FRANCHISE ADVICE
FRANCHISE ADVICE
Fra nchising: what to know
Nick Williams of Ashtons Fra nchise Consulting demystifies some common fra nchise terminology
Y
ou’ll read a lot about franchising and it’s highly likely you will hear some words and phrases over and over again.
Here’s a brief glossary of some of the terms you’ll most frequently encounter.
British Franchise Association (bfa) The bfa grants membership to franchisors that meet its Code of Ethics and procedures. It also accredits exhibitors at The Franchise Exhibitions.
Business format franchise The franchisee buys into a total turnkey system of brand, know-how, training, methodology and support.
Buyback Where the franchisor agrees to purchase a franchise back from a franchisee if the latter no longer wishes to continue.
"For yourself but not by yourself" Oft-cited benefi t of franchising: running your own business with the support of a franchisor and their network.
Franchise agreement Documents the legal relationship of obligations existing between the franchisor and a franchisee.
Franchisee The person who buys a licence to replicate a business system. Also known as the 'franchise owner' or 'partner'.
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.
Franchising Method of marketing goods and services via a business formula licensed for others to copy.
Franchisor A company that offers the licence to replicate its system.
Intellectual property rights The franchisor's secrets of doing business, plus various trademarks, branding, manuals, and so on, which should be legally protected before being sold as part of the franchise package.
Management service fees (MSF) Fees due to the franchisor, often based upon total turnover.
Master franchisor The entity that grants regional master franchises to others – this is usually used
in international contexts.
Operations manual The detailed document, or 'bible', which describes every item of the business system and work procedures.
Pilot operation An independent operation that tests the franchise concept and incorporates actual fi nancial, organisational and logistical pressures to be faced by franchisees in different areas.
Profi t & loss (P&L) projections The calculations, based on the franchisor's, pilot's and franchisees' experiences, that try to predict how soon franchisees can expect a return on their investment, year-to-year turnover and profi ts.
Renewal The legal provisions in the franchise agreement for renewing or not renewing the franchise for a further term of years.
Return on investment (ROI) The calculations or expectations that franchisees work on to assess when they can 'break even' on their initial investment in the franchise and start earning profi ts.
Term The agreed period of years (eg fi ve,
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