Franchise Glossary

In this section we provide a list of the common, and not so common, words used in the franchising community around the world. If you would like to add, or ask for more specific information on a particular term, contact us.

A | B | C | D | E | F | G | H | I | J | K | L | M | N | O | P | Q | R | S | T | U | V | W | X | Y | Z

A

  • Acknowledgement of Receipt - It is included in the UFOC, and it's the page that you will sign and send back to the franchisor to provide proof of the date that you received the UFOC document.
  • Advertising Fee - This is an annual fee which the franchisee pays to the franchisor. It typically covers many things, such as corporate advertising. It tends to be less then three percent of the franchisee's annual sales. It's generally paid in addition to the royalty fee. Advertising fees aren't charged by every franchisor.
  • Advertising Fund – read advertising fee.
  • Agent - An agent can act on the behalf of another individual, they can also act on the behalf of a corporation, and can legally bind them.
  • Agreement - In this industry, it's also known as the Franchise Agreement. It is the franchise agreement you sign with a franchisor when you decide to purchase their business model.
  • Anchor Tenant - Generally speaking, we're referring to a tenant in a shopping center setting. In shopping centers, this tends to be a regional department store, a national chain store that is strategically located there to generate the most amount of consumer traffic for all of the businesses also located in the shopping mall. In other centers, the anchor tenant could be a supermarket, a national coffee brand such as Starbucks, a drug store, a convenience store, etc.
  • Approved Products - Products that a franchisee must purchase from the franchisor. It could also refer to products that must be purchased from approved suppliers. This way the franchisor can assure uniform quality assurance amongst the franchisees.
  • Approved Supplier - The franchisor's approved suppliers, who will provide the approved products.
  • Arbitration - It is an alternative to using the legal process, which can be costly, and time consuming. In this process, a neutral third party hears both sides to a dispute and gives a decision.
  • Area Development Franchise (a.k.a. Development Agreement, Master Franchise) - Another type of multi-unit franchise. Through which a franchise has no resale rights, and are directly responsible for meeting a mandatory development schedule for their given region.
  • Area Development Rights - The franchisee is granted these rights to develop a specific number of franchises within a specified geographic area. Usually there is a certain time frame to accomplish that.

B

  • British Franchise Association (BFA) - The British Franchise Association exists since 1977. They pioneered the establishment of an ethical code of conduct for franchisors in the UK. They also ensure the strict enforcement of this code. There are well over 250 franchises that are members of the BFA.
  • Broker - An individual who manages a sale and purchase of a franchise business model. Brokers can represent either sellers or buyers, serving the same purpose they have in other fields, such as real estate. Some brokers can also represent both a seller and a buyer.
  • Business Format Franchising - The franchisee is licensed to use the franchisor's products and trademark. The franchisee is also trained by the franchisor in the business model and format including selling, marketing, personnel procedures, inventory, and more. The franchisor is also supposed to provide training and support during the business relationship with the franchisee.
  • Business Plan - A plan, or business model, to help the individual reach his or her business goals.
  • Buy-Sell Agreement - A legal document much like the Franchise Agreement.

 

C

  • Capital - Capital means cash. In checking and/or savings accounts, loan receivables due within 30 days, insurance policy cash values, non-IRA stocks and bonds, etc.
  • CMSA - Consolidated Metropolitan Statistical Area, MSA that with a population of 1 Million or more, of parts that are categorized as PMSA's.
  • Company-owned Outlet - Company-owned stores or offices that appear to be identical to the franchised outlets.
  • Conversion Franchise - A franchise that allows existing businesses to convert/join into a national franchise system to use the franchise's recognized name, trademark and operating system.
  • Copyright - A person's exclusive right to use, and to license others to use, an intellectual property such as a book, pamphlet, or other published material.

 

D

  • Default - Failure to perform duties as required by a contract.
  • Designated Supplier - The supplier source for approved products as designated by the franchisor. This way the franchisor guarantees uniform quality for certain products that the franchisee provides to their customers.
  • Development Type - Is the method by which the franchisor plans to build and develop their franchise. Some different methods are: Unit Franchise, Multi-unit Franchise, Area Developer, Regional Franchisee and Master Franchise.
  • Disclosure - Disclosing facts and information to other parties. In franchising, this information could be disclosing a prior bankruptcy and/or litigation involving the franchisor or other persons as defendants.
  • Disclosure Document - The Federal Trade Commission(FTC) requires all franchisors to provide this document to prospective franchisees and to give them at least ten business days prior to the signing of the Franchise Agreement, or paying the franchisor money to buy the franchise. This disclosure document, also called UFOC, assists the prospective franchisee's appraisal of the franchise company.
  • Distributorship - It's the right given to a manufacturer, or wholesaler to sell a product to other parties. Distributorships are typically not franchises. Some distributorships could qualify as franchises, they could also be licensed as a business opportunity.

