What does that mean?

Are you new to the franchising industry? 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.