Franchisors must review and update their disclosure documents each year to comply with the Franchising Code of Conduct (the Code). This update needs to be done within four months after the end of each financial year.
Why Regular Updates Are Important
While annual updates are mandatory, it’s good practice to review disclosure documents regularly. This can help avoid delays when providing a current disclosure document to a prospective franchisee or responding to requests from existing franchisees.
What to Include in Your Annual Update
When updating your disclosure documents each year, make sure all information is accurate and current. This includes:
- Details of any related entities or individuals involved in the franchise, along with their business experience
- Current statistics, like the number of franchisees and the year they started
- Key events, such as franchisees who left, were terminated, or were bought back
- A record of relevant litigation history
- Estimated costs for franchisees to establish and run the franchise
- Any new exclusive supplier arrangements from your franchisees
- Financial statements and a solvency declaration for the current financial year.
It’s wise to coordinate with your accountants or auditors to ensure that your 2024 financial reports (and any marketing fund statement) are ready on time.
The independent audit report must express an opinion as to whether there are reasonable grounds to believe that the franchisor will be able to pay its debts as and when they fall due. You should request that your accountant consider the Australian Audit and Assurance Standards Board guidance statement publications GS018 for guidance on what is required for an audit report.
An audit is required unless waived by 75% of franchisees, with the audit and financial statement completed by 31 October.
The Key Facts Sheet
Since a change to the Code in 2021, franchisors must also provide a “key facts sheet” highlighting important information in the disclosure document. This key facts sheet must be updated annually alongside the disclosure document and given to prospective franchisees. Failure to provide or update the key facts sheet could lead to a penalty.
Franchise Disclosure Register
Franchisors must update their profile and other details on the franchise disclosure register within five months after the end of their financial year. For financial years ending on 30 June, this update is due by 14 November 2024.
You can update your profile on the franchise disclosure register at https://franchisedisclosure.gov.au/
Disclaimer
The information in this article is general in nature and is not intended as legal advice. You should not do or fail to do anything in reliance on information in it. We do not accept any responsibility for any loss that you suffer if you do. You should seek professional advice before you do anything about the issues set out in this article.
