Common Franchise Terms

by Dan Hicks

Below are a list of business terms related to franchising, common words used within the franchise community...

Business Format Franchise: This type of franchise includes not only a product, service and trademark, but also the complete method to conduct the business itself, such as the marketing plan and operations manuals. Arrangement where a franchisee receives (in addition to the right to sell goods or services) the franchiser’s designs, quality control and accounting systems, operatingprocedures, group advertising and promotions, training, and (in case of hotels and travel agencies) worldwide reservation system.

Adequate Disclosure Statement: Also known as the FDD, or Franchise Disclosure Document, the disclosure document provides information about the franchisor and franchise system. Accounting concept that financial statements and their accompanying notes (footnotes) should cover all pertinent data believed essential to the reader’s understanding of the firm’s financial position.

Franchise: A license that describes the relationship between the franchisor and franchisee including use of trademarks, fees, support and control. Commerce: A privilege granted to make or market a good or service under a patented process or trademarked name.

Franchise Agreement: The legal, written contract between the franchisor and franchisee, which tells each party what each is supposed to do. A negotiated and usually legally enforceable understanding between two or more legally competent parties. Although a binding contract can (and often does) result from an agreement, an agreement typically documents the give-and-take of a negotiated settlement and a contract specifies the minimum acceptable standard of performance.

Franchisee: The person or company that gets the right from the franchisor to do business under the franchisor’s trademark or trade name. One of the benefits of being a franchisee is that the franchisor provides all the information needed for running the business (such as, training and suppliers).

Franchisor: The person or company that grants the franchisee the right to do business under their trademark or trade name. franchisor – The parent company or operator of a franchise concept or system that grants, for a fee and other considerations, the right to use its name and system of business operations

Product Distribution Franchisee: A franchise where the franchisee simply sells the franchisor’s products without using the franchisor’s method of conducting business. The right to use a brand name and distribute a product is a Product distribution franchise.

Royalty: The regular payment made by the franchisee to the franchisor, usually based on a percentage of the franchisee’s gross sales. The right to use a brand name and distribute a product is a Product distribution franchise.

Trademark: The marks, brand name and logo that identify a franchisor which is licensed to the franchisee. Trademark is any name, symbol, figure, letter, word, or mark adopted and used by a manufacturer or merchant in order to designate his or her goods and to distinguish them from those manufactured or sold by others.

Dan Hicks
Director of Franchise Development
Cruise Planners

Learn more about Cruise Planners at topfranchises.franchisebusinessreview.com.

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