What does that mean?
Are you new to the franchising industry? Do you know the difference between a Management Service Fee and a Franchise Fee? Here we explain some of the terminology used in the franchising industry
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.
Franchise Owner – The person who buys a licence to replicate a business system. Also known as ‘franchisee’.
Franchise Agreement – Documents the legal relationship of obligations existing between the franchisor and the franchise owner.
Business Format Franchise – The franchise owner buys into a total turnkey system of brand, know-how, training, methodology and support.
Franchise Package – The sum total of franchise system rights licensed to the franchise owner, including branding, Franchise Fee, systems, territory, training and support.
Operations Manual – The detailed document or handbook, which describes every item of the business system and work procedures.
Term – Refers to the agreed period of years (eg 5, 10, 15) for which a franchise is granted through the Franchise Agreement.
Territory/Area – The ‘exclusive’ portion of land, on a national, regional, county or postcode basis, which is allocated to franchise owners.
Area Development Franchise – A franchise that includes the rights to expand a region through appointed sub-franchise owners or multiple managed outlets.
Master Franchisor – The entity that grants Master Franchises to others – this is usually used in international contexts.
Master Franchise – The systems and brand of a large territory licence – a country or region.
Job 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 – 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.
Buyback – Where the franchisor agrees to purchase a franchise back from a franchise owner if the latter no longer wishes to continue.
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.
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 the UK.
Management Service Fees (MSF) – Fees due to the franchisor, often based upon total turnover.
Pilot Operation – An independent operation that tests the franchise concept and incorporates actual financial, organisational and logistical pressures to be faced by franchise owners in different areas.
British Franchise Association – A voluntary self-regulatory body for the UK franchise industry. It grants membership to those franchisors it considers meets its Code of Ethics and procedures.
Profit & Loss (P&L) Projections – The calculations, based on the franchisor’s, pilot’s and franchise owners’ experiences, which try to predict how soon franchise owners can expect a return on their investment, turnover and profits.
Resale – Refers to a franchised area already established by a franchise owner, which is offered for sale because the original franchise owner wants to realise their investment, move on, or simply retire. More expensive to buy than a ‘virgin’ franchise area, but with the advantages of an ongoing customer base, referrals, goodwill and income from day one.