By Claire Reilly

The franchising industry has again come under scrutiny from the Australian Competition and Consumer Commission, with the regulator today issuing a warning to franchisors not to mislead potential franchisees on the incomes they should expect from doing business.

“Franchisors must have a reasonable basis for making all income representations to potential franchisees,” said acting ACCC chairman Michael Schaper. “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.

“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,” he added. “You should also discuss your franchise agreement with a lawyer and an accountant. If you don’t understand it, don’t sign it.”

Today’s warning was issued after the ACCC confirmed it had received a number of complaints from “franchisees who allege that they were promised a minimum ‘guaranteed’ income but then derived little or no income from their franchise”.

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According to the commission, franchisors that mislead their franchisees regarding the potential incomes generated by their business can be subject to litigation and penalties of up to $1.1 million.

“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 also released a number of tips for 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.