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It is an enormous pleasure to be here with you this morning at the 12th annual conference of the Franchise Association of New Zealand.

I want to acknowledge Miles Agmen-Smith, Chairman of Franchise Association of NZ. Estelle Logan, Vice Chairperson of Franchise Association of NZ.  Jane Paape - Events Manager, Franchise Association of NZ. To the sponsors, particularly the National Bank of New Zealand who is your major sponsor, but to all of the sponsors - these conferences don't happen without them - but most of all to the delegates, to the franchisors to the franchisees, to your staff and family's, all of you here today who are here to spend time thinking about how you can run your businesses better for you and for your customers.

It is a great pleasure and an honour to be here, and I want to wish you a happy Matariki, a festival which acknowledges the Maori new year, it is a time for planting, you tell the planting stories, you tell your family stories and you celebrate your family and your community and the blessings of the previous year and you plan for the future, so it is a particularly appropriate time for you to be coming together.

It is a pleasure to be here and I bring you the greetings and best wishes from my friend and colleague the Minister of Commerce the honourable Lianne Dalziel.

Lianne is meeting with the Australian/New Zealand Leadership Forum. We are terribly exciting about this conference. Julia Gillard, the Deputy Prime Minister of Australia is bring a delegation of eight Ministers that is the largest delegation of Australian Ministers ever to New Zealand with a significant group of business leaders and community people.

Lianne is meeting with them today and tomorrow - she would have loved to have been here. Given that Australia is our biggest trading partner, this is a relationship we take very seriously.

I am the Associate Minister of Commerce and I am also the Minister of Consumer Affairs. In that role I recently chaired a conference of Australian and New Zealand Consumer Ministers, where we agreed, for the first time ever, that they will have across Australia one common product safety regime and consumer laws.

We have been working hard on this with Chris Bowen, the Australian Minister of Consumer affairs, since the election of the new government in Australia - and I am tremendously excited because I think this is a huge opportunity for New Zealand Businesses. Our consumer laws, as you know, are at a very high level, they are very simple. You need to say what is true about your product or your service, you then need to make sure that the product or service fits the purpose for which you sell it.

The Australians have laws across the eight states and territories and at the federal level, to get those harmonised is the first step so that then we can harmonise with them. So there has been real progress made, in even the short time that that government has been in office.

It's also useful for me as Minister of Consumer Affairs to talk to your group because good businesses, particularly businesses that are owner-operated create confident consumers.

Franchising is a popular business model for many New Zealanders and it is not hard to see why.  It has built in advantages for those who want to test their entrepreneurial skills without taking on the whole challenge of starting a business from scratch.  It allows you to build, to innovate and to add value.

But in saying that, a franchise is not an excuse for not having a business plan or understanding the basics of running a business.

As in all business ventures it is important to be clear from the outset what you are getting into - the more you understand the more you can add. Overnight successes as they say takes years of training, experimentation and a lot of hard work.

Good franchise systems that require all potential franchisees to get independent legal advice before they sign up and this is a good model for ensuring that the right questions are asked and that the business will succeed. 

The franchise model has been used as a way of opening up the business world to people just starting out in business, or returning to the workforce or those people new to New Zealand.

This has inherent risks as well as benefits and it is clear that this is one of the drivers for the calls for a regulatory framework for franchise systems to provide better protection than the current general law.

And that is what I want to discuss today: reviewing the regulatory framework around franchising agreements.

As you know, several recent events have seen franchising put in the spotlight.  I was very concerned to see the reports that surfaced late last year and early this year about alleged scams involving franchises.

The number of people impacted by these events and the harm they can cause to the confidence of all people and those in franchising is a major concern.  As you will in franchising, as in all business, reputation is everything.

As you will know, Lianne Dalziel has been discussing with FANZ the best way to approach the issue of franchise specific regulation and I was please to see the report that you have offered to government that has been a very useful exercise.

I often say when we are looking at regulation, whether it's in Consumer Affairs or Commerce, lets look at what the industry is suggesting, yes it may be self serving in some cases, but a voluntary regime is always easier to put in place and is often much better in detail than that which is imposed by outsiders.

There seemed to be a synergy between the type of framework FANZ was promoting and the provisions of the Financial Service Providers (Registration and Dispute Resolution) Bill and the protections offered by the Financial Advisers Bill.

Lianne has suggested that they consider that framework and advise whether they felt that this could be modified to address the issues that were being raised.

As it turned out FANZ did not believe this provided the best option and decided, in consultation with the Minister, to seek a franchise specific solution.

In the process FANZ's made a written submission to the Select Committee which spelt out clearly what the issues were. That was a very useful contribution.

Lianne feels that this was a good discipline as if it had been an appropriate option then adjustments could have been made, but given that it is not, FANZ has provided the government with valuable information and an important perspective as the next step is progressed.

Lianne has asked her officials to develop a discussion document to explore the need for a specific regulatory framework around franchise systems.

This document will look at different options for minimising the risks involved in franchise agreements and will seek the views of groups like FANZ and those who have a stake in the industry from franchisors, franchisees, advisers, experienced franchise lawyers, suppliers to franchises - essentially those who know the industry well and can speak to the merits or otherwise of the proposals.

I also think that there is an interesting and expanding area that is the export of franchises from New Zealand. We would want to make sure that the models are solid here so that overseas franchisees can have confidence. I see recently that pumpkin patch and burger fuel have gone to Abu dhabi - and good on them.

I know that as the Minister responsible for the Quality Regulation Review, Lianne will want to ensure that any compliance costs are kept to a minimum and that we maximise the benefit to New Zealand businesses.

As the Minister has said, we don't want to see anything we do reduce the capacity for people to grow their own businesses within the franchise framework by introducing a regulatory system that unreasonably increases costs.

But at the same time we want to minimise the risks involved in franchising.  Getting that cost-benefit analysis right will be the focus - and the discussion document will ask for your input on that that.

As I said before it is important that those going into business (especially for the first time) to get basic advice before entering into any agreements.  Franchises are no different in that regard.

Expert legal and financial advice is required before those commitments are made; and, even though it is a franchise, a detailed business plan should still be developed.

I am often utterly astonished, as Minister of Consumer Affairs, the things that consumers ask me to fix, as it is obvious that they have not even thought about what they've got themselves into, let alone read the contract.

Franchises may come with a 'manual set' but they don't tell you how to make money or to expand the goodwill of the business by the value you add to it.  The franchise isn't the business; it's just a way of doing the business.

It is important that a regulatory framework does not leave potential franchisees with the view that they don't have to do their homework, however something that reinforces the need to take independent expert advice may assist in ensuring that people do not go into a franchise with unrealistic expectations.

That is where the types of disclosure provisions already required by FANZ membership could be usefully broadened to cover all franchises.

Those that support franchise specific regulation, tend to focus on the need for full disclosure; independent advice; good faith and good dispute resolution processes.
 
Specific recommendations could include matters such as:

• a standard template for disclosure, including obligation to supply to franchisees the basis for estimates of business turnover & profit;
• how long business has operated (with a stipulated minimum);
• agreements such as exclusivity of territory;
• benefits to franchisor;
• audited financial statements for all advertising & co-operative funds;
• the need for independent advice and a "cooling off" period;
• the requirement that franchisors and franchisees to act in good faith, including reasonable time to remedy breaches of agreement;

• access to a dispute resolution procedure.

 

The timing for the release of the discussion document has not yet been finalised but we are working very hard on getting it to Cabinet as soon as possible.

You will appreciate that officials are focused on the Review of Financial Products and Providers and this was not on their work programme, so the Minister has asked for some re-prioritisation in order to advance the process as quickly as she can.

Once it is released, interested parties will be invited to submit their views on the options put forward so we can fully understand the costs, benefits and effectiveness of any form of regulation.

This allows you to have input into the decision-making process and ensures that the government has the right information to make the right decisions.

As well as this review, there are also a number of things going on in the wider small business sector.

I would like to talk now about some of the government's policies in this area which will also impact on the way that you do business.

The link between franchising and the small business sector is a strong one.  The adaptability and capacity for innovation which is inherent in a small business, and the support provided by being part of a franchising network are a natural fit, and add strength and dynamism to our economy.

Latest figures show that:

• SMEs make up 97 per cent of New Zealand's businesses;
• From 2001 to 2006, SMEs accounted for 59 per cent of all net new jobs in the economy;

• Ninety-six percent of the annual growth in business numbers comes from businesses with fewer than 10 employees.

 

Let me start by saying that we have a pretty good business environment in New Zealand.

We have maintained our second place ranking in the World Bank Ease of Doing Business survey last year, and this year we are in a strong position to fight for the top spot again.

The government has invested a great deal of time and resource in New Zealand's regulatory framework, knowing that it is important that we work with business to identify aspects of regulatory frameworks that are constraining economic growth and then develop and implement practical solutions to address these problems.

Increasingly, government agencies are working together so that the many arms of government extend just a single hand to business, so you will have more time to run your business, and will spend less time reporting on it.

Last month the Minister of Commerce and the Minister of Small Business jointly announced that the government has agreed to investigate introducing Standard Business Reporting in New Zealand.

