Franchising Jargon Buster

  • Area Franchise – a franchise relationship that allows the franchisee to open multiple locations, usually within a pre-agreed geographical limit.
  • Business Format Franchising (BFF) – a franchise occurs when the franchisor licenses its trade name, brand and operating methods to a person or group -the franchisee – which then agrees to operate according to the terms of the franchise agreement.
  • Churning – a failing location that’s acquired by a franchisor and sold to a franchisee even though the franchisor was unsure of the location’s viability.
  • Distributorship – the right granted by a manufacturer or wholesaler to sell their products.
  • Exclusive Territory – a geographically defined area inside which a franchisee’s rights are protected.
  • Feasibility Study – an assessment of the potential of a company to franchise, or of the potential success of a franchise within a specific area.
  • Grey Marketing – when a franchisee purchases products or merchandise under franchisor’s negotiated agreements and then uses them in another business or sells them to another company.
  • International Franchise Association (IFA) – founded in 1960 as a membership organisation of franchisors, franchisees and suppliers.
  • Key Supplier – a supplier whose products or services are an essential part of the franchise system.
  • Franchise Lead – a person or group that meets the minimum criteria to become a franchisee, and who is invited to submit a franchise application.
  • Master Franchise Region – A large territory that is acquired by a franchisee with the intention of subdividing it and reselling individual franchise locations.
  • Non-Compete Clause – restrictions placed on franchisees regarding competing with the franchised company.
  • Franchise Operations Manual – a comprehensive document that contains all of the information necessary for the franchisee to be able to operate the business.
  • Product and Trade Name Franchising – the licensing of a franchisee to sell or distribute a specific product using the franchisor’s trademark, trade name and logo.
  • Quality Standards – the standards specified by the franchisor for the operation of the business.
  • Franchise Royalty Fee – a percentage of gross sales paid by the franchisee to the franchisor on an annual or basis.
  • Franchise Start-Up Costs – the initial investment that the franchisee will make, also known as an Item 7 disclosure.
  • Turnkey – a term used to describe a location that is provided to a franchisee fully equipped and ready to operate.

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