Area Franchise: A franchise relationship that allows the franchisee to open multiple locations, usually in a defined territory within a pre-agreed upon timeline. Area franchisees usually pay an area fee for the rights granted by the franchisor.
Due diligence: An investigation, audit, or review performed to confirm the facts of a matter under consideration. In the financial world, due diligence requires an examination of financial records before entering into a proposed transaction with another party.
Franchise: A franchise is a license that gives the person buying the ability to use trademarks, fees, and support from an established business.
Franchise Fee: Most franchisors will require a fee to start operating under their name and using their trademarks and proprietary information. This fee is known as the franchise fee.
Franchisor: The franchisor is the established business and the parent company that allows a person to start operating under their name for a fee.
Franchisee: The franchisee is the person who buys the rights to operate the franchise from the franchisor.
Franchise Consultant: A business specialist with significant knowledge of the design, development, and operation of franchising and the underlying franchise relationship. Not to be confused with a Broker, who is a sales agent for the franchisor.
Franchise Disclosure Document (FDD): Before you buy a franchise, it’s imperative that you review the franchise disclosure document (FDD). This document gives you all of the insight you need to know whether the franchise is right for you. It uncovers the franchise system and provides detailed information about the franchisor.
Franchise Agreement: Once you’ve made the decision to buy the franchise, you’re ready to sign the paperwork and get started. It’s at this point that you sign the franchise agreement, or the contract between yourself (the franchisee) and the company (the franchisor). It’s in here that you’ll document your role and what’s expected of you.
Master Franchise: A person or business who buys the rights to sell the products or services of another company in a particular area or country: A master franchisee will deliver products, and recruit and train local franchisees, sales people and merchandisers.
Royalty Fee: In addition to the franchise fee, many franchisors require franchisees to pay a royalty fee on what they sell. This fee is paid at given intervals of time, such as weekly, monthly, or annually. Sometimes it’s a flat fee, other times it’s a percentage of sales.
Term of Agreement: The term of agreement is the length of time the franchise agreement is good for. Typically this term lasts anywhere from five years to twenty years. Once the term is up, the franchisor can renew the agreement if things are going well and/or the contract can be readjusted.
Licensing: The practice of leasing a legally protected property (such as a trademarked or copyrighted name, logo, likeness, character, phrase or design) to another party in conjunction with a product, service or promotion. It is based on a contractual agreement between the owner of the property (or its agent).
Licensee: Licesor grants the licensee permission to use the property subject to specific terms and conditions, which may include the purpose of use, a defined territory and a defined time period. In exchange for this usage, the licensor receives financial remuneration – normally in the form of a guaranteed fee and/or royalty on a percentage of sales. Most agreements are set out in a licensing agreement.
Licensor: The party or entity that grants a license to licensee.
Branded Solutions: Business solutions that offer you the complete branding solution from original design concept through to the final branded products.
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