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Franchise Terminologies

  1. 10-day and 5-day Rules: The Franchise Disclosure Document should be given to potential franchisees within 10 days and the franchise contract should be given to potential franchisees within 5 days.
  2. Absentee ownership: A business owner who does not manage his own business personally.
  3. Acknowledgement of receipt: It is a page you sign and return to state the date you received the Franchise Disclosure Document (FDD).
  4. Advertising Fee: The annual fee paid by the franchisee to the franchisor to market the brand which can be less than 3% from the franchisee annual sales.
  5. Advertising Fund: An ongoing fee paid by franchisees to the franchisors to help with the advertising.
  6. Agent: An individual who acts on behalf of another.
  7. Agreement: Also called the Franchise Agreement. It is the contract that you sign with a franchisor
  8. Anchor Tenant: A tenant in a shopping centre whose main aim is to maximise profit. For example, Starbucks.
  9. Approved advertising materials: The materials provided by the franchisor or created by the franchisee that have been approved by the franchisor.
  10. Approved products: The products that are bought from the franchisor or from approved suppliers to ensure the same quality in their services and product.
  11. Approved site: A location that meets the criteria of the franchisor.
  12. Arbitration: A way to solve arguments.
  13. Area Development Franchise: A type of multi-unit franchise, whereby franchise has no resale rights, but are rather are themselves directly responsible for meeting a mandatory development schedule for their given region.
  14. Area franchise: A franchise agreement that allow a franchisee to open multiple outlets in a specified agreement.
  15. Area Franchisee: A franchisee who has acquired exclusive rights to open franchise units within a defined territory.
  16. Area Representative: A franchisee who also acts as a salesperson for the franchisor in a specific territory.
  17. Authorised suppliers: A supplier of goods approved by the franchisor.
  18. Article 19: It is the part of the Franchise Disclosure Document provides details of factors that effects future financial performance like earnings.
  19. Absentee ownership: A franchisee who isn’t actively involved in the companies day to day workings.
  20. Area Developer: The franchisee given permission to operate more than one unit in a particular area is an area developer.
  21. Area Development Rights: The right given to the franchisee to develop a certain number of franchises in a particular area in a given time frame.
  22. Block Exemption: the European Union concessions to franchising which bypass the normal EU anti-restrictive trade practices legislation seeking to protect competition – which, for example, ‘exclusive areas’ can be deemed to contravene.
  23. British Franchise Association (bfa): The BFA grants membership to those franchisors it considers meet its Code of Ethics and procedures.
  24. Broker: An outside salesperson that helps the franchisor with the selling of franchises.
  25. Breakeven: When a franchisee earning the same amount as they have invested in the franchise.
  26. Business Format Franchising: the franchisee buys into a total turnkey system of brand, know-how, training, methodology and support.
  27. Business Plan: A plan that discusses the objectives for the business and how to achieve them.
  28. Buyback: When the franchisor agrees to purchase a franchise back from a franchisee if the latter no longer wishes to continue.
  29. Buy-Sell Agreement: A legal document that details the provisions under which a business may be sold.
  30. Candidate: Franchisors use this word to address potential franchisees.
  31. Capital: Capital is cash in checking and savings accounts, insurance policy cash values, non-IRA stocks and bonds, and loan receivables due within 30 days.
  32. Capital required: The first investment needed to start the business.
  33. Certification: It is given by the franchisors or franchisees to the employees to attest their ability.
  34. Churning: An unsuccessful business is taken by the franchisor and sold to the franchisee.
  35. Copyright: The right to use other people’s creations like already published works.
  36. Conversion: The rebranding of an existing business to a franchise for a different company.
  37. Company owned location: A location owned and operated by the franchisors which functions the same as their franchises.
  38. Company-owned Outlet: Company owned stores that are the same as franchised ones.
  39. Continuous training: The training provided by franchisors to franchisees and their staff.
  40. Conversion Franchising: A franchise that permits an existing businesses to join a national franchise system to use its recognized name and trademark and operating system.
  41. Corporate Location: This is owned by the corporate entity rather than the franchisee.
  42. Culture of Compliance: This is when the franchisee does what is right for the franchise based on the feelings rather than the guidelines.
  43. Days: This refers to calendar days unless specified.
  44. Day to day management: A franchisee is meant to take care of the franchise daily functions to meet the brand standards.
  45. Default: The failure of not meeting the terms of the agreement.
  46. Design: The trade dress used by the franchise system for the franchise locations, including logo, layout, color scheme, signage, etc.
  47. Designated Supplier: A supplier of goods approved by the franchisor.
  48. Disclosure: This refers to revealing facts about franchisor.
  49. Disclosure Document: All franchisor companies are required by the Federal Trade Commission (FTC) to provide this document to prospective franchisees at the first personal meeting to discuss the sale of the franchise and at least 14 days prior to the prospective franchisee signing a franchise agreement or paying the franchisor money to buy the franchise. The document aids the prospective franchisee’s evaluation of the franchisor company
  50. Discovery Days: A meeting before the franchisee choosing to buy the franchise.
  51. Distributorship: The right granted by the manufacturer to sell their products.
  52. Exclusive Continent: A contract that gives you the right to operate in that continent.
  53. Exclusive (protected) Territory: A contract that allows the franchisee exclusive control over the operations in a particular area.
