As spring is upon us once again, now is the time to review your Disclosure Document as well as your: franchise systems, procedures and documentation.
The following sections of the Disclosure will need your particular attention:
- List of current franchisees in clauses 6.1 to 6.3
- Numbers of any transfers, terminations, or non-renewals in clause 6.4. Note that you will need to delete the 2015 column and add a 2018 column so that you have FY15, FY16 and FY17 data
- Contact details of any franchisees in relation to the above events, in clause 6.5
- please review the payments listed in clause 14 to ensure they represent the current commercial realities of the franchise business
- marketing fund expenditure for the 2017 financial year in clause 15.1(g). A reminder that if you do not intend to audit the fund, you must obtain written consent from at least 75% of your franchisees before 30 September 2017
- Details of unilateral variations made to existing franchise agreements in the last three financial years need to be listed in clause 17. This includes substantial changes to the Operations Manual in most cases
- Details of whether, in the last three financial years, you have considered any significant capital expenditure undertaken by franchisees in deciding what arrangements will apply at the end of a franchise agreement (Clause 18.2).
As you are reviewing the Disclosure Document, a review of your franchise agreement may be worthwhile, particularly if there were lessons learnt in the past year which can or should translate into new practices, particularly in relation to the following:
- Supply of goods or services to franchisees
- Your internal processes in relation to sales, transfers, renewals and dispute resolution
- Your current trademark portfolio
- delivery services or other internet activity
Finally, you need to instruct your accountants to prepare your financial statements and to include them in the Disclosure package together with your 2017 statements, unless you engage an independent registered company auditor in which case you will need the auditor’s report in respect of the 2018 and 2017 financial years before 31 October 2017.
Don’t forget to provide the 2018 marketing fund statement to your current franchisees within 30 days of preparing it (but in any event no later than 30 November 2017) and remember that your franchisees are entitled to demand a full current Disclosure with 14 days’ written notice to you.
The ACCC has recently observed that some franchisors are not providing sufficient detail in marketing fund statements. Franchisors need to ensure that franchisees are provided with ‘meaningful’ information about the marketing fund’s sources of incomes and items of expenditure. (see more here)
As always, we are a call or an email away in case you need any advice.