Jargon Buster
Franchise 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.
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