102 Jargon buster 29/10/07 10:36 Page 1
Jargon Buster
Franchising terms explained
AREA DEVELOPMENT FRANCHISE - A INTELLECTUAL PROPERTY RIGHTS - The not renewing the franchise for a further term
franchise which includes the rights to franchisor’s secrets of doing business and of years.
expand a region through appointed sub- various trade marks, branding, manuals, etc.
franchisees or multiple managed outlets. which should be legally protected before
RE-SALE - Refers to a franchised area
being sold in a franchise package.
already established by a franchisee, offered
BFA - The British Franchise Association was for sale because the original franchisee
set up by Business Format Franchisors to JOB FRANCHISE - Where the franchisee is wants to realise his investment, move on, or
regulate the industry on an ethical basis, a hands-on owner-operator rather than a simply retire. More expensive to buy than a
granting membership to those franchisors it manager, usually linked with van-based ‘virgin’ franchise area, but with the
considers meet the demands of its Code of services such as maintenance. advantages of an ongoing customer base,
Ethics and procedures. referrals, goodwill and income from day one.
JOINT VENTURE FRANCHISE - Where
BLOCK EXEMPTION - The European Union the franchisor also takes a financial stake in RETURN ON INVESTMENT - The
concessions to franchising which bypass the the project - often in international franchise calculations or expectations which
normal EU anti-restrictive trade practices agreements. franchisees work on to assess when they
legislation seeking to protect competition - can ‘break even’ on their initial investment
which, for example, ‘exclusive areas’ can be
KNOW-HOW - The sum of the franchisor’s
in the franchise and start earning profits.
deemed to contravene.
secrets of doing business, also referred to
as ‘intellectual property’. ROYALTIES - See MSF.
BUSINESS FORMAT FRANCHISE - The
franchisee buys into a total turnkey system
MANAGEMENT FRANCHISE - A SUB-FRANCHISEE - A subordinate level of
of brand, know-how, training, methodology
franchise in which the owner manages the franchisee to a Regional Franchisee or
and support.
operation and co-ordinates employees to do Area Developer, usually appointed after
the actual work. the Regional or Area franchise has set
BUYBACK - Where the franchisor agrees to up a training and support infrastructure for
purchase a franchise back from a franchisee
MASTER FRANCHISE - The systems and
the territory.
if the latter no longer wishes to continue.
brand of a large territory licence - a country
or region. TERM - Refers to the agreed period of years
DISCLOSURE - The practice of revealing (eg. 5, 10, 15) for which a franchise is
detailed information about the franchisor’s
MASTER FRANCHISOR - The entity which
granted through the Agreement.
business track record and franchise package.
grants master franchises to others, usually
This is a legal obligation in, for example, the
used in international contexts. TERMINATION - Refers to the legal
USA, but voluntary in this country.
provisions by which either party in the
MSF/MANAGEMENT SERVICE FEES -
relationship may terminate the contract, eg.
EXCLUSIVE AREA - That territory licensed
Another term for Royalties, often based
for breach of contract.
out to the franchisee in which to conduct the
upon total turnover.
business. The exclusivity is defined by the
TERRITORY/AREA - That ‘exclusive’
OPERATIONS MANUAL - The detailed
terms of the Franchise Contract.
portion of land, on a national, regional,
document or ‘bible’ which describes every
county or postcode basis, which is allocated
FRANCHISE CONTRACT - Also known as
item of the business system and work
to franchisees as part of the franchise
the ‘Franchise Agreement’, it documents the
procedures.
package.
legal relationship of obligations existing P&L PROJECTIONS - The calculations,
between franchisor and franchisee.
TRADING ACT - Better known as the
based on the franchisor’s, pilot’s and
Trading Schemes Act (1996), this was
FRANCHISEE - The person who buys a
franchisees’ experiences, which try to
introduced to combat the excesses of
licence to replicate a business system.
predict how soon franchisees can expect a
‘pyramid selling’ which reached a peak in
return on their investment, year-to-year
the 1980s. It is valuable in that it
FRANCHISING - Method of marketing turnover and profits.
distinguishes franchising from such dubious
goods and services via a business formula
licensed for others to copy.
PILOT OPERATION - An independent schemes. Today, the diluted offspring of
operation which tests the franchise concept pyramid selling are often to be found in
FRANCHISOR - The company that offers and incorporates actual financial, magazines covering ‘network marketing’ or
the licence to replicate their system. organisational and logistical pressures to be ‘direct selling’, where it is still the norm to
faced by franchisees in different areas. earn money chiefly from recruiting
FRANCHISE PACKAGE - The sum total of
subordinate levels.
franchise system rights licensed to the REGIONAL FRANCHISE - See Area
franchisee, including branding, know-how, Development Franchise.
systems, territory and training - for which
an Initial Franchise Fee is charged by
RENEWAL - Refers to the legal provisions
the franchisor.
in the Franchise Agreement for renewing or
102 ©2007 The Franchise Magazine
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