The Messiah’s* guide to franchising-

What potential Franchisors need to know

The great thing about being a member of a franchise is that, providing that it was your spouse’s idea to join and not yours, there are hours of enjoyment complaining about the fees and the lack of support.  It is a luxury that we small business owners, who do not operate under a franchise operation and have only ourselves to blame, can only envy.

However, we small business owners live in hope that one day we may find people, who want to copy our way of doing things.  The trade mark carefully crafted from our children’s names, our views (which our spouse never wanted to listen to) set out in an operating manual (OM).  Quoted by our franchisees/disciples in reverent terms.  Visits to far flung outposts to preach our vision.  A sought after speaker to motivate the unwashed masses of our industry to “Do It Our Way”.

Government distrust of Messiahs has been around for sometime*.  Messiah’s have arrived from industries as diverse as “hot dog selling’ to “dog poo picking up” and government have adopted industry codes to regulate these erstwhile charlatans.

Here are seven tips for budding Messiahs:

• If you are offering an on-going monitored system, for a fee under a trade mark then that is a franchise and the Franchise Code automatically applies.  Basically, if you have to ask if what you are doing is a franchise, it probably is. 
• It is not legally difficult to set up a franchise under the code.  You usually have a written agreement trying to make the franchisee do things your way to protect your brand.  This is not the Third Reich and if the agreement is too severe, a court may find it void (franchise fees could be ordered to be returned) or compensate your franchisee for any losses they have suffered.
• There is a disclosure document where you try to tell new franchisees what they are getting into e.g. termination, dispute resolution, ongoing costs, cooling off period and any skeletons in your closet such as you are being sued.
• There are no specific criminal penalties for being a lousy franchisor.  It is an offence to make false and misleading representations and even then you would need to go some to get prosecuted.  However, overstating profit expectations may do it.  So try to avoid that. The general law applies for outright dishonesty but you probably know that.
• The agreement sets out the agreement between you.  Usually it provides that “what you say goes” so if you want to change the way the business is done, it is changed. However, if these changes are not reasonable and you adopt a thuggish manner to enforce the changes, this is unconscionable conduct and can lead to civil penalties. 
• If the facts stated in your Disclosure Statement change in a material way, you must issue another DS.  On renewing the agreement, you must give another DS, if you are asked by the Franchisee.
• Changes to the operating manual, although allowed in the Agreement, should be a little restrained and not try to rewrite the original deal set out in the agreement.

The law will allow you to be a Dictator in the name of protecting the brand but a benign one who must treat his subjects fairly well and act reasonable and not thuggishly.  Which. frankly, takes a lot of the fun out of it.

* see New Testament.

©Paul.Brennan@brennanlaw.com.au2007 is a practising Sunshine Coast, Queensland lawyer, speaker and author of the “10 Greatest Legal Mistakes in Business…and how to avoid them” www.brennanlaw.com.au.