The terminology in the franchise industry used on a day-to-day basis can be mind-boggling. Here we summarise the most used words so you can get to grips when reading about franchise opportunities and speaking with businesses.
- 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.
- British Franchise Association (bfa) – the bfa grants membership to those franchisors it considers meet its Code of Ethics and procedures. Business Format Franchise – the franchisee buys into a total turnkey system of brand, know-how, training, methodology and support.
- Buyback – where the franchisor agrees to purchase a franchise back from a franchisee if the latter no longer wishes to continue.
- Disclosure – the practice of revealing detailed information about the franchisor’s business track record and franchise package. This is a legal obligation in, for example, the USA, but voluntary in this country.
- Franchise Agreement – documents the legal relationship of obligations existing between the franchisor and a franchisee.
- Franchisee – the person who buys a licence to replicate a business system. Also known as franchise owner.
- Franchise Package – the sum total of franchise system rights licensed to the franchisee, including branding, know-how, systems, territory and training for which an initial Franchise Fee is charged by the franchisor.
- Franchising – method of marketing goods and services via a business formula licensed for others to copy.
- Franchisor – a company that offers the licence to replicate its system.
- Intellectual Property Rights – the franchisor’s secrets of doing business and various trademarks, branding, manuals, etc., which should be legally protected before being sold in a franchise package.
- Management Service Fees (MSF) – fees due to the franchisor, often based upon total turnover.
- Master Franchisor – the entity that grants Master Franchises to others – this is usually used in international contexts.
- Operations Manual – the detailed document or ‘bible’, which describes every item of the business system and work procedures.
- Pilot Operation – an independent operation that tests the franchise concept and incorporates actual financial, organisational and logistical pressures to be faced by franchisees in different areas.
- Profit & Loss (P&L) Projections – the calculations, based on the franchisor’s, pilot’s and franchisees’ experiences, which try to predict how soon franchisees can expect a return on their investment, year-to-year turnover and profits.
- Renewal – the legal provisions in the Franchise Agreement for renewing or not renewing the franchise for a further term of years.
- Return On Investment (ROI) – the calculations or expectations that franchisees work on to assess when they can ‘break even’ on their initial investment in the franchise and start earning profits.
- Term – the agreed period of years (eg five, 10, 15) for which a franchise is granted through the Agreement.
- Termination – the legal provisions by which either party in the relationship may terminate the contract, e.g. for breach of contract.
- Territory/Area – the ‘exclusive’ portion of land, on a national, regional, county or postcode basis, which is allocated to franchisees as part of the franchise package.
Types of Franchises
- Area Development Franchise – a franchise that includes the rights to expand a region through appointed sub-franchisees or multiple managed outlets.
- Job Franchise – where the franchisee is a hands-on owner-operator rather than a manager, usually linked with van-based services such as maintenance.
- Joint Venture Franchise – where the franchisor also takes a financial stake in the project – often in international Franchise Agreements.
- Management Franchise – a franchise in which the owner manages the operation and co-ordinates employees to do the actual work.
- Master Franchise – the systems and brand of a large territory licence – a country or region.
- Resale – a franchised area already established by a franchisee, which is offered for sale because the original franchisee wants to realise his investment, move on, or simply retire. More expensive to buy than a ‘virgin’ franchise area, a franchise resale has the advantages of an ongoing customer base, referrals, goodwill and income from day one.
If you are baffled by any of the terminology in the franchise industry listed above, or you need help with any of it – call 0330 016 0028, email enquiry@ashtonsfranchise.com or complete our online enquiry form.