  54. Feasibility study: Examines the potential of the company.
  55. Federal trade commission: The agency of the US government that regulates franchising.
  56. Field Consultant: A worker of the franchisor sent to assist the franchisee with the franchise.
  57. Field representative: An employee of the franchisor sent to monitor the franchisee.
  58. Financial Performance Representation (FPR): It shows the finance of the company to a potential franchisor under Article 19.
  59. Footprint: Layout of locations including furniture etc.
  60. Franchise: ” A franchise is a grant by the franchisor to the franchisee, entitling the latter to the use of a complete business package containing all the elements necessary to establish a previously untrained person in the franchised business, to enable him or her to run it on an ongoing basis, according to guidelines supplied, efficiently and profitably”.
  61. Franchise agreement: The written contract that outlines the duties of the franchisee and franchisor.
  62. Franchise Attorney: A lawyer familiar with the rules of franchising.
  63. Franchise Consultant: An expert who knows the workings of a franchise.
  64. Franchise Development: The process of adding new franchisees to a franchise.
  65. Franchise Disclosure Document: A document containing important information about the franchisor which is to be given before selling the franchise to the franchisee.
  66. Franchise Expo: Events where potential franchisees can meet good franchisors.
  67. Franchise Feasibility Studies: This is used to check if a company can be a good franchise.
  68. Franchise Package: This includes the training, guidelines etc. after the initial payment is done.
  69. Franchise Fee: An initial amount paid by the franchisee to get into the franchise.
  70. Franchisee Satisfaction Index: A 100-point scale that measures the satisfaction of the franchisees with the franchisors.
  71. Franchisee: A person who is given the right to run a franchise by the franchisor.
  72. Franchisee in good standing: Franchises that are running smoothly for example make all their payments.
  73. Franchising: A method of growth or distributing.
  74. Franchisor: A person selling the franchise.
  75. Furniture, Fixtures and Equipment: Personal property used in the functioning of a franchise.
  76. Grey Marketing: When a Franchisee purchases under franchisor’s negotiated agreements and uses the product or merchandise in another business, or sells products or merchandise to another company.
  77. Gross Profit: The profit earned after removing any other expenses except for the cost of goods sold.
  78. Gross Sale: The amount before expenses are deducted.
  79. Group purchasing power: When products in a bulk the price reduces significantly.
  80. Guarantee: An assurance that the products will perform well for a long period of time.
  81. House mark: A mark used to identify the operations of a company.
  82. Identify Items: Items that display the registered trademarks of the franchisor.
  83. Initial investment: It includes the franchise fee and the amount needed to start operating a franchise.
  84. Intellectual Property Rights: The franchisor’s business secrets being imparted to the franchisee.
  85. International Franchise Association: Trade association for franchisors located in Washington.
  86. Internet Sales: A sale done online.
  87. Inquiry: A person gathering information about a franchise opportunity.
  88. Item 19: It is the part of the Franchise Disclosure Document provides details of factors that effects future financial performance like earnings.
  89. Job Franchise: When the franchisee is involved in the manual work of the company.
  90. Joint Venture Franchise: In this case the franchisor also claims ownership of the franchise.
  91. Key Supplier or Vendor: A supplier who the franchisors have negotiated prices with and whose products are crucial to the franchise.
  92. Lead: An inquiry that is prequalified after the initial interview with a member of the franchisor’s development staff as meeting the minimum criteria to become a franchisee, and who is invited to submit a franchise application.
  93. Lender: A bank that provides a business loan.
  94. Liquid capital: This capital can easily be turned into cash.
  95. Location: The site of the franchised or company-owned operation.
  96. Low-Cost Franchise: A franchise with a low initial investment which is usually below $100,000.
  97. Management Franchise: A franchise where the owner manages the daily workings of the franchise.
  98. Management Service Fees (MSF): Fees due to the franchisor, often based on total turnover.
  99. Manuals: The guide given by the franchisor that determines how the franchise works.
  100. Market Introduction Program: Marketing, advertising, and public relations activities used to introduce the franchise to the public.
  101. Marketing plan: A technique by which franchises are sold.
  102. Master Franchise: The franchisee is allowed to sell franchises in a particular area and gains the power of a franchisor.
  103. Master Franchisee: an individual or company granted exclusive rights ownership to develop specific area or territory by sub-franchising.
  104. Master region: The area the master franchisee is in charge of.
  105. Multi-Concept Franchisee: A franchisee who owns multiple franchise business units.
  106. Multi-Level Marketing (MLM): A form of distributing where you gain commission on your sales and sales from the distributors.
  107. Multi-Unit Developer: A franchisee that agrees to open more than one franchise in a particular location.
  108. Multi-unit development: This is when the franchisee owns more than one unit.
  109. Multi-Unit Franchise: A franchisee that owns more than one unit.
  110. Neighbourhood shopping centre: A shopping centre to satisfy the needs of people leaving closer.
  111. Net worth: The total assets subtracted from total liabilities.
  112. Non-compete clause: A clause in a contract that doesn’t allows you to work in the same industry or area for a given period of time after you have left the franchise.
