Investing your money on a franchise doesn't guarantee success. In fact, you should be careful when buying a franchise because the number of franchisors making false claims about potential income is increasing, warned the Australian Competition and Consumer Commission, an independent watchdog that monitors illegal anti-competitive behaviour.
The ACCC is currently investigating a number of franchisees who claim to have been promised a minimum income, but made minimal or no income from their franchise. Acting ACCC chairman Michael Schaper noted that while most franchisors do the right thing when dealing with their franchisees, there seem to be an increasing number that are misleading people.
"Franchisors must have a reasonable basis for making all income representations to potential franchisees," said 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."
Jason Gerkhe, director of the Franchise Advisory Centre, suggests that potential franchisees shouldn't enter a franchise only because of its guaranteed income, because more franchisors are now using income guarantees as a lure in recruitment. Gerkhe recommends that people should still look at the recruitment incentives like income guarantees, but these should only be part of the entire decision-making and not the only reason.
Franchisors that deceive people about a franchise's potential income are subject to litigation and penalties worth up to AU$1.1 million for every violation.
Here are a few tips to help you out when purchasing a franchise: