Risk management is a crucial element of any business strategy and an increasingly demanding task for leadership in a hyper-connected business environment. Recently Daniella Ghiri, Client Director of Partnership, spoke with Franchise Executives on five key risks impacting the Australian franchise landscape as we approach 2024.

• Regulatory and legislative change
• Damage to reputation and brand.
• Cyber-attack and data breach
• Business interruption
• Economic slowdown and slow recovery

So, how will these risks affect franchisors and franchisees and what steps can they take to help protect their businesses? Daniella Ghiri, tells Franchise Executives there is already an increased risk for franchisors and franchisees because of updates to employment law and wage awards.

Add in an upcoming review of the current Franchising Code of Conduct which could lead to more regulatory change, and the brand damage and financial risk is heightened for franchisors.

"Both these elements will require careful navigation and risk minimisation”, says Daniella. Robust systems and governance are central to meeting the challenges as franchisors continue to scale their businesses, she believes.

The risks of damage to brand and reputation have long been understood in the franchising community.

Two brands currently facing the ramifications of updated legislation are examples of franchisor vulnerability if franchisees break the rules, in these cases breaches of employment law. The legal and financial outcomes are not yet clear; it is expected that any further legislative change will only increase costs and legal liabilities.

However, points out Daniella, such risks cannot be insured against. Safeguarding a business from these risks requires a different approach. “A specialist partner can work with franchisors on mitigation strategies in relation to uninsurable risks coming from regulatory change,” she explains.

Companies of all sizes are susceptible to cyber-attacks; even well-resourced, high-profile firms have proven vulnerable to ransomware demands. Data protection is a major concern for many businesses. A recent State of Franchise report by the Franchise Council of Australia revealed 67% of respondents had concerns about data security. Franchisees will look to their franchisor to lead risk minimisation in this field to avoid potential financial losses and brand damage.

As the last few years have shown us, unpredictable events can have a profound effect on businesses. With the threat to business continuity likely to increase in frequency and complexity, insurance cover is an important element of safeguarding a business.

Daniella tells Franchise Executives, “It’s important that small businesses consider business interruption cover. At Aon we would work with franchisors to help ensure their network has insurance cover and provide advice on risk minimisation. Aon is in the business of helping our clients make better decisions”.

In an economic downturn, business owners often take the obvious step of reducing expenditure. Cost-cutting accompanies other risks which business owners need to consider.

Daniella says “In the current economic challenge the cost of living is having an impact on small businesses. In tough situations there is a tendency for business owners to minimise their coverage, we understand this. They are juggling with the cost of living and insurance cover can be impacted. What’s important is ensuring they have the right cover for them in place”.

Daniella is clear: because the business environment has changed over the last 24 months it is pertinent to review a business for its risk profile.

“A number of businesses will not have conducted a health check recently,” she says. “They have tested the market on price, but they also need to take a detailed look at where they face risks and take steps on minimising them.”

In franchising, the addition of a diverse network of individual business owners only amplifies the challenge for a franchisor. One way for franchisors to minimise their risk through governance is making it mandatory for franchisees to get individual insurance.

However, Daniella points out Aon has regularly uncovered inconsistencies in the levels of insurance across a franchise networks: some businesses are over-insured, some are under-insured. “Conducting a health check is an opportunity for franchisors to get more consistency across the network, which serves to help protect their own business,” says Daniella.

“This is particularly important given our experience of business interruption over Covid, especially in retail,” she says. “Franchisors need to take a much broader view of the risks to business.” Finding risk management solutions to support small businesses involves understanding the breadth and depth of the potential threats.

The Aon Partner Program helps deliver insurance solutions to partners, their customers and franchise network. Aon’s approach is to build a customised, risk-aware solution that delivers oversight to the franchisor of franchisee insurance coverage. “We provide the education around risk management, we undertake the analysis across the franchise network, offering specialist advice to franchisees,” explains Daniella.

The business is underpinned by diverse industry expertise, enabling Aon to apply a specialist lens to each client’s situation, delivering sector-specific advice and competitively priced insurance solutions. “ Aon is in the business of helping our clients make better decisions to support their business and insurance needs. We are here to provide the support and risk management advice they need to run a successful business,” says Daniella. “It is crucial for business owners to have insurance cover fit for purpose.”

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To contact the Aon team and speak with a dedicated broker, visit the Aon Partner Program page.