Franchising seems to have endless acronyms to legal verbiage that would confuse even your High School English teacher that burned through red pens like a Boeing 747 burns through jet fuel! Franchising seems to be in love with its little terms only franchising really uses. But do not fear! Here are 6 (Plus a Bonus Term!) of the most basic terms you really need to know.
Franchisee: A person/s, or entity that invests in the right to operate a franchise business using the franchisors marks and system. The franchisee pays fees to the franchisor.
Franchisor: The person or company that grants to a franchisee the opportunity to operate a franchise. Often referred to as the “parent company” or “headquarters”. Owns the trademark or trade name. Provides support to franchisee. Receives fees.
Franchise Disclosure Document: Also known as the “FDD”. (Prior to 2008 this disclosure document was mostly known as the Uniform Franchise Offering Circular or “UFOC”) The U.S. Federal Trade Commission “FTC” requires that all franchisors provide a current copy of the franchisors FDD to prospective franchisees. The FDD must be updated annually and consists of 23 sections called “Items”. The FDD contains a lot of important information such as Financial Performance Representations (Item 19), List of Franchise Locations/Outlets (Item 20), and Territory (Item 12). For more information check out FDD Info.
Franchise Fee: This is the initial fee that a franchisee pays to the franchisor. This fee amount and specific terms are outlined in Item 5 of the FDD. The amount of the Franchise Fee fee caries greatly. Many franchisors discount this fee for minorities, veterans, and multi-unit operators for example.
Marks: Primarily the “Marks” consist of the brand name/s, logos, symbols, and related designs and trade dress (look, color, design, appearance) that a franchisee may use and may be required to use.
Franchise Consultant: A Diverse franchising expert with substantial experience in the development, planning, operation, and overall best practices of franchising and the relationship between the franchisee and the franchisor. DO NOT confuse Franchise Consultant with a franchise sales agent or a “broker” who acts as an agent on behalf of the party that compensates the Broker (in most cases, the franchisor).
If you are considering purchasing a franchise (becoming a “Franchisee”), learn more about franchising by reading: Franchising 101: Defining Common Franchise Terms