to complain about the mandatory Disclosure Document requirements of the franchising Code of Conduct, which the Federal government introduced as at 1st July 1998.

I could open the Yellow pages at any section and blindfolded point at some business and given the owners of that business wanted to grow and had the management skill and capacity to teach their business methods to others and their was enough profit to share between the franchisor and their intended franchisees we could franchise just about any type of product or service!

When we are asked whether a client could franchise their particular business we can honestly say without hesitation they can do so but the real question is SHOULD they do so and if so how should they do so! The could and should questions are very different indeed.

So what is going on with franchising in Australia?
I can tell you its just as hard today as it was for me 23 years ago, to get through to the majority of businesses both big and small who do contact us, that franchising is a long term management and marketing strategy, and not a quick fix or an instant riches exercise.

It may both frighten and amaze you to learn our defunct files of businesses who were franchising but have either themselves gone broke or have decided to cease offering franchises out numbers our current franchisors data base 5 to 1.
By that we mean we have the names and past details of over 5000 franchisor's that have vanished off the franchise map!

The reasons for this, I believe are as follows.

1.The new franchisor had no idea as to what was involved in developing a franchise system which gave strong backup and support to each and every franchisee who choose to join their system

2. The new franchisor underestimated the management time and energy and working capital required to seek out potential new franchisees enquirers. We believe this is a full time job and underlines our advise to our new franchisor clients that their decision to franchise their business means they are NOW in two businesses not one.
They must continue to demonstrate by example by running a company territory they can and do make a good profit selling their products or services AND they must dedicate management time and development capital to learn how to start running their new business. I.e. the business of FRANCHISING.

3.The new franchisor may in fact be a lousy teacher and poor delegator, and does not have enough patience to mentor the new franchisee as they struggle to learn new business skills and come to terms with their new lifestyle.

4. The new franchisor we have found in many cases has rushed into selling the early franchises at their ultimate cost and all franchisors we have spoken to over the last 20 years admit with the wisdom of hindsight they should have been more careful in selecting their franchisees and have learnt from bitter experience poor selection practices slowed them down in developing their franchise growth plans.
Obviously if they have to spend a lot of time with any one franchisee in getting them to a profitable trading position they have less time to seek out more potential franchisees.

5. We believe many franchisors simply don't understand the truism that the franchisees are in fact their direct customers and the franchisor is dependant on the goodwill of those customers to maintain the franchisor's healthy cash flow of ongoing franchise management fees but more importantly to ensure the existing franchisees are walking testimonials when contacted by potential new franchisees.

It must be so confusing for any one contemplating buying a franchise as the myth which continues to be propagated by the franchisor community is that 'by buying a franchise you will have a far greater chance of success compared to the high failure rate of an independently owned and run small business"

We have to qualify that myth by adding 'it VERY much depends on which franchise system you buy into!'

So how do you find out who is franchising in Australia?
ANSWER. You cant!

How do you tell a professional structured franchise system that will really be around for the long haul?
ANSWER. It's easy to pick them in the way they present themselves to potential franchisees and the way their documentation is worded and perhaps what that documentation does not say!
We keep saying franchising is a very specialised area as it combines business planning (an accountants domain) with contract law (a lawyers territory) and something else, which in our humble opinion is so much more important. I call it THE CULTURE OF CARING.

You can easily obtain a franchise agreement, change it to suit your particular business, get your accountant to knock up a business plan but if you don't like the idea and the reality of managing, and mentoring ALL your hand chosen franchisees for the entire length of their franchise contract DON'T start down the franchise path!

We have seen so many franchisors come and go over the years it frankly disgusts me as to the gullibity of people and the short sighted nature of us Australians to seek out and pay for specialist advice.

We always take a stand at the annual Sydney Franchise Expo and have done so since they started 13 years ago and we stand there, often in dismay and watch the majority of people who attend the Expo, sail by oblivious to what we do and could offer them specialist advice to avoid any pain and suffering, if they just stopped to find out and understood how critical it is, to really come to terms with HOW franchising works FIRST and what to expect in a franchise relationship BEFORE they become smitten with a particular franchise business opportunity.

I would love to have a dollar for every time I have heard an 'unhappy franchisee' tell me after they bought their franchise and now are totally dissatisfied say " God I wish I had spoken to you first"
We don't sell franchises so our advise is totally without bias and yes it appears we have offended quite a few sensitive franchisor ego's along the way when we advise potential franchisees who are smart enough to seek out specialist advice what are the Franchise facts and what to look for in buying any franchise.

So in summary here are some Franchise Facts.

Neither, the Federal Government or any State Governments or the Franchise Council of Australia (a non profit Association) which contrary to its name's suggestion is not a government organization or nor a we for that matter, have any idea of how many franchisors exist in Australia or how well they are trading, however I suspect we have a pretty good idea about the success of the 1350 franchisors we do have on file and know about.

Because there is no basic statistics any attempt to predict the health, growth or state of franchising in Australia is fraught with danger

There are some excellent franchisors operating in Australia but the Franchising Code of Conduct and its Disclosure requirements to prospective franchisees is not going to give you enough information on which to base an unadvised buying decision.

It is still very much a case of "BUYER BEWARE" and we cant stress often enough a professional franchisor will force you to closely examine yourself and your expectations from a franchise relationship BEFORE asking for your money!

Ask your accountant and or solicitor if you seek their advice what they really know about franchising and the CULTURE OF CARING

We believe franchising has an excellent future in Australia and around the world BUT until the banks, governments and advisors really get on the education band wagon it is still going to attract the cowboy element or worse businesses which don't understand its unique win win culture, where in fact the franchisor must treat the franchisees as their extended family and continually demonstrate to the existing franchisees they are better off operating under the marketing system of the franchisor, with hopefully its attendant buying power benefits than would be if they went solo!

Good luck with your franchise investigations and please remember listen to your inner feelings and don't be in a rush to part with your hard earned capital.

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