 

E

  • Earnings Claims - The earning claims are disclosed in section 19 of the UFOC. These are claims from the franchisor about the past performance of franchisees, and also about the potential financial performance of the franchise.
  • Estimated Initial Investment - An estimate of the initial investment expected to be incurred by the new franchisee. This list would include the total amount for financing, fees paid to the franchisor, equipment needed, opening inventory, furniture, real estate, insurance, etc.
  • Exclusive Continent - An exclusive continent right grants the franchisee the right to a continent. The franchisor is not permitted to sell other franchises in that continent.
  • Exclusive Territory - An exclusive territory is an exclusive area around the franchisee's operation, that is given to the franchisee with the consent of the franchisor. Within this area, be it large or small, no other franchisee or company owned business is allowed to operate.

F

  • Federal Trade Commission - Otherwise known as FTC, is the U.S. government agency that regulates franchising. Their headquarters is in Washington, D.C.
  • Franchise - According to the Federal Trade Commission (FTC), franchise is an agreement, written or oral, through which an individual permits the distribution of products and/or services under his or her trademark, tradename or service mark, while the grantor retains control and manages others, and provides significant assistance and support to others. One should research the specific definitions in a certain jurisdiction, applicable case law and informal and formal opinions rendered by Federal and State authorities.
  • Franchise Agreement - In the franchise agreement one can find information pertaining to the location requirements, training, fees, franchisee's and franchisor's obligations, territorial rights, etc. This document also helps to set forth the expectations and requirements of the franchisor, and the franchisor's commitment to the franchisee.
  • Franchise Feasibility Studies - The goal of franchise feasibility study is to specify the degree to which a company may be successful as a franchisor. This company could be a well-established or a small operation of one or two units, or simply a concept that has the same characteristics of a successful franchisor.
  • Franchise Fee - It's a one time fee paid to the franchisor by the franchisee to buy into the franchise. This fee is meant to reimburse the franchisor for all the costs of initial training and support to new franchisees.
  • Franchisee - A person or entity to whom the right to conduct a franchise is granted by the franchisor.
  • Franchise Resale – The sale of a franchise that is already setup and running. A franchise resale may happen for a number of reasons: the franchisee may be retiring, going into another business, moving, ready to move on, etc. Buying an existing franchise could minimize the risk of failure and it's operational from day one, though it could be a higher investment.
  • Franchise Type - The type of work involved in a particular franchise. There are five main categories: single operator executive, single operator manual, retail, management and investment.
  • Franchising - It's a method of doing business in a given industry. The two main parties involved are the franchisee and the franchisor. The contract binding the two parties is the franchise.
  • Franchisor - A person or entity granting or issuing a franchise.
  • Furniture, Fixtures and Equipment - Abbreviated as FF&E. Personal property used in the operation of a business.

G

  • Gross Sales - It's the sum of all money generated before deducting wages, product cost, taxes, interest, etc. The revenue prior to any expenses being subtracted.

H

  • Housemark - It's a trademark used for a company's commercial operations. The housemark could have the company name and may be used to identify one or more products, and in combination with other trademarks or trade-names.

I

  • Identify Items - Items with the registered trademarks of the franchisor displayed. Paper products, uniforms, point of sale materials or exterior signs. They are usually required by the franchisor to be used in the franchisee's business.
  • Initial Investment - Generally it's the franchise fee and the total investment amount. This includes the working capital required to initiate the franchise operation.
  • International Franchise Association (IFA) - Based in Washington, D.C, it's a Trade association for franchisors. The International Franchise Association requires all of its members to follow a strict code of ethics.
  • Investment - The amount of resources an individual puts into his or her goal.

J

K

  • No Franchise Terms were found under the letter K at this time.

L

M

  • Management Franchise - As the franchisee grows the business, he or she will use a separate premises to manage the business, control the staff, etc. From the management franchise the majority of the turnover comes from business to business activities rather than from retail.
  • Management Service Fee - Same as royalties, traditionally a fixed fee or percentage.
  • Marketing Plan - It's the method used to sell franchises. Encompasses the anticipated number of sales during a specific time period, the profile of the individuals these sales are to be made to, and the probable geographical expansion of the franchise, among other factors.
  • Master Franchisee - The individual or company who owns the exclusive rights to develop a specific continent for the franchising company.
  • Master Region - The region that a master franchisee acquires.
  • Metropolitan Statistical (MSA) - Counties with a concentration of population, the largest city and surrounding well populated areas. Counties that contain a city of 50,000 plus people, or contain a Census Bureau defined urbanized area(UA) and a total population of at least 100,000 in most cases. Each territory has slightly different measures, find out what MSAs are around your area of interest.
  • Minority Owned Business (MBE) - A minority owned business must be certified as such, and can receive some advantages from government contracts.
  • Multi-Unit Franchise - A Franchise Agreement providing the franchisee with the rights to develop more than a single unit.

