If you are considering buying a franchise, the disclosure document is a key part of the process that aims to ensure prospective franchisees can make an informed business decision.
Under the Franchising Code of Conduct, all franchise systems in Australia must maintain a disclosure document, which must be provided to prospective franchisees at least 14 days before entering into a franchise agreement.
The purpose of a disclosure document is to supply key information about the nature of the franchise system and to help the franchisee make an informed business decision about entering the franchise.
Despite being tailored to each franchise system, disclosure documents must comply with the Code’s prescribed format. Key elements in a disclosure include:
- A WARNING
The warning statement on the first page cautions prospective franchisees that franchising is a serious undertaking. It recommends they obtain independent legal, accounting and business advice, but also highlights their cooling-off rights.
- SPECIFIC DATES
Disclosure documents must specify their preparation date and be signed by an officer of the franchisor. Franchisees can reference this date to ensure currency.
Franchisors must update their disclosure document annually within four months of the end of their financial year (with some exceptions). Therefore, franchisors working on a standard July-to-June financial year must complete their update by the end of each October.
- FRANCHISOR’S DETAILS
The business experience of the franchisor’s officers and the duration the franchise system has been active in Australia provides an insight to the stature of the system. Prospective franchisees can judge whether the franchisor has a satisfactory level of knowledge and experience in the industry, which is especially important for the new systems.