Here is a dictionary of franchising terms to make understanding industry jargon easier
AREA DEVELOPMENT FRANCHISE or REGIONAL FRANCHISE: A franchise that includes the rights to expand a region through appointed sub-franchise owners or multiple managed outlets.
BFA: British Franchise Association. This organisation was set up by franchisors to regulate the industry on an ethical basis, granting membership to those franchisors it considers meet the demands of its Code of Ethics.
BLOCK EXEMPTION: The European Union concessions to franchising which bypass the normal EU anti-restrictive trade practices legislation seeking to protect competition that, for example, Exclusive Territories can be deemed to contravene.
BUSINESS FORMAT FRANCHISE: A franchise where the franchise owner buys into a total turnkey system of brand, know-how, training, methodology and support.
BUYBACK: A stipulation where the franchisor agrees to purchase a franchise back from a franchise owner 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 some countries, such as the USA, but voluntary in this country.
EXCLUSIVE TERRITORY: The area licensed out to the franchise owner in which to exclusively conduct the business.
FRANCHISE AGREEMENT: The contract between the franchisor and franchise owner, which documents the legal obligations of their business relationship.
FRANCHISE OWNER or FRANCHISEE: A person who invests in a franchise licence to replicate a business system.
FRANCHISING: Method of marketing goods and services via individuals replicating a proven licensed business formula.
FRANCHISOR: A company that offers a licence or replicate its business concept.
FRANCHISE PACKAGE: The sum total of franchise system rights licensed to the franchise owner, including branding, know-how, systems, territory and training – for which an Initial Franchise Fee is charge by the franchisor.
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.
JOB FRANCHISE: A term used to describe a franchise where the franchise owner is a hands-on owner-operator rather than a manager, usually linked with van-based services such as maintenance.
JOINT VENTURE FRANCHISE: A situation where the franchisor also takes a financial stake in the project. This often occurs in international franchise agreements.
KNOW-HOW: The sum of the franchisor’s secrets of doing business, also referred to as Intellectual Property.
MANAGEMENT FRANCHISE: A term used to describe a franchise where the owner manages the operation and co-ordinates employees to do the actual work.
MASTER FRANCHISE: A franchise where the Exclusive Territory covers a substantial region or entire country.
MASTER FRANCHISOR: A company that grants Master Franchises to others, usually in an international context.
MANAGEMENT SERVICE FEE or MSF: A percentage of the franchise owner’s total turnover or a fixed monthly fee paid to the franchisor in return for ongoing support and use of Intellectual Property.
OPERATIONS MANUAL: A detailed document that describes every item of the business system and work procedures.
P&L PROJECTIONS: The calculations, based on the experiences of the franchisor, pilot operation and franchise owners, which try to predict how soon a franchise owner can expect a return on their investment, year-to-year turnover and profits.
PILOT OPERATION: The first independent operation that establishes the business concept to be replicated via franchising. This operation tests the viability of the business concept, establishes the demand for the products and services, irons out the effective marketing and operational strategies and provides real financial data upon which P&L Projections can be based.
RENEWAL: The legal provisions in the Franchise Agreement for renewing or not renewing the franchise for a further term of years.
RE-SALE: The practice of selling on an established franchise owner’s business. This often occurs when the original franchise owner wants to realise their investment, move on, or simply retire. More expensive to purchase than a ‘virgin’ franchise area, but with the advantage of an ongoing customer base, referrals, goodwill and income from day one.
RETURN ON INVESTMENT or ROI: The calculations or expectations which franchise owners work on to assess when they can break even on their initial investment, move on, or simply retire. More expensive to purchase than a ‘virgin’ franchise area, but with the advantages of an ongoing customer base, referrals, goodwill and income from day one.
SUB-FRANCHISE: A franchise which is granted by a Regional/Area Development or Master Franchise Owner, who has piloted the concept and set up support infrastructure for the territory.
TERMINATION: The legal provisions by which either party in the relationship may terminate the contract.
TRADING ACT: Better known as the Trading Schemes Act (1996), this was introduced to combat the excesses of ‘pyramid selling’, which reached a peak in the 1980s. It is valuable in that it distinguishes franchising from such dubious schemes. Today, the diluted offspring of pyramid selling are often to be found in magazines covering ‘network marketing’ or ‘direct selling’, where it is still the norm to earn money chiefly from recruiting subordinate levels.