This is a system that could significantly streamline firms' reporting obligations to government, potentially saving businesses millions of dollars. And let us not forget the money that this could save the government, and that of course could also be a benefit to all of us as tax payers, businesses and citizens alike.

The system would involve an online process for business to file financial and other business information for government only once, in a form that will then enable the appropriate parts of the information to be distributed to the relevant government agencies.

The initial focus will be on agencies dealing with financial reporting - the Ministry of Economic Development's Companies Office, Inland Revenue, Statistics New Zealand and ACC - as it is these areas that are likely to have the greatest opportunity for reducing compliance costs.

Officials have also been asked to investigate the implementation of a single business number in New Zealand. A single business number would be a unique identifier that could replace the existing myriad identifiers businesses currently have to use to interact with government.

Hon Clayton Cosgrove, as Minster for Small Business, has recently introduced a tool which further enables government agencies to consider the true impact of regulation as it relates to individual businesses.

The Business Compliance Cost Calculator is a software tool that will be used by government departments and agencies to assess the cost of new regulation before it is implemented. 

The Calculator helps officials identify the activities and related costs that a business will have to take on to comply with new regulations or government policies.

It then provides a consistent analysis of the total compliance costs involved, which helps departments to identify where savings can be made and efficiencies gained.

While providing the best possible business environment is of key importance, we also want to support you and your business as you grow, and make sure you are equipped to make the most of the opportunities on offer.

Last year's launch of the business portal (www.business.govt.nz) has provided an easy single access point for business people wanting to find out what is on offer from government.  When you leave this conference and go home why don't you make it your Home Page or at least put it on your favourites?

Since the portal launch on 15 August 2007 there have been:

• More than 95,000 visitors;
• 400,000 pages viewed;

• 5,500 people registered for ‘my business', which allows users to receive email alerts and an e-newsletter, and save work and favourite topics to come back to.

 

A second thing to look out for is something called Management Focus. This initiative resulted from private sector individuals and government officials getting together to find ways to help business owners who want to improve their management and business skills.

They did this because they know that the most critical success factor in a small firm is the owner/manager.

The first thing they did was to invent an on-line quiz that helps business owners to identify what sort of help they might need.

From there you are able to find out where you can go to get the skills, information or support you need.   Go to the website www.managementfocus.org.nz for more information.

I hope from what I have mentioned today that you can see the importance this government places on developing policies and programmes which will foster the growth and development of small businesses in New Zealand as you are vital to New Zealand.

A theme throughout my speech this morning has been the government's desire to make life simpler for small businesses, whether through streamlined reporting requirements or increased assistance for those wanting to start their own business.

I think we are on the right track for doing this and are coming up with some exciting and innovative ideas to benefit small business in New Zealand.

And of course Budget 07 & Budget 08 have good news for business - the reduction in the Business Tax Rate from 33% to 30% took effect from 1 April this year - and this year the focus is on tax simplification measures for SMEs.

For instance, the PAYE once-a-month filing and payment threshold will be raised from $100,000 to $250,000, allowing more SME employers to file and pay PAYE deductions once a month instead of twice a month.

The fringe benefit tax annual return filing threshold will be raised from $100,000 to $250,000 and further changes will increase the number of employers that can file and pay the tax annually rather than quarterly giving you much more control over your cash flow.

The GST registration threshold will be raised from $40,000 to $50,000, which will mean fewer taxpayers will have to register for GST.

And, the GST six-monthly return filing threshold will be raised from $250,000 to $500,000, which will allow more taxpayers to file returns on a six-monthly basis rather than a two-monthly basis.

By raising these tax thresholds we will, in effect, be reducing compliance costs for SMEs, and because we are saying we trust New Zealand businesses because we believe you are in it for the long haul and you know what you are doing. We hope it well mean fewer tax returns for businesses to complete, reducing the amount of information or number of calculations required to complete returns, and a reduction in the number of tax payments that have to be made.

So to all of you, on behalf of Lianne Dalziel, I would like to thank the Franchise Association for the work that it has done this year since the issue of franchise specific regulation has arisen.

Your meetings with the Minister, government officials and your submissions provide valuable information to feed into this new process.  Make sure you tell us, not just what's not working but what is working because sometimes that is vital information as well.

I am sure this collaborative approach will continue to ensure that the right approach is taken so that this industry can keep growing.

It's been a great pleasure to be with you. It is an honour to be part of the opening of the 12th annual Franchise Association of New Zealand's conference.

To all of you, I urge you to push the boundaries, in every way you can. I hope your businesses with benefit from this conference and that you will enjoy the relationships and the support networks that you can set up here - after all that's what conferences are about.

Thank you.

 

 

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