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TWENTY PERCENT OF FRANCHISEES ‘HAD NO IDEA WHAT THEY WERE GETTING INTO’

by Simon Lord,
last updated 23/06/2010

June 2010 - A recent survey of 345 Australian franchisees found that 20% of respondents admitted that they had no idea of what they were getting into when they bought a franchise. The survey also came up with some other headline-grabbing statistics.

According to the survey, by Griffith University’s respected Asia-Pacific Centre for Franchising Excellence in Australia:

  • 28% of franchisees felt that they could not count on their franchisors to be honest with them.
  • 30% said they could not rely on their franchisors to keep their promises.
  • 30% could not trust their franchisor ‘to do what is right.’
  • 36% felt communication in the franchise system was not prompt and timely.

 It would be easy to sensationalise the findings (as some Australian media have), but in fact they are not unexpected. As lead researcher Professor Lorelle Frazer said, ‘We know that conflict exists within any business relationship, particularly within a franchise relationship… The communication style of the franchisors can either alleviate that conflict or make it a bit worse. Some franchisees feel the franchisor is remote, particularly in a big system. Getting it out in the open early and trying to resolve the issue quickly is important.’

And the fact that 20% of respondents admitted that they had no idea of what they were getting into when they bought a franchise also plays a big part in the trust issue. ‘We know that a lot of people go into franchising with their eyes wide shut,’ commented Professor Frazer. ‘Sometimes the prospective franchisee only sees what they want to see… While there are people prepared to pay $50,000 or $200,000 for a franchise, they are not always prepared to spend money on due diligence.’

Are things very different in New Zealand? Probably not. Last year the Ministry of Economic Development identified people’s failure to take proper professional advice before buying a franchise as a major source of concern. Although the Survey of Franchising  currently being undertaken by Massey University in conjunction with Griffith will not survey franchisees, the Commerce Commission has also frequently re-inforced the need for franchise buyers to carry out proper due diligence. While most franchisors offer a genuine opportunity for the right people, it is up to buyers to satisfy themselves that any franchise will really suit their skill-set and meet their needs – whether lifestyle or financial.

Find out how to evaluate a franchise opportunity here.

Download the full Griffith University Survey report here

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