The end of financial year is more than just tax returns and BAS statements. It’s an opportunity for franchisees to review performance, revisit their Franchise Agreement and assess the health of their franchise network before the year ahead.
For most franchisees, the end of financial year means meetings with accountants, reviewing profit and loss statements and trying to work out whether the business performed as well as it felt like it did.
What often gets overlooked, however, is that the start of a new financial year is also one of the best times to revisit your Franchise Agreement.
Many franchisees sign their Franchise Agreement, file it away and rarely look at it again unless a problem arises. In practice, that document often contains a range of annual obligations and deadlines that quietly roll around each year, particularly in relation to business planning, financial reporting, insurance and performance requirements.
More broadly, EOFY provides a valuable opportunity to step back from the day-to-day operation of the business and take stock. What’s working? What’s not? Are you getting value from the franchise network? How does your performance compare to last year? Are there opportunities to improve profitability over the next 12 months?
Whilst franchisors are busy updating disclosure documents and preparing for a new financial year under the Franchising Code of Conduct, franchisees should be undertaking their own annual review.
Here are some of the key areas we suggest every franchisee considers at the start of a new financial year.
1. Prepare (or Update) Your Business Plan
Many franchise agreements require franchisees to prepare and submit an annual business plan before the commencement of each financial year.
Typically, these plans must include matters such as:
- projected revenue and expenses;
- staffing requirements;
- local area marketing activities;
- promotional campaigns; and
- growth initiatives for the coming year.
Some agreements even require the franchisor’s approval before the plan is implemented.
Even if your Franchise Agreement does not contain this obligation, EOFY is the ideal time to prepare a business plan.
After all, you now have a full year of trading data available. You can identify what worked, what didn’t, and where improvements can be made.
Too often, franchisees spend more time planning a holiday than planning the next year of their business.
2. Review Your Performance Before the Franchisor Does
Many franchise systems include minimum performance criteria.
These may be assessed monthly, quarterly, six-monthly or annually and can relate to:
- turnover;
- sales growth;
- customer satisfaction;
- operational compliance; or
- other key performance indicators.
Importantly, some franchise agreements provide that if minimum performance standards are not achieved, the franchisee may be required to attend performance review meetings at their own cost and implement remedial action plans.
Before the new financial year gets underway, ask yourself:
- Did the business meet its targets?
- Have sales improved or declined?
- Are labour costs under control?
- Is local area marketing generating results?
- Would the business satisfy any minimum performance criteria contained in the Franchise Agreement?
EOFY is the perfect opportunity to identify performance issues before they become formal compliance issues.
3. Don’t Forget Your Annual Reporting Obligations
Many franchisees are surprised to learn that their reporting obligations often extend beyond what is required by the ATO.
It is common for franchise agreements to require franchisees to provide:
- annual financial statements;
- profit and loss reports;
- accountant-certified accounts;
- sales data; and
- other financial information.
Some agreements require these documents to be provided within three months following the end of the financial year.
For most businesses, that means the countdown starts on 1 July.
Now is the time to review your agreement and ensure you understand exactly what information must be provided and when.
4. Review Your Insurance Position
EOFY is also an excellent reminder to review your insurance arrangements.
Many franchise agreements require franchisees to maintain specific insurance policies and provide updated Certificates of Currency to the franchisor each year.
Depending on the franchise system, requirements may include:
- public liability insurance;
- workers compensation insurance;
- business interruption insurance;
- property insurance;
- cyber insurance; and
- motor vehicle insurance.
Some agreements also require the franchisor to be noted on the policy or require specific endorsements preventing cancellation without notice to the franchisor.
Rather than waiting for the franchisor to ask, use EOFY as an opportunity to ensure all policies remain current and compliant.
5. Request an Updated Disclosure Document
One of the most underutilised rights available to franchisees under the Franchising Code of Conduct is the ability to request an updated Disclosure Document from the franchisor.
Importantly, a franchisee can make this request once every 12 months.
Why is this useful?
Because the Disclosure Document provides valuable information regarding:
- the franchisor’s corporate structure;
- litigation involving the franchisor;
- franchisee numbers;
- transfers and closures;
- intellectual property;
- supply arrangements; and
- fees and costs across the network.
Think of it as a health check for the franchise system.
Comparing disclosure documents from year to year can reveal important trends and provide useful insight into how the network is performing and evolving.
For franchisees, it is one of the best tracking tools available.
6. Review the Marketing Fund
If you contribute to a marketing fund, EOFY is also the perfect time to examine how those funds are being spent.
Under the Franchising Code, the fund administrator must generally prepare an annual financial statement detailing:
- all receipts;
- all expenditure;
- sources of income; and
- how money has been applied towards the fund’s purpose.
In most cases, the fund must also be independently audited.
Many franchisees contribute thousands of dollars each year towards marketing without ever reviewing the reports.
EOFY is the ideal time to ask:
- Where is the money actually being spent?
- Is expenditure consistent with the stated purpose of the fund?
- Has spending changed significantly from prior years?
- Is the fund delivering value to franchisees?
These reports can provide valuable insight into how franchisor-controlled funds are being managed.
7. Check for Upcoming Renewal Deadlines
Finally, take the opportunity to review your Franchise Agreement and identify any upcoming renewal or extension deadlines.
Many agreements require franchisees to provide notice of renewal well in advance of expiry.
It is not uncommon for notice periods to arise six to twelve months before the end of the franchise term.
Missing those deadlines can have significant consequences.
A quick review now may save a great deal of stress later.
EOFY Franchisee Checklist
Before moving into the new financial year, ask yourself:
☐ Have I prepared or updated my business plan?
☐ Have I reviewed my performance against any minimum performance criteria?
☐ Do I need to provide financial statements or reports to the franchisor?
☐ Are my insurance policies current and compliant?
☐ Have I requested an updated Disclosure Document?
☐ Have I reviewed the latest marketing fund statement and audit report?
☐ Have I checked for upcoming renewal deadlines?
☐ Have I identified opportunities to improve profitability during the year ahead?
Final Thoughts
For many franchisees, EOFY is viewed primarily as an accounting exercise.
In reality, it is one of the best opportunities each year to step back from the day-to-day operation of the business and assess both your own performance and the health of the broader franchise network.
A few hours spent reviewing your Franchise Agreement, your financial performance and the information available under the Franchising Code can provide valuable insights and help ensure you start the new financial year on the strongest possible footing.