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Franchise Glossary
Franchising Information, terms and definitions can be hard to find all in one place. As a Franchise Expert, we have strived to include below, most of the more common Franchising terms and their definitions. As a Franchise Consultant with over 15 years experience, PIR and Associates prides itself on being a very accurate “Pay as You Go” Franchising Advisor so businesses can make their franchise dreams a reality.
Acknowledgement Of Receipt: The last page of an Offering Circular. It is signed by prospective franchisees and returned to the franchisor as proof that the franchisor delivered the UFOC on a certain date.
Advertising Fee: A periodic fee charged by some franchisors to fund advertising and other marketing programs for the franchised business. May be based on a percentage of the franchisees’ revenues (typically less than 3%) or a flat fee, and may be due weekly, monthly, quarterly or annually. Fees may be applicable for local and/or national advertising.
Affiliate: An entity controlled by the franchisor, or that controls the franchisor, or that is under common control with the franchisor. The franchisor’s original operating company could be deemed an affiliate.
Company-Owned Unit: Business unit owned and operated by the franchisor or its affiliate, that is similar to the franchised units. This would also include any franchises purchased by the franchisor from an established franchisee.
Conversion Franchise: A franchise that is sold to an existing business to allow that business to convert to a franchised business. An example of this is Century 21 Real Estate or ARA Real Estate.
Disclosure Laws: State and federal laws that require franchisors to provide certain information to prospective franchisees before the sale of a franchise. These laws will vary from state to state with some states charging fees for registration or filing.
Earnings Claim: Any information that a franchisor gives to a prospective franchisee from which a specific level or range of actual or potential sales, costs, income or profit can be easily ascertained relating to franchised units or company-owned units. An earnings claim document must be made part of the UFOC and included in state registrations.
Federal Trade Commission (FTC): The federal agency in Washington, DC that regulates franchises. www.ftc.gov
Franchise: The legal rights a franchisee obtains whether from a franchisor or by transfer from another franchisee under a franchise agreement.
Franchise Agreement: A contract between a franchisor and a franchisee, in which the franchisor grants franchisee certain rights to use the franchisor’s marks and system in connection with a business to be independently owned and operated by the franchisee.
Initial Franchise Fee: One-time fee that franchisee pays to the franchisor for the right to use the franchisor’s marks and system, and for certain products and services.
Operations Manual: The information a franchisor provides to its franchisees in printed or electronic form regarding the operation of the franchised business.
Registration: The process of filing franchise documents with official state franchise regulators as required by state law. In many states with franchise registration laws, registration is not effective until the franchisor’s application is approved by the state franchise regulators.
Royalty Fee: An ongoing fee the franchisee pays to the franchisor for ongoing services, typically based on a percentage of the franchisee’s revenues, and paid weekly or monthly.
UFOC: The document that includes information about the franchisor, the franchised business, and the franchise agreement prepared under the requirements of federal and state disclosure laws and the UFOC Guidelines.
UFOC Guidelines: The instructions and other requirements issued by NASAA (and approved by the FTC) for preparing a UFOC. www.ftc.gov
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