Franchise Jargon Buster

Does franchising terminology make sense to you? Don’t worry if it doesn’t, the trusted Franchise Supermarket team is here to help.

• Area Developer – A franchisee that has the rights to expand in a designated franchise region or territory by either hiring sub franchisees or multiple managed franchise outlets.
• bfa – The British Franchise Association was set up by Business Format Franchisors in an attempt to regulate the franchise industry on an ethical basis. The bfa grant memberships to those franchisors it considers to meet the requirements of its franchise Code of Ethics and procedures.
• Business Format Franchise – The franchisee buys into a franchise business model, brand and experience. The franchisee will also receive dedicated franchise training and continual franchisee support.
• Business Plan – Document to outline the expectations of a prospective franchisees. It should document and demonstrate a franchisees understanding of the franchise model they have acquired the rights for, their confidence in replicating the franchise model in their chosen franchise location, how they plan to finance the initial franchise investment and required working capital and finally, financial projections, including a forecast trading account, profit and loss account, balance sheet and cash flow projection.
• Buyback – Where the franchisor agrees to buy-back the franchise from the franchisee if they no longer wish to continue running or owning their franchise business.
• Disclosure – The practice of detailed information about the franchisor’s business performance and package. It’s a legal responsibility in the US though it’s only voluntary within the UK.
• Exclusive franchise Territory - The specific area of operation outlined to a franchisee and sometimes gives them the sole right to operate within that exclusive franchise territory.
• Franchise Agreement – It documents the legal relationship of obligations between franchisor and franchisee.
• Franchise Fee - The initial fee or amount of money that the franchisee needs to pay the franchisor to purchase the franchise concept for an agreed period, with the option to renewal.
• Franchisee – An individual who purchases a licence to replicate a business model for a chosen franchise territory. The franchisee will agree to run the franchise in the manner that the franchisor has outlined and in doing so will be granted the privilege to use the franchisors branding.
• Franchise Resale – This refers to the sale of a franchised area by the franchisee. These are more expensive than starting from a franchise scratch however you benefit from ongoing customer base, referrals, goodwill and income from day one.
• Franchising – A method of marketing goods or services via replicating a proven business model through a network of franchisees.
• Franchisor – The founder/owner of the original franchise. The franchisor ultimately decides who can buy into their business model. Operations Manual – A comprehensive document of the business model and work procedures.
• Initial franchise Investment - The upfront cash investment required initially to open a franchised business.
• Managed Franchise - A franchise that doesn’t involve the hands on day-to-day running of the business. The franchisee should demonstrate strong sales, management and business skills to qualify for a management franchise opportunity.
• Master Franchise - A franchisee responsible for developing and/or selling additional franchise locations within a specific geographic area.A Master Franchisor tends to cover the rights for one chosen country and then hold the rights to sell additional smaller franchise territories within their master franchise territory.
• Renewal – Refers to the legal provisions in the Franchise Agreement for renewing or not renewing the franchise for a further term of years
• Royalty/franchise Management Service Fee - A percentage or amount of gross sales that the franchisee pays to the franchisor.
• Term – This is the number of years a franchise is granted through the Franchise Agreement with the franchisor.
• Termination – legal previsions by which either the franchisee or franchisor can terminate the contract due to a breach of contract.
• TFA – The Franchise Alliance has been created to deliver a combination of services to the franchise industry for Franchisors, Franchisees, people thinking of purchasing a franchise and specialist suppliers to the sector.
• Total Franchise Investment - This can include the initial investment, plus any other required purchases to run the franchise.
• Turnkey Franchise - Literally, a business where a new owner has to simply "turn the key" to start operation, where everything is provided for example: shop, fittings and stock.
• Working Capital - The amount of liquid assets you are required to have and maintain to operate the franchise.