Business Basics

Buying a franchise? Do your homework first says ombudsman

- September 5, 2019 < 1 MIN READ

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has urged Australians considering purchasing a franchise to do their homework first.

Carnell’s callout follows on from findings by the ACCC which suggested some franchisors were failing to provide enough information to prospective buyers.

The watchdog found one-in-three franchisors in the food services industry had failed to disclose useful contact details of former franchisees to allow prospective buyers to conduct due diligence.

Carnell said it is of extreme importance that franchisees know what they are getting into before signing off on a franchise agreement.

“Part of that due diligence process when considering buying a franchise is speaking to previous franchisees,” Carnell said.

“If the franchisor is making it difficult to contact former franchisees, that’s definitely a red flag. The ACCC also found a third of the franchisors failed to disclose key ongoing costs such as wages, rent and inventory.

When the cost of setting up a food service franchise can run into hundreds of thousands of dollars, Carnell suggested it is vital franchisees seek independent legal and business advice before making an investment.

“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.

“We encourage anyone who has been affected by these practices or who is involved in a franchising dispute to contact ASBFEO.”

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