The Australian Competition and Consumer Commission is urging people who are considering buying a franchise to take steps to check and substantiate claims made about potential income.
The warning comes after a number of complaints to the ACCC by franchisees who allege that they were promised a minimum 'guaranteed' income but then derived little or no income from their franchise. Many of these complaints relate to franchisors in the cleaning and home services industry.
"The ACCC is investigating whether a number of franchisors in this industry engaged in misleading or deceptive conduct by making claims about potential earnings," acting ACCC chairman Michael Schaper said.
"Franchisors must have a reasonable basis for making all income representations to potential franchisees."
"The ACCC is particularly concerned by franchisors which appear to target people from non-English speaking backgrounds who may not fully understand the agreements they are entering into."
Franchisors misrepresenting the potential income of a franchise can be subject to litigation and court imposed penalties of up to $1.1 million per contravention. Dr Schaper said while most franchisors do the right thing by their franchisees, there appears to be a growing number of franchisors who are making promises which they cannot keep.
"The ACCC strongly encourages anyone who is thinking about buying a franchise to talk to other franchisees – ask if they are earning as much as they expected.
"You should also discuss your franchise agreement with a lawyer and an accountant. If you don’t understand it, don’t sign it," Dr Schaper said.
The ACCC has funded a free online education program, run by Griffith University, to help prospective franchisees make more informed decisions. To sign up to the program, visit www.franchise-ed.org.au/online-courses/pre-entry-franchise-education/.
Tips when buying a franchise
- Beware of promises that you will earn a guaranteed income, as well as ‘get rich quick’ schemes that claim you can make large amounts of money with little effort.
- If the franchisor makes verbal claims, ask them to confirm those claims in writing.
- Get advice from a lawyer and accountant before entering into a franchising agreement or handing over any money.
- Speak to existing and past franchisees. Their contact details should be in the disclosure document that the franchisor is required to give you before you enter into your agreement.
- Know your cooling off rights – you can terminate an agreement within seven days of entering into it or making any payment under it, whichever occurs earlier.
For more information about the steps to take before buying a franchise, see the ACCC’s Franchisee Manual and Franchisee Start-up Checklist, which can be found at www.accc.gov.au/franchising.