All the Terms You Need to Know When Opening a Franchise

Welcome to the world of franchising; you’re entering an exciting phase of your life. There will be times when you feel on top of the world and others when the adventure will get the best of you; no matter the case, there’s always plenty to learn.

Wherever your journey may lead you, there’s always something to be gained from the experience of opening a franchise.

Whether you’re just exploring the idea of the franchise meaning or you’ve already got the ball rolling, there are some terms you’ll find helpful along the way. We’ve developed a Franchise Local glossary to help you better navigate the journey to successfully opening your franchise.

32 Franchise Terms You Need To Know

1. 1. 1. Advertising Fund: The collective funds a franchisor uses to market the brand. Franchisees often make a monthly or annual contribution alongside the other royalties to the franchisor for corporate advertising expenditures.
      2. Area Franchisee: A franchisee who has acquired exclusive rights to open franchise units within a defined territory.
      3. Area Representative: A franchisee who also acts as a salesperson for the franchisor in a specific territory. The area representative identifies new franchisees and is typically rewarded a commission for successful recruitment. The actual franchise agreement and exchange of funds occur between the new franchisee and the corporate entity.
      4. Breakeven: The point at which a franchise (or any business) takes in enough revenue to balance the investment costs. In other words, the point where it reaches a net profit and net loss of $0.
      5. British Franchise Association (BFA): The original and largest not-for-profit trade association for franchising in the UK. The BFA works to define and promote ethical franchising practices and standards within the UK.
      6. Candidate: The term franchisors refers to prospective franchisees who have contacted them about their franchise opportunity.
      7. Churn: The turnover of ownership of a franchise. Churning can be from one franchisee to another, from a franchisee to the corporate entity, or the termination and closing of a franchise altogether.
      8. Company-Owned Locations/Corporate Location: A corporate location is owned and operated by the corporate entity of the brand, as opposed to by a franchisee.
      9. Discovery Days: A term used to refer to the time when a franchisor invites a prospective franchisee to the corporate office to meet the staff and learn more about the company and brand.
      10. Field Consultant: The franchisor’s employee or contract worker whose responsibility is to support and assist franchisees at their locations.
      11. Franchise/Franchising: A method of business in which the owner of a business system (the franchisor) grants an individual or group of individuals (franchisees) the right or license to market a company’s goods or services.
      12. Franchise Broker: A person or company hired by a franchisor to help find potential new franchisees. Most brokers work with several franchise brands concurrently and will help match prospective franchisees with the brand that is the best fit.

   

   1. 1. Franchise Development: The process encompassing activities that range from creating a franchise to the consulting, sales, and marketing efforts behind a franchise. Under a franchise company, there’s typically staff with “development” in their title responsible for bringing new franchisees on board and setting them up to begin operating.
      2. Franchise Expo: Event in which prospective franchisees can meet with several franchise companies to discuss the opportunities they offer. Like tradeshows and job fairs, franchise expos are an excellent place to learn about and explore your options.
      3. Franchise Agreement: The legal contract that a franchisor and franchisee sign to confirm the agreement to open a franchise business. The agreement document will specify all of the conditions in which the franchise will be run.
      4. Franchise Fee: A one-time initial fee paid by the franchisee that allows them to use the franchise brand’s name and likeness.
      5. Franchisee: The name given to a person or corporate entity that owns a franchise business.
      6. Franchisee Satisfaction Index (FSI): A measurement of the satisfaction of franchise owners within a brand. The FSI was created by Franchise Business Review in 2007 and is represented on a 100-point scale.
      7. Franchisor: The name given to a company that offers a franchise opportunity as a means of growth. Sometimes referred to as “franchiser.”
      8. Initial Investment: The total investment a franchisee will need to get the franchise business up and running. Usually, the cost is represented as a range showing a low-end and high-end. Cost elements will include the franchise fee, equipment, property lease, and/or other ramp-up costs.
      9. Liquid Capital: A sum of funds and other assets that can easily be converted to cash. Franchisors will require a specific minimum amount of available liquid capital from prospective franchisees to follow through with the agreement.
      10. Low-Cost Franchise: A franchise with a low initial investment, typically defined as being under £80,000.

   

   1. Operations: The processes, procedures, and strategies employed by the business to provide the product or services to its customers.
   2. Renewal: An extension of the original franchise agreement into a new term.
   3. Return on Investment (ROI): A percentage of the earned value of a business relative to the cost of establishing it.
   4. Royalties/ Royalty Fees: The amount of money, usually a percentage of gross sales, paid by the franchisee to the franchisor regularly. The franchisor will specify the fee and payment schedule within the franchise agreement.
   5. Startup Costs: The total initial costs that go into starting a franchise business. These are one-time fees (not perpetual) that can include the franchisee fee, construction fees, equipment purchases, legal fees, and various other costs.
   6. Supplier/Vendor: A business that provides a service or product to another business. Franchisors often establish “preferred” suppliers/vendors that allow for consistency across franchisees and discounted pricing.
   7. Territory: A defined area that comprises a franchise “unit.” Franchisors provide exclusive territories for franchisees to operate within to prevent conflict.
   8. Transfer: When ownership of a franchise business is moved from one party to another.
   9. Turnover: Refers to a franchise that has terminated its agreement or gone out of business.
   10. Validation: The process of speaking with existing franchise owners before signing an agreement to validate the brand’s virtues. Typically, the prospective franchisee will contact several franchisees.

   

   Always Come Prepared

   When entering the world of franchising, it’s best to know as much as possible. As with travelling into any foreign space, knowing some of the vocabularies can get you off to a strong start.

   Simple additions to your vocabulary like the validation or franchisor definitions can build your confidence. Focusing on business is easier and more fun when you’re not getting lost in the terminology.

   For more reliable resources, turn to Franchise Local. You can learn more about the various types of franchising, the opportunities that come with them, and so much more.

   Starting a business can be complicated and overwhelming, but you can prepare yourself for what’s ahead by perusing Franchise Local’s curated news and resources.