A Glossary of Useful Franchise Business Terms

A Glossary of Useful Franchise Business Terms
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Franchising, like other businesses, has its vocabulary. Understanding key franchise business terms helps one read the offer documents and related news in the industry with ease. Following are a set of commonly used key franchise business terms in the franchise industry. You don’t need to memorize them if you save this link on your browser!

  1. Franchise: A franchise is a license that allows the buyer to utilize the trademarks, fees, and support of a well-established company.
  2. Franchisor: The franchisor is a preexisting firm and parent corporation that charges a fee to allow someone to operate under their brand.
  3. Franchisee: A franchisee is an individual who acquires the franchisor’s license to manage the franchise.
  4. Franchise Disclosure Document (FDD): It’s critical to read the franchise disclosure document(FDD) before owning a business. This paper contains all of the information you’ll need to determine whether or not the franchise is suitable for you. It delves into the franchise structure and gives comprehensive information about the franchisor.
  5. Franchise Agreement: The next step is to complete the papers and get started once you’ve decided to acquire the business. This is when you sign the franchise agreement, which is essentially a contract between you (the franchisee) and the corporation (the franchisor). You’ll document your job and what’s required of you in this section.
  6. Business format franchise: This sort of franchise comprises not just a product, service, or trademark but also the whole company model, including marketing strategies and operational manuals.
  7.  Franchising: A trademark licensing, payment of fees, and considerable support and/or control define corporate development strategy.
  8. Advertising fee: Franchisees pay this charge to contribute to the brand’s advertising expenses throughout the whole company network. This charge covers promotional activities that benefit all franchisees. Therefore it’s typically good value. The charge varies for each franchise, but it is often determined as a percentage of total sales and is paid in addition to royalty payments.
  9. Due diligence: Due diligence is required in all commercial transactions, whether they are related to franchising or not. As a franchise keyword, it refers to the extensive study that would-be franchisees conduct to ensure that a business opportunity is appropriate for them. They’ll look examine the franchise’s history, operations, and financial results, as well as the franchisor’s claims.
  10.  Franchise fee: When a franchisee invests in a franchise, they give a franchise fee to the franchisor. It entitles them to begin using the brand name and trademarks within their agreed-upon region and to participate in a training programme. The payout is generally between 5 percent and 10 percent of the entire investment, although it can be as much as 40 percent or 50 percent in some cases.
  11. International Franchise Association (IFA): The International Franchise Association is the largest global organization representing franchising. Its goal is to use public awareness campaigns to protect, improve, and promote franchising.
  12. Royalty fee: Royalties are usually paid monthly or quarterly by franchisees and are usually computed as a percentage of sales revenue, although they can also be a one-time payment. The costs include the franchisor’s assistance and programs, including any ongoing training courses, guidance, and events.
  13. Trademark: Any term, phrase, or symbol used by a company to identify their goods and services is referred to as a trademark. The franchise agreement will spell out how franchisees may use these essential pieces of intellectual property in great detail.
  14. Third-Party Financing: Franchisees may choose to obtain funding from another provider, such as a bank or a specialty finance provider. A third-party financing agency is any company that offers fees other than the franchisor.
  15.  In-House Financing: While franchise costs might be intimidating at first, many franchisors provide in-house financing to their prospective franchisees. Financing alternatives can be used to pay for the charge and other costs such as inventory and equipment.
  16. Working Capital: The amount of funding required to pay company expenditures until the franchisee achieves a break-even point is referred to as working capital.
  17. Start-up cost: The phrase “start-up cost” is often used to represent the entire amount of money required for a franchisee to operate and manage their unit for at least three months. The franchise fee is included in this cost.
  18. Renewal: Franchisees generally have the opportunity to renew their contract for a charge after their assigned time. Occasionally, the franchisor may desire to alter some terms and conditions, such as raising fees.
  19.  Operations Manual: The franchisee’s guidance to running their firm is the operations handbook. It contains all of the franchisor’s laws and plans and guidance on corporate best practices. This important document provides franchisees with the tools they need to build their business consistently with the rest of the network.