Franchise Income Guarantees: Security or Risk for Kiwi Businesses?

By Alistair van Schalkwyk, Franchise Specialist Lawyer – ASCO Legal

With the economic uncertainty many New Zealanders are facing, income guarantees in franchise systems have become an increasingly attractive promise. These guarantees - offering minimum income or work for franchisees - can help ease the leap into business ownership. But are they as safe as they sound?

For Kiwis investing in home or commercial services franchises, the appeal is obvious: better cashflow certainty, easier loan approvals, and peace of mind. However, income guarantees are rarely straightforward.

Franchise agreements offering income guarantees often include strict conditions. You might be required to meet sales targets, follow specific marketing processes, or submit detailed reports. Miss a step, and your “guarantee” may disappear.

Some recent disputes, highlighted in national media, show the risks. Franchisees have found themselves relying too heavily on promised income, only to discover the fine print told a different story - or worse, the franchisor was unable to pay.

The key takeaway? Do your homework. Investigate the franchisor, ask for written disclosure of conditions, and speak to other franchisees. Most importantly, treat income guarantees as a bonus - not a business plan.

A franchise can be a great path to business ownership, but trust, transparency and due diligence are critical. If you're considering a franchise with a guarantee, get independent legal advice before signing anything.

At the end of the day, a promise is only as strong as the business behind it.