N

  • National Alliance of Franchisees (NAF) - Organized in 1977, the NAF represents and protects the interests and rights of franchisees. Their national headquarter is in Washington, D.C.
  • Non-compete Clause - A clause in contract that keeps an individual from entering the same line of business for a specific period of time after leaving employment, or after an individual terminates, sells, or leaves a franchise.

O

  • Offer - A written, or oral, proposal to sell a franchise to an interested franchisee, upon understood terms and conditions. The term "offer" is very broad and this is meant only as an unofficial reference.
  • Operating Manual - A thorough set of guidelines educating the franchisee on how to operate the franchise business.

P

  • Personal Guaranty - When the business owner has to personally guarantee the debt should the corporation default the payments.
  • Primary Metropolitan Statistical Area (PMSA) - A county, or cluster of counties, with a population of 1 Million or more that meets the requirements of being a MSA. An area that shows strong economic and social networks.
  • Pro Forma - A pro forma document serves as a model for the actual documents of a transaction. For instance, when a new corporation is in development, the partners may prepare a business plan containing pro forma financial statements, such as projected cash flows and income statements.
  • Product Format Franchise - The ability one has to sell a particular company's product that does not constitute all that one sells. Take this example for instance: an individual may have a gas station that sells a certain brand of gasoline, but this individual is not restricted on the other products or services that he or she can sell.
  • Protected Continent - A specific geographical boundary, or designated area, given to the franchisee according to the Franchise Agreement. The franchisor agrees to not open another franchise or company owned business of like kind within the franchisee's protected continent.

Q

  • Qualification Questionnaire - A document to be filled out by the prospective franchisee, generally prepared by the franchisor. This document provides information about the franchisee, so that franchisor can assist him or her in determining whether or not the prospect is capable and ready.
  • Quality Control - Regional Quality Control coordinators typically visit each franchisee to insure the rules of operation set forth by the franchisor.

R

  • Real Property - Land and anything permanently affixed to the land.
  • Renewal - As a franchisee, you are given a particular time frame in which to conduct business in your initial Franchise Agreement. The franchise agreement should also describe the terms and conditions to renew that business relationship. Renewal is when the resigning of a franchise agreement after the initial, or subsequent, terms of the franchise expires.
  • Royalty - A royalty is a percentage of the gross sales that the franchisee pays to the franchisor on a monthly basis.
  • Rules of Operation - explore Operating Manual.

S

  • Service Mark - According to the statutory definition, it is "a mark used in the sale of advertising of services of one person and distinguishes them from the services of others." Service marks relate to real estate chains, employment agencies and the like.
  • Single Operator Executive - Also known as white-collar Job Franchise, the franchisee works at the franchise which usually takes the form of a trade supplying, selling and delivering products or service. In this case it is an executive type of work.
  • Single Operator Manual - Also known as the Job Franchise, the franchisee works at the franchise which usually takes the form of a trade supplying, selling and delivering products or service.
  • Slick - A piece of advertising material typically generated by the franchisor, for the franchisee to use in local print media. It comes ready for publishing without any major modifications needed.
  • Small Business Centers (SBC) - They are General Services Administration (GSA) offices that assist small businesses in tasks such as acquiring federal contracts for goods and services.
  • Subfranchisor - A different type multi-unit franchise where a franchisee acts as an independent selling organization, and is responsible for the recruitment and continuous support of franchisees within the specified area. They will possess their own UFOC, and it is sometimes incorporated into their franchisor's UFOC.

T

  • Termination - The legal provisions through which either party in the business relationship may terminate the contract.
  • Territory/Area - The exclusive radius, region or area that is allocated to the franchisees as part of the Franchise Agreement.
  • Total Investment - The estimated amount of money for the complete set up of the franchisee's business.
  • Trade Secret -Also known as Proprietary product or service, it's the knowledge the franchisor has in possession that is shared with the franchisee during the franchise buying process. Trade secrets may take the form of construction or operating procedures, a formula for the mixing of ingredients to prepare food, etc.
  • Trademark - The name connected with a product. A trademark is a type of intellectual property, and typically comprises a name, word, phrase, logo, symbol, design, image, or a combination of these elements.

U

V

  • Variable Cost - This refers to costs that vary with the level of production. Materials used to create a product are variable costs for example. The more you produce, the more you will need, and the more the cost will vary.

W

  • Women Owned Business (WBE) - One must go through a strict certification process to ensure that the business is truly owned and controlled by a woman in order to be part of the WBE. A total of 51% ownership and control will need to be accounted for in most scenarios. Certain federal government contract advantages and potential low interest loans are some of the advantages of being part of this group.

X, Y, Z.

  • No Franchise Terms were found under the letters X, Y and Z at this time.