182 Jargon buster 2/3/07 3:39 pm Page 1
JARGON BUSTER
franchising terms explained
AREA DEVELOPMENT FRANCHISE - A INTELLECTUAL PROPERTY RIGHTS - The RE-SALE - Refers to a franchised area already
franchise which includes the rights to expand a franchisor’s secrets of doing business and established by a franchisee, offered for sale
region through appointed sub-franchisees or various trade marks, branding, manuals, etc. because the original franchisee wants to
multiple managed outlets. which should be legally protected before being realise his investment, move on, or simply
sold in a franchise package. retire. More expensive to buy than a ‘virgin’
BFA - The British Franchise Association was
franchise area, but with the advantages of an
set up by Business Format Franchisors to JOB FRANCHISE - Where the franchisee is a
ongoing customer base, referrals, goodwill and
regulate the industry on an ethical basis, hands-on owner-operator rather than a
income from day one.
granting membership to those franchisors it manager, usually linked with van-based
considers meet the demands of its Code of services such as maintenance. RETURN ON INVESTMENT - The
Ethics and procedures. calculations or expectations which franchisees
JOINT VENTURE FRANCHISE - Where the
work on to assess when they can ‘break even’
BLOCK EXEMPTION - The European Union franchisor also takes a financial stake in
on their initial investment in the franchise and
concessions to franchising which bypass the the project - often in international franchise
start earning profits.
normal EU anti-restrictive trade practices agreements.
legislation seeking to protect competition - ROYALTIES - See MSF.
KNOW-HOW - The sum of the franchisor’s
which, for example, ‘exclusive areas’ can be
secrets of doing business, also referred to as SUB-FRANCHISEE - A subordinate level of
deemed to contravene.
‘intellectual property’. franchisee to a Regional Franchisee or
BUSINESS FORMAT FRANCHISE - The Area Developer, usually appointed after
MANAGEMENT FRANCHISE - A franchise in
franchisee buys into a total turnkey system the Regional or Area franchise has set
which the owner manages the operation and
of brand, know-how, training, methodology up a training and support infrastructure for
co-ordinates employees to do the actual work.
and support. the territory.
MASTER FRANCHISE - The systems and
BUYBACK - Where the franchisor agrees to TERM - Refers to the agreed period of years
brand of a large territory licence - a country
purchase a franchise back from a franchisee if (eg. 5, 10, 15) for which a franchise is granted
or region.
the latter no longer wishes to continue. through the Agreement.
MASTER FRANCHISOR - The entity which
DISCLOSURE - The practice of revealing TERMINATION - Refers to the legal
grants master franchises to others, usually
detailed information about the franchisor’s provisions by which either party in the
used in international contexts.
business track record and franchise package. relationship may terminate the contract, eg.
This is a legal obligation in, for example, the MSF/MANAGEMENT SERVICE FEES - for breach of contract.
USA, but voluntary in this country. Another term for Royalties, often based upon
TERRITORY/AREA - That ‘exclusive’ portion
total turnover.
EXCLUSIVE AREA - That territory licensed out of land, on a national, regional, county or
to the franchisee in which to conduct the OPERATIONS MANUAL - The detailed postcode basis, which is allocated to
business. The exclusivity is defined by the document or ‘bible’ which describes every item franchisees as part of the franchise package.
terms of the Franchise Contract. of the business system and work procedures.
TRADING ACT - Better known as the Trading
FRANCHISE CONTRACT - Also known as the P&L PROJECTIONS - The calculations, based Schemes Act (1996), this was introduced to
‘Franchise Agreement’, it documents the legal on the franchisor’s, pilot’s and franchisees’ combat the excesses of ‘pyramid selling’ which
relationship of obligations existing between experiences, which try to predict how soon reached a peak in the 1980s. It is valuable in
franchisor and franchisee. franchisees can expect a return on their that it distinguishes franchising from such
investment, year-to-year turnover and profits. dubious schemes. Today, the diluted offspring
FRANCHISEE - The person who buys a licence
of pyramid selling are often to be found in
to replicate a business system. PILOT OPERATION - An independent
magazines covering ‘network marketing’ or
operation which tests the franchise concept
FRANCHISING - Method of marketing goods ‘direct selling’, where it is still the norm to earn
and incorporates actual financial,
and services via a business formula licensed money chiefly from recruiting subordinate
organisational and logistical pressures to be
for others to copy. levels.
faced by franchisees in different areas.
FRANCHISOR - The company that offers the
REGIONAL FRANCHISE - See Area
licence to replicate their system.
Development Franchise.
FRANCHISE PACKAGE - The sum total of
RENEWAL - Refers to the legal provisions in
franchise system rights licensed to the
the Franchise Agreement for renewing or
franchisee, including branding, know-how,
not renewing the franchise for a further term
systems, territory and training - for which
of years.
an Initial Franchise Fee is charged by
the franchisor.
182 © 2007 The Franchise Magazine
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