  113. Offer: A written proposal to sell the franchise to the franchisee with terms and conditions.
  114. Operating manual: Guidelines of how the franchisee is supposed to run a franchise.
  115. Operating principal: A person selected by the franchise owner to make decisions on behalf of the franchisee.
  116. Person: An individual, partnership or corporation.
  117. Personal Guaranty: A guarantee to pay back a loan to a lender.
  118. Pilot Operation: A test to see if the franchise concept will be successful.
  119. Product and Tradename Franchising: When a franchisor allows the franchisee to sell a product using their name or brand name.
  120. Product Format Franchise: The ability to sell other products that are completely different from what you sell.
  121. Proforma: The ability to sell a product that is different from your theme.
  122. Profit and loss projections: It is calculations based on the franchisor and franchisee’s experiences which try and predict how soon franchisees can earn the return on their investment.
  123. Protected continent: A specific area granted to the franchise.
  124. Protected or Exclusive Territory: Protection granted to the franchisee to open a franchise in a particular area.
  125. Prospect: A person who has completed the franchise approval form and interested in proceeding to buy a franchise.
  126. Qualification Questionnaire: A document to be completed by the franchisee by filling in information about himself so it can be evaluated by the franchisor.
  127. Quality Control: Quality control involves regional coordinators visiting each franchisee.
  128. Quality Standards: The standards specified by the franchisor in the operation manual.
  129. Real Property: Land that doesn’t have anything attached to it.
  130. Regional Development Agreement: A franchise given to a third party to develop.
  131. Registration: By law specific information needs to be submitted to the government and approved before the selling of a franchise.
  132. Registration States: In 15 states, franchisors are needed to register their FDD before selling a franchise.
  133. Renewal: Renewal is the resigning of a Franchise Agreement after the initial contract has expired.
  134. Retro franchising or Refranchising: When existing locations that may or may not have ever been franchised, and which are currently operated by the franchisor, are offered for sale to prospects. Not the same as churning – the franchisor has an expectation that the retro franchised business will be successful (see churning definition above).
  135. Return on Investment (ROI): The calculations that show how the franchisee needs to change to achieve a break even.
  136. Royalty Fee: A royalty refers to a percentage of sales that franchisees pay to the franchisor monthly.
  137. Rules of operation: Rules that every franchisee and company outlet must follow.
  138. SBC: SBC is an acronym for Small Business Centres and they assist small business to get their federal contracts for products and services.
  139. Senior Care: A sector that focuses on caring for senior citizens and providing services for them.
  140. Service mark: A mark used in the sale of advertising of services of one person and distinguishes them from the services of others.
  141. Single-Unit Franchisee: Franchisee who owns a franchise in one location.
  142. Slick: A idea used by the franchisor to advertise their franchises on different types of media.
  143. Start-Up Costs (Initial Investment): The first investment which includes the franchise fee, the cost of fixed fee, the cost of fixed assets and any expenses required during the start-up period.
  144. Strip Centre: A retail centre comprised of several small stores.
  145. Sub franchisors: A type of franchise where the franchisee take on the role of a franchisor in that particular area.
  146. Success: In franchising this refers to not losing a location.
  147. Successor Agreement: Franchisee’s choosing to sign the franchise agreement after the initial contract has finished.
  148. Supplier/Vendor: A business providing supplies to the franchisees which is usually picked by the franchisor.
  149. System Brand Fund: A fund created by the franchisor for advertising which gains its contributions from the franchisees and company- owned units.
  150. Termination: When a franchisor stops the functioning of the franchise by stopping the contract.
  151. Territory: The land given to a franchisee by the franchisor as part of the franchise deal.
  152. Total investment: The amount of money estimated for complete set up of a franchisee.
  153. Trade Area: For shopping centres the geographical area from which majority of the sales come from.
  154. Trade Secret: Information given to the franchisee by the franchisor.
  155. Trademark: The name associated with a product.
  156. Transfer: The change in ownership of a franchise.
  157. Turnkey: A location that is ready to function that is given to a franchisee.
  158. Turnover: It refers to a franchise business agreement that has been terminated.
  159. Tying: Forcing a franchisee to purchase one product as a condition to the sale of another.
  160. Validation: When you are buying a franchise, you have to call the franchisors to check the details mentioned by the franchisor about the franchise opportunity.
  161. Variable Cost: Any costs that vary with the level of production for example materials needed to create a product.
  162. Vertical and Horizontal competition: Vertical connection deals with a buyer-seller relationship, as in franchisor-franchisee. (See Tying) Horizontal restraints of trade in franchising usually are concerned with potential price fixing arrangements among a group of franchisees (sometimes including company owned outlets) in a defined and homogeneous geographical area. Also, in franchising, horizontal competitors are those offering a franchise or franchise product similar in price, whereas vertical competitors are similar in product or service but not in price. Price fixing is illegal at any level of an organization.
  163. WBE: This stands for Women Owned Business.