By now franchisors have prepared financial reports and where appropriate audit reports for marketing or other co-operative funds, they have updated franchise agreements to take into account the Unfair Terms Legislation and updated disclosure documents to take into account the most recent financial year. But how much attention was paid to the less obvious aspects of the disclosure document. Every few years, franchisors should consider the following items in more detail.
Does the business experience of the franchisor and associates of the franchisor need to be updated? What has the franchisor or associate done recently that should be included?
Are there any franchisees in the network with unique arrangements that don't require them to contribute to the marketing fund and have these arrangements been disclosed?
Have some trademarks been discontinued and others registered? The list should be updated and reviewed regularly.
Are all suppliers that give a rebate or financial benefit included? Often answering this query means collating feedback from different areas of the franchisor's business, the franchisor may need to involve a number of staff in keeping this section up to date on a yearly basis.
Payments should be reviewed regularly to ensure that they remain relevant and realistic. Additional payments, either to the franchisor or a third party, should be included each year. A significant amount of work is involved in accurately capturing the expenses which are or which the franchisor believes are reasonably foreseeable could be payable by the franchisees (to both the franchisor and third parties). Payments often change over time and it is easy to become complacent about this section, it is however a vital part of the disclosure which warrants substantial consideration.
There are significant penalties for non-compliance with the Code.