Reading time: 3 minutes

Ronald McDonald isn’t looking so happy of late. In the first quarter of 2015, McDonalds worldwide saw a 2.3 percent decrease in sales and a 28 percent drop in operating revenue, continuing a trend of loss that the company had been experiencing for years. The reasons are plainly obvious, a trend towards healthier food, greater education of nutrition and more competition in the marketplace. While we are just speculating, the rumor that the soft serve is 80% pig fat probably doesn’t help, too. The downward trend of McDonalds highlights the crucial nature of knowing your franchisor’s business inside and out, as well as the importance of conducting due diligence before you enter into a Franchise Agreement.

How does this impact Franchisees?

With that decline in business, many franchisees are shutting up shop and walking away from their businesses. One can only imagine that those golden arches don’t come cheap, so the closure of such franchised business signals tough times ahead. It also serves as a timely reminder for current and future franchisees that no franchised business is guaranteed to be a success and that proper due diligence should be undertaken before and during the franchise term.

How can Franchisees avoid this?

If you’re considering acquiring a franchise business or are already a franchisee, there are some practical steps you can take so you don’t also end up like those poor former burger flippers:

  1. Get a franchise lawyer to review your franchise documents thoroughly – the terms of the franchise agreement constitute a contract and, subject to certain exceptions, are binding. Your franchise lawyer will be able to decipher how the agreement applies to your ability to terminate, consequences of termination, and the power of your franchisor to make changes to the franchise system.
  2. Talk to other franchisees – usually, the contact details of your fellow franchisees are listed in the disclosure document. Their experience with the franchise business and dealing with the franchisor is invaluable knowledge to assist you in determining whether to proceed.
  3. Require ongoing disclosure – in accordance with the Franchising Code of Conduct, the franchisor has ongoing obligations of disclosure, and franchisees can request an updated Disclosure Document annually. Take advantage of such a right to stay on top of the franchise network, including in relation to transfers or terminations, and growth (or lack thereof). Such information may be vital in determining when to sell or get out.
  4. Think about the nature and adaptability of the franchise business – is the business a trend? Is it susceptible to certain market forces or changes to, for example, technology? While not ‘legal’ factors per se, such practical considerations should indeed be considered in determining whether to proceed.

Conclusion

When deciding whether to become a Franchisee, the selection process is crucial. First of all, it makes sense to choose something you enjoy and with which you have a matching skill set. If you want to know about the earning potential as a Franchisee, speak with previous franchisees, and get in touch with a franchise specialist from LegalVision. We can conduct the due diligence on your behalf, but it’s also advisable to seek professional financial advice from an accountant or financial adviser.

Get in touch today on 1300 544 755.

Webinars

How Franchisors Can Avoid Misleading and Deceptive Conduct

Wednesday 18 May | 11:00 - 11:45am

Online
Ensure your franchise is not accused of misleading and deceptive conduct. Register for our free webinar today.
Register Now

New Kid on the Blockchain: Understanding the Proposed Laws for Crypto, NFT and Blockchain Projects

Wednesday 25 May | 10:00 - 10:45am

Online
If you operate in the crypto space, ensure you understand the Federal Government’s proposed licensing and regulation changes. Register today for our free webinar.
Register Now

How to Expand Your Business Into a Franchise

Thursday 26 May | 11:00 - 11:45am

Online
Drive rapid growth in your business by turning it into a franchise. To learn how, join our free webinar. Register today.
Register Now

Day in Court: What Happens When Your Business Goes to Court

Thursday 2 June | 11:00 - 11:45am

Online
If your business is going to court, then you need to understand the process. Our free webinar will explain.
Register Now

How to Manage a Construction Dispute

Thursday 9 June | 11:00 - 11:45am

Online
Protect your construction firm from disputes. To understand how, join our free webinar.
Register Now

Startup Financing: Venture Debt 101

Thursday 23 June | 11:00 - 11:45am

Online
Learn how venture debt can help take your startup to the next level. Register for our free webinar today.
Register Now

About LegalVision: LegalVision is a commercial law firm that provides businesses with affordable and ongoing legal assistance through our industry-first membership.

By becoming a member, you'll have an experienced legal team ready to answer your questions, draft and review your contracts, and resolve your disputes. All the legal assistance your business needs, for a low monthly fee.

Learn more about our membership

Need Legal Help? Submit an Enquiry

If you would like to get in touch with our team and learn more about how our membership can help your business, fill out the form below.

Our Awards

  • 2020 Innovation Award 2020 Excellence in Technology & Innovation Finalist – Australasian Law Awards
  • 2020 Employer of Choice Award 2020 Employer of Choice Winner – Australasian Lawyer
  • 2020 Financial Times Award 2021 Fastest Growing Law Firm - Financial Times APAC 500
  • 2020 AFR Fast 100 List - Australian Financial Review
  • 2021 Law Firm of the Year Award 2021 Law Firm of the Year - Australasian Law Awards
  • 2019 Most Innovative Firm - Australasian Lawyer