Jargon Buster

Franchising terms explained

AREA DEVELOPMENT FRANCHISE - A franchise which includes the rights to expand a region through appointed sub-franchisees or multiple managed outlets.

BLOCK EXEMPTION - The European Union concessions to franchising which bypass the normal EU anti-restrictive trade practices legislation seeking to protect competition - which, for example, 'exclusive areas' can be deemed to contravene.

BUSINESS FORMAT FRANCHISE - The franchisee buys into a total turnkey system of brand, know-how, training, methodology and support.

BUYBACK - Where the franchisor agrees to purchase a franchise back from a franchisee 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, for example, the USA, but voluntary in this country.

EXCLUSIVE AREA - That territory licensed out to the franchisee in which to conduct the business. The exclusivity is defined by the terms of the Franchise Contract.

FRANCHISE CONTRACT - Also known as the 'Franchise Agreement', it documents the legal relationship of obligations existing between franchisor and franchisee.

FRANCHISE OWNER / FRANCHISEE - The person who buys a licence to replicate a business system.

FRANCHISING - Method of marketing goods and services via a business formula licensed for others to copy.

FRANCHISOR - The company that offers the licence to replicate their system.

FRANCHISE PACKAGE - The sum total of franchise system rights licensed to the franchisee, including branding, know-how, systems, territory and training - for which an Initial Franchise Fee is charged by the franchisor.

IFA - The Irish Franchise Association was set up by Business Format Franchisors to regulate the industry on an ethical basis, granting membership to those franchisors it considers meet the demands of its Code of Ethics and procedures. (Please note IFA can also refer to the International Franchise Association).

INTELLECTUAL PROPERTY RIGHTS - The franchisor's secrets of doing business and various trade marks, branding, manuals, etc. which should be legally protected before being sold in a franchise package.

JOB FRANCHISE - Where the franchisee 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.

KNOW-HOW - The sum of the franchisor's secrets of doing business, also referred to as 'intellectual property'.

MANAGEMENT FRANCHISE - A franchise in which the owner manages the operation and co-ordinates employees to do the actual work.

MASTER FRANCHISE - The systems and brand of a large territory licence - a country or region.

MASTER FRANCHISOR - The entity which grants master franchises to others, usually used in international contexts.

MSF/MANAGEMENT SERVICE FEES - Another term for Royalties, often based upon total turnover.

OPERATIONS MANUAL - The detailed document or 'bible' which describes every item of the business system and work procedures.

P&L PROJECTIONS - The calculations, based on the franchisor's, pilot's and franchisees' experiences, which try to predict how soon franchisees can expect a return on their investment, year-to-year turnover and profits.

PILOT OPERATION - An independent operation which tests the franchise concept and incorporates actual financial, organisational and logistical pressures to be faced by franchisees in different areas.

REGIONAL FRANCHISE - See Area Development Franchise. RENEWAL - Refers to the legal provisions in the Franchise Agreement for renewing or not renewing the franchise for a further term of years.

RE-SALE - Refers to a franchised area already established by a franchisee, offered for sale because the original franchisee wants to realise his 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.

RETURN ON INVESTMENT - The calculations or expectations which franchisees work on to assess when they can 'break even' on their initial investment in the franchise and start earning profits.

SUB-FRANCHISEE - A subordinate level of franchisee to a Regional Franchisee or Area Developer, usually appointed after the Regional or Area franchise has set up a training and support infrastructure for the territory.

TERM - Refers to the agreed period of years (eg. 5, 10, 15) for which a franchise is granted through the Agreement.

TERMINATION - Refers to the legal provisions by which either party in the relationship may terminate the contract, eg. for breach of contract.

TERRITORY/AREA - That 'exclusive' portion of land, on a national, regional, county or postcode basis, which is allocated to franchisees as part of the franchise package.