As a franchisee one of the first documents your Franchisor gives you is the disclosure document. Well, they have to, as it’s a requirement of the Franchising Code of Conduct. What I didn’t know was that I should have requested a copy every year from my Franchisor because it held updated information about the Franchise system. Some of which I needed to know because it would affect my business.
So what is in a disclosure document? Well basically it is information about the franchise, information that you as franchisee, will probably already know. For example, who owns it, their business experience, whether there is any criminal, civil or insolvency cases against the franchise or its directors, how many franchisees in the system and their contact details. But what it also contains and must be updated every year is how many franchisees have left the system and why they left. Were the franchises transferred, terminated, bought back by the franchisor or were they just not renewed?
More importantly for the existing franchisee, it has updated details that will affect the operation of your business. Things like the supply of goods and services to you the franchisee and whether you have to supply the whole product range or part of the product range. There is also updates to the site and territory of the franchise, online sales, the conditions of financing arrangements required by the franchisor, details of the marketing fund, changes in intellectual property, updates to the site or territory selection criteria, financing requirements of the franchisor and any changes to the franchise agreement. But the big one for you as a franchisee is any obligation to enter into other agreements such as leases, hire purchase agreements or security agreements. Think new point of sale systems, fitout upgrades etc. The franchisor must also disclose any other “materially relevant facts”.
All in all the updated disclosure document gives you an indication of the health of your franchise. Can you do anything about this health situation? Not really, but you are informed and aware and that allows you to make informed decisions about the future of your franchised business. It will give you an idea of whether you want to grow in this system or if you want to exit. It allows you to plan for any future major changes that are about to happen.
But before you go charging off to request your disclosure document from your franchisor, there are some rules around the disclosure document that you need to know. The disclosure document must be updated yearly, four months after the end of the financial year, so by the end of October. This document must be given to new franchisees but only to existing franchisees if it is requested. When a current franchisee requests the disclosure document the franchisor must supply it within 14 days of the written request.
So if you want to know more about your franchise system, requesting the disclosure document is a good place to start.
Elizabeth Gillam founder and CEO of Franchisee Success creates High Performance Franchisees. Having owned and operated three franchised food businesses; Boost, Healthy Habits and Bucking Bull; she knows what it takes to operate a profitable food franchise. In her recent book, Upsize your PROFIT – 6 steps to running a profitable food franchise she outlines how franchisees can ACE their franchised business unit.