Franchise Jargon Buster
Does franchising terminology have you all confused? Don’t panic we have you covered. Here is some of the most common franchising jargon explained.
Area Developer – A franchise owner that has the rights to expand in a designated region by either hiring sub-franchise owners or multiple managed outlets.
bfa – The British Franchise Association was set up by Business Format Franchisors in an attempt to regulate the industry on an ethical basis. The bfa grant memberships to those franchisors it considers to meet the requirements of its Code of Ethics and procedures.
Business Format Franchise – The franchise owner buys into a franchise business model, brand, experience, training and support.
Business Plan – Document to outline the expectations of a prospective franchise owner. It should document and demonstrate a franchise owners’ understanding of the franchise model, their confidence in replicating the model in their chosen location, how they plan to finance the initial 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 franchise owner if they no longer wish to continue running or owning their 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 in the UK.
Franchise Agreement – It documents the legal relationship of obligations between franchisor and franchise owner.
Franchise Owner – Also referred to as a ‘franchisee’, an individual who purchases a licence to replicate a business model.
Franchising – A method of marketing goods or services via replicating a proven business model.
Franchisor – The 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.
Renewal – Refers to the legal provisions in the Franchise Agreement for renewing or not renewing the franchise for a further term of years.
Resale – This refers to the sale of a franchised area by the franchise owner. These are more expensive than starting from a franchise scratch however you benefit from ongoing customer base, referrals, goodwill and income from day one.
Term – This is the number of years a franchise owner is granted through the Franchise Agreement.
Termination – legal previsions by which either the franchise owner or franchisor can terminate the contract due to a breach of contract.