Wendys Master Franchisor

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In July 2015 there was media coverage of Wendy's in connection with a company that previously owned the master franchise in Australia being placed into Voluntary Administration. Following is an article which sheds some light on the situation. It has been written by Shabnam Amirbeaggi who is a liquidator and insolvency expert. Shabnam is  a member of the Franchise Accountants Network and a Managing Partner at Crouch Amirbeaggi.

For those who may have heard a rumour about Wendys being in trouble, it’s not quite as dramatic as it may first sound. Yes it’s true, the company that originally owned the master franchise has been placed into voluntary administration, but Wendys as a brand will live on to see another day.

Wendys master franchisor, established in 1979 in South Australia, sold its brand about 12 months ago to a Singapore based company, Supatreats Australia. Since then franchisees have been negotiating a new agreement with the new franchisor.

Franchise agreements are not usually drafted to cater for the franchisors’ insolvency; and are more often than not drafted with clauses to deal with the franchisees’ possible financial demise. Consequently, it is likely that the franchisees who haven’t reached an agreement with Supatreats Australia are facing possible closure of their stores as they will no longer be able to trade under the Wendys brand. If they fail to sign up with the new master franchisor, the franchisees livelihood will be determined by their ability to cover the costs associated with de-identifying the business and continuing to operate independently, or if possible converting to a like-minded franchise – all of which are subject to the landlord’s consent and ability to negotiate new lease terms where applicable.

FAN members with a franchisee clients should bear in mind that even whilst the franchisee’s business might be going strong, the franchisee needs to be comfortable with the financial strength of the franchisor.

Buying a franchise: 3 Financial Questions

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Owning a franchise can be a wonderful opportunity and an enjoyable experience. But it’s a business with money involved, so you need to be clear on how the money works. As a franchise owner, your income depends on the financial success of the business.  So it’s important to get an indication of how the bills can be paid and how much you can make.

To help you with this, here are 3 financial questions to consider.

  1. How much will it cost to start the business? This could include franchise and training fees, equipment and fitout. You’ll also need enough money to cover expenses until the business is profitable.
  2. What will it cost to run the business day-to-day? For instance, rent, wages, materials costs, advertising, royalties, leases, phones, electricity, accounting and bookkeeping.
  3. What sales are needed to cover the costs? It takes time to build up the sales of a business, so be sure to find out how long it’s taken others to become profitable.

Some information to help answer these questions will be in the Disclosure Document, which a franchisor must provide. It’s also important to do your own research, for instance by asking existing franchisees, and getting professional advice.

Use this information to produce a budget and cashflow forecast. This will help give you an indication of whether you can afford the business, and can live on the income. A Franchise Accountant can help with this.

If your initial figures look reasonable, it’s time to dig deeper. Use what you’ve learned about the franchise to assess whether your expectations are achievable.

The financial side of running a business is really important and needs to have your attention. Even if you’re unsure about how to do this, the right advisers can help you get off to a solid start.

Remember…Buying a franchise can have significant financial consequences. That’s one reason the Franchising Code of Conduct states prospective franchisees must be advised to obtain independent accounting and business advice.