Franchise Glossary
A Guide to Common Words and Phrases of the Franchise Industry
Acknowledgement of Receipt – a document which acknowledges that you received and signed an Offering Circular (aka Disclosure Document).
Agreement – a legal franchise contract.
Arbitration – the process of submitting a dispute to an arbitrator (a person selected to judge a dispute).
Area Development Rights – your legal permission to open several franchise units within a specific geographical location.
Business Format Franchise – a type of franchise not limited to just the product but also the marketing plan and operations manual.
Capital Required – the cash needed a franchise company requires you to have available.
Default – failure to do or appear as required.
Designated Supplier – the official suppler of products and services who meet the established criteria of the franchise company.
Disclosure Document – also known as the Offering Circular, this is an FTC required contractual information presented to you by the franchise company.
Earnings Claim – an assumption of the level of sales (or profitability) projected and declared by franchise companies.
Exclusive Territory – the geographical area (territory) offered to you by a franchise company. In essence, this prevents the franchisor from establishing another location within your specific area.
Federal Trade Commission (FTC) – an agency of the federal government, located in Washington D.C., authorized to regulate trade practices including franchise companies.
Franchise – a license that describes the relationship between a franchise company and franchise buyers, including product, trade name, trademark
Franchisee – the person, entity or company that gets the right from the franchisor to do business under the franchise company’s name.
Franchising – a business model where a company expand its product and marketing concepts by product and brand name license, payment of fees, and control.
Franchisor – the franchise company that grants franchisor buyers the right to do business using their product and brand.
Franchise Fee – the amount of money a franchisee pays the franchisor to acquire a franchise.
FTC Rule 346 – A Federate Trade Commission law passed in 1979 regulating the franchise industry by establishing “disclosure” requirements and prohibiting franchisors from making earnings claims.
Industry – a business category that a specific franchise belongs to, i.e. automotive, hospitality, financial planning, maintenance, restaurant, investing, etc.
Initial/Ongoing Training – the initial and continuing education offered to franchisees in the operation of a franchise business.
Initial Investment – the money needed “up front” to purchase and successfully startup a franchise.
Master Region – a big geographic region acquired by a franchisee with the objective of breaking up the territory and reselling individual franchise locations.
Net Worth – The total assets of individual, entity or company, once liabilities have been subtracted.
Non-Compete Clause – a contact that prohibits you from competing with the franchise company in a specific area or within a certain time frame.
Operations Manual – a guidebook(s) outlining in detail the running of a franchise.
Product Format Franchise – the rights to market a product or service that is part of your product line but is not the majority of your “stock and trade.”
Renewal – signing a new franchise contract or agreement to continue the franchise relationship after the prior agreement has expired.
Royalty – a regular payment by the franchise owner to the franchise company, most typically based on the franchise owner’s gross sales.
Sector – the categories included within a larger scope of franchise opportunity.
Trademark – a symbol, word, graphic element or specific design used by a manufacturer or dealer to distinguish a product, typically protected by the law.
Uniform Franchise Offering Circular (UFOC) –also referred to as the Disclosure Document and Offering Circular.