Understanding The Language of Franchising
If you are not experienced with franchising then some the terminology that is used to refer to the process may initially seem a bit confusing. We have included a helpful list of popular language used in the franchise world in order assist you in navigating the franchise acquisition process.
If you still have questions regarding franchise terminology and the words used in your franchise documentation or franchisee agreement do not hesitate to contact Northwest Franchise Solutions for assistance.
Block Exemption
In unions related to franchised businesses Block Exemption refers to non-restrictive trade practices and the legislation that is used to protect competition.
Business Format Franchise
This is when the franchisee buys a ready-to-go brand that includes training education, methods of operation as well as support from the parent franchise.
Buyback
Referring to when the franchisor decides to purchase the franchise back from the franchisee.
Disclosure
The process of revealing detailed information about the franchises history as per the obligatory terms of the franchise agreement.
Franchise Agreement
This is a legal document that describes the relationship between franchisor and franchisee.
Franchisee
This refers to the individual who is purchasing the franchise or is looking into investing into a franchise opportunity.
Franchise Package
This is everything that the franchisee receives once they have agreed to the terms of the Franchise Agreement. This typically includes training materials, branded items, process descriptions and methods.
Franchising
Describes a method of marketing goods and services through a unique business formula that is licensed to interested parties.
Franchisor
A Franchisor is any company that provides a replicated business model for investors.
Intellectual Property Rights
This is a listing of the franchisors business operation rules and secrets that are trademarked and must be sold as a full package. These may also come with a confidentiality agreement.
Management Service Fee
These are the fees that are paid to the franchisor, usually a portion of sales revenue.
Operations Manual
A detailed publications that describes the day-to-day business operations and work procedures of a franchise
Pilot Operation
This is an independent operation that is separate from the original franchise concept.
Profit and Loss Projections
These are the calculations, based on the franchisor’s history that predicts how soon the franchise will begin to be profitable.
Renewal
A legal term regarding provisions to the Franchise Agreement or whether or not the Franchisee will re-commit after a stated period of time.
Return On Investment
Based on projections and history this is an estimate on when the franchisee will break even and begin to make a profit on their initial
Investment.
Term
This refers to the agreed period of time before the Franchise Agreement can be re-evaluated.
Termination
A termination is a legal provision where either party can terminate the original Franchise Agreement if it has been breached in any way.
Territory/Region
In the world of franchising territory/region is the area that is exclusively reserved for a franchisee. Meaning, that no other competing franchise will be licensed in the same district.