Jargon Buster

Franchising terms explained

Exclusive Area - The 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 the franchisor and franchisee.

Franchisee/Franchise owner - 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.

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

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

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 Fee - A percentage of total turnover or a fixed monthly fee paid to the franchisor

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.

Renewal - Refers to the legal provisions 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

Term - Refers to the agreed period of years (e.g. 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, e.g. for breach of contract

Territory/Area - The 'Exclusive' portion of land, on a national, regional, county or postcode basis, which is allocated to the franchise package.