Franchising’s new rules
Weaknesses in the $130 billion franchising sector have been highlighted by the Franchising Review Committee’s review of the disclosure requirements of the Franchising Code and the Government’s response, released today.
A lack of skilled franchising advisers and a lack of education for prospective franchisees about the risks of franchising are two of the sectors big problems, industry observers say.
The Franchising Review Committee’s report says the Australian Competition and Consumer Commission’s trend analysis of the number of disclosure document complaints shows a steady increase in complaints and inquiries under the mandatory Franchising Code. The number has more than doubled over the past five years.
The Government accepted all but three of the Franchising Review Committee’s 43 recommendations including the requirements that:
- Franchisors disclose rebates and other financial benefits it receives from suppliers.
- Franchisors provide annual audited accounts of the marketing fund to franchisees.
- Franchisors provide names and contact details of failed franchisees to prospective franchisees – within privacy laws.
- Franchisors tell franchisees about material changes within 14 days, rather than 30 days previously.
- International franchisors selling master franchises in Australia comply with the disclosure requirements of the code
But it rejected the three most radical proposals:
- Creating a registration system for franchisors to be run by the ACCC.
- Requiring franchisors to include a risk statement with their disclosure document.
- Abolishing the franchisor’s right to unilaterally terminate or change the franchise agreement.
The proposed new obligations will increase compliance costs for franchisors. But Richard Evans, chief executive of the FCA, says most franchise chains are already complying with the proposed new requirements.
He broadly supports the Government’s response but believes the review has revealed the significant gap in the market for pre-entry education. “People are still entering the market not fully understanding their rights, obligations and responsibilities.” He believes the FCA is best placed to lead education of prospective franchisees and would like Government funding to do it.
Some in the industry, including George Parkis, from the Franchisee Alliance, believe franchise advisers should be licensed similarly to real estate agents and financial planners. Even the Franchise Council of Australia sees the need for professional accreditation of advisers and offers it to its members.
Click here to see the Franchising Review Committee’s report and the Government’s response .
– Jacqui Walker
Carbon trading to cost SMEs
Small and medium-sized business will face increased compliance and electricity costs if a carbon trading scheme is introduced.
Prime Minister John Howard’s recent concession that a trading scheme will be an “integral part” of the response to climate change means the introduction of such a scheme is increasingly likely.
Greg Evans, the director of industry policy with the Australian Chamber of Commerce and Industry, ACCI, says a trading scheme could require businesses to monitor and report their greenhouse gas emissions. “It will have a compliance cost that will be proportionally higher for SMEs and that’s something we’ve discussed with the Government,” he says.
It is unlikely SMEs will have to buy emission permits under the trading scheme, he says, but they will be affected by rising electricity prices. And with the policy detail still uncertain, SMEs are being warned that there is a risk the Government will attempt to make the scheme a revenue-raising measure.
A spokesman for the NSW Business Chamber, Paul Ritchie, says any money raised by the scheme must be used to help businesses cope with the cost of reducing emissions. “It could be assistance to upgrade equipment, rewards for business that use electricity efficiently or subsidies for research and development into green technology,” he says.
Ritchie says it is likely a national scheme would have a greater impact on electricity prices than the mandatory renewable energy target currently operating in NSW.
Nathan Edwards, a manager of greenhouse gas reduction consultancy Easy Being Green, says the first step for most SMEs will be to start measuring their emissions. Higher electricity prices will force businesses to introduce measures such as energy-efficient lighting and smart energy use control systems, he says.
– Mike Preston
Google to compete with Yellow Pages
Google will provide business with an alternative to listing in the Yellow Pages when it transforms its Google Maps application into an online business directory.
Google Maps currently provides click down access to street maps and satellite images service, but browsers will soon be able to search and find businesses through the site.
Business listings for the Google Maps directory will be obtained from online classifieds business Truelocal.com.au, owned by News Limited.
– Mike Preston
Selling frenzy warning
Business owners planning an exit had better move quickly. The sales bonanza, fuelled by changes to super rules and a baby boomer retirement frenzy, could already be dampening prices at the smaller end of the market.
Online marketplace BizExchange reports that although there were more private businesses for sale in the December quarter than the September quarter, there are early signs that buyers might be losing interest in SMEs with revenue of $1–5 million.
BizExchange chairman David Bird says that although good businesses are attracting strong prices, a significant number of small owner-operator businesses and second-hand franchises are selling for little more than their asset value. “There are accounting practices in Tasmania (turnover $100,000) and Victoria turnover ($1.2 million) for sale at price/earnings ratio of less than two.”
Bird also speculates that potential buyers (often other SME owners) are also not actively buying at the smaller end of the market because they are restructuring their financial affairs to take advantage of the superannuation changes.
The quarterly index also reveals that 40% of respondents feel the value of private businesses in Australia will fall in the next 12 months while only 10% predict values will rise. The index draws on data from businesses advertised for sale, business broker websites and a survey of adviser members and subscribers (including accountants, lawyers and brokers.)
– Amanda Gome
Foreign worker crackdown
Employers prompted by the skills shortage to employ foreign workers could be caught in a crackdown on businesses exploiting workers.
Immigration Minister Kevin Andrews announced yesterday that companies that exploit foreign workers will face new financial penalties. This will cover anyone who is a sponsor of a person under one of these visits. Conversely, employers who have used the program without incident will have their applications fast-tracked, to be processed within a few weeks instead of the usual months.
– Amanda Gome
Economic round-up
The good times continue to roll, according to the NAB Quarterly Business Survey released today. Businesses expect good conditions experienced in the third quarter of 2006 to continue into 2007. The survey shows businesses enjoyed strong profits and forward orders towards the end of 2006, especially in the resources and banking and finance sectors.
The survey sits uneasily with the weaker economic data seen over the past couple of days – tomorrow’s interest rate announcement by the Reserve Bank will be significant.
On the jobs front, Seek’s online employment index bounced back from a drop in December to record 0.9% increase, seasonally adjusted.
– Mike Preston
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