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13 Common Terms In Our Franchise Dictionary

Posted by Francorp Middle East on Aug 8, 2018 12:12:19 PM

Discover the most common franchise terms you will come across when franchising your business or becoming a franchisee.

Franchise: A license that describes the relationship between the franchisor and franchisee including use of trademarks, fees, support and control. 

Franchisor: A parent company that allows individuals to start a business, using their trademarks, products, and processes, usually for a one time fee & ongoing royalties.

Franchisee: A person who purchases the right to operate a business under the franchisor’s name and system.

Franchise Agreement: Legally, written contract between the franchisor and franchisee, informing each party about their role.

Franchise Fee: The initial fee paid to a franchisor to become a franchisee, usually upon signing the franchise agreement.

Franchise Disclosure Document (FDD): Also known as the NDA Non Disclosure Agreement, it provides information about the franchisor and franchise system to the franchisee.

Initial Investment: The total amount required to open the franchise, including the franchise fee and other expenses such as real estate, supplies, licenses, working capital, and equipments.

Royalty Fee: Many franchisors ask franchisees to pay fees on a monthly basis. It’s a percentage of gross sales, as sometimes it’s a flat fee.

Term of Agreement: It is the length of time a franchise agreement is valid, usually from 5-20 years. At the end of the term, if a franchise is doing well, franchisors renew the agreement for a new and current percentage market.

In-house Financing: Finance offered by the franchisor to franchisees, helping with expenses, including the initial fee, start-up costs, inventory, and equipments.

Third-party Financing: A finance offered by another source than the franchisor to a franchisee. Many franchisors expedite the loan process for their franchisees from different source and relation.

Master Franchise: A sub-franchisor for a certain territory. Master franchisees can issue FDDs; sign up new franchisees, providing logistical support to the territory royalty.

Intellectual Property Rights: It serves as franchisor’s secrets of carrying business forward, with various trademarks, branding, manuals, etc which should be legally protected.

Topics: Buy A Franchise, Franchise Your Business

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