HANDYMAN FRANCHISE TERMINOLOGY
Advertising Fee An annual fee paid
by the franchisee to the franchisor for corporate advertising expenditures;
usually less then three percent of the franchisee’s annual sales and usually
paid in addition to the royalty fee. Not all franchisors charge advertising
fees.
Agent An individual who can act on
the behalf of another. An individual who acts on the behalf of a corporation
and can legally bind the corporation.
Approved Products Proprietary
products that a franchisee must purchase from the franchisor. Also, products
that must be purchased from approved suppliers. The goal is to achieve
uniform quality assurance among all franchisees.
Arbitration A process in which a
neutral third party hears both sides to a dispute and renders a decision. It
is an alternative to using the legal process, which can be costly, and time
consuming.
Business Format Franchising The
franchisee has full rights to use the franchisor's product, service and
trademark. The franchisor also teaches the franchisee the entire business
format including marketing, selling, inventory, accounting and personnel
procedures. Furthermore, the franchisor provides support via training and
communications for the duration of their business relationship. Restaurants,
retail and many service businesses are business format franchisors.
Business Plan A plan that provides
the objectives of a business and the steps necessary to achieve those
objectives.
Buy-Sell Agreement A legal document
that details the provisions under which a business may be sold.
Capital Capital is cash in checking
and savings accounts, insurance policy cash values, non-IRA stocks and
bonds, and loan receivables due within 30 days.
Company-owned Outlet Some
franchisors establish company-owned stores or offices that, in appearance,
are identical to the franchised outlets.
Conversion Franchise This is a
franchise that permits existing businesses to join a national franchise
system to use its recognized name and trademark and operating system.
Copyright The exclusive right of a
person to use, and to license others to use, an intellectual property such
as a book, pamphlet, or other published material.
Designated Supplier A supplier
designated by the franchisor as the source for purchasing approved products.
The use of a designated supplier for certain products guarantees the
franchisor that each franchisee is providing the same product to its
customers.
Disclosure Revealing facts to
others. In the sense used herein, these facts may be complimentary to the
franchisor or may be uncomplimentary, such as disclosing a prior bankruptcy
or litigation involving the franchisor or key persons as defendants.
Distributorship A right granted by a
manufacturer or wholesaler to sell a product to others. A distributorship is
normally not a franchise. However, certain distributorship arrangements may
qualify as a franchise, may be licensed or be adjudged a business
opportunity requiring disclosure.
Earnings Claims Claims made by the
franchisor as to the past performance of franchisees or to the potential
financial performance of a franchisee. If given, they must be disclosed in
section 19 of the UFOC.
Exclusive Continent An exclusive
continent right gives you as the franchisee the right to that continent. The
franchisor cannot sell other franchises within that continent.
Franchise An agreement, whether
written or oral, for consideration, by which a person permits the
distribution of goods or services under his trademark, service mark or
tradename, during which time the grantor retains control over others or
renders significant assistance to others. (This definition comes from the
Federal Trade Commission.)
Franchise Agreement Outlines
requirements of the franchisor and describes the franchisor’s commitment to
the franchisee. Includes information about territorial rights of the
franchisee, location requirements, training schedule, fees, general
obligations of the franchisee, general obligations of the franchisor, etc.
Franchise Feasibility Studies
Franchising can be a highly effective method of financing expansion through
the acquisition of outside capital. The objective of a franchise feasibility
study is to determine the degree to which a company, whether a
well-established concern, a small operation of one or two units, or simply a
concept that bears the characteristics of a successful franchisor, may be
successful as a franchisor.
Franchise Fee A one-time fee paid by
the franchisee to the franchisor to "buy into" the franchise. Generally, the
fee reimburses the franchisor for the costs of initial training and support
for new franchisees.
Franchisee A person or entity to
whom the right to conduct a business is granted by the franchisor or
licensor.
Franchising Neither an industry nor
a business, but a method of doing business within a given industry. At least
two parties are involved in franchising\: the franchisor and the franchisee.
Technically, the contract binding the two parties is the franchise.
Franchisor A person or entity
issuing or granting a franchise or license.
Furniture, Fixtures and Equipment
Also abbreviated as FF&E. Movable personal property used in the operation of
a business.
Gross Sales The revenue before any
expenses are deducted. It is the sum of all money generated prior to
deducting wages, product cost, taxes, interest, etc.
Identify Items Items that display
the registered trademarks of the franchisor. These items (such as paper
products, uniforms, point of sale materials or exterior signs) are usually
required to be used in a franchisee’s business.
Initial Investment Usually includes
the franchise fee and the total investment amount including working capital
required to commence operating a franchise.
Master Franchisee Describes an
individual or company owning the exclusive rights to develop a particular
continent for the franchising company.
Multi-Unit Franchise Franchise
agreement providing franchisee with the rights to develop more than a single
unit. Refer to Area Development Franchisee and Sub-franchisor.
Non-compete Clause A clause in a
contract that prohibits you from entering into the same line of business for
a specified time and within a specified area after you leave employment or
after you terminate, sell, or otherwise leave a franchise.
Operations Manual Comprehensive
guidelines advising a franchisee on how to operate the franchised business.
It covers all aspects of the business, including general business procedures
not necessarily peculiar to the franchised business. It may be separated
into different manuals addressing such subjects as accounting, personnel,
advertising, promotion and maintenance.
Product Format Franchise The ability
to sell a particular companies product that does not constitute all that you
sell. For example you may have a service station that sells a brand of
gasoline, but you are not restricted on the other products or services that
you can sell. Many times these are not true franchises, but can be
considered distributorships.
Qualification Questionnaire A
document prepared by the franchisor to be completed by the prospective
franchise, which provides initial information to the franchisor in order to
assist him in determining whether or not the prospect is capable and
motivated. Often a financial statement is included in the questionnaire
format.
Quality Control The method by which
the franchisor enforces the rules of operation set forth in the operating
manuals. Quality control involves regional coordinators visiting each
franchisee.
Royalty A royalty refers to a
percentage of gross sales that you pay to the franchisor monthly.
Rules of Operation (see Operations
Manual) Specific mandatory rules with which every franchisee and company
outlet must comply. This document will change from time to time. By
incorporation by reference in the franchise agreement, violation of the
rules of operations allows the franchisor to cancel a franchise agreement.
Service Mark Defined as "a mark used
in the sale of advertising of services of one person and distinguishes them
from the services of others." The word "trademark" is specifically
associated with goods or products such as toothpaste or automobiles, whereas
service marks relate to employment agencies, real estate chains and the
like.
Subfranchisor A type of multi-unit
franchise, whereby franchisees act as independent selling organizations that
are responsible for the recruitment and ongoing support of franchisees
within their given region.
Total Investment The amount of money
estimated for complete set up of a franchisee’s business, including the
initial investment, the working capital, and subsequent additions to
inventory and equipment deemed necessary for a fully operational and
profitable enterprise.
Trademark The name associated with a
product (see Service Mark). Prior to federal registration, the symbol "TM"
or "SM" may be affixed near the word or words constituting the mark or
symbol to inform the public that it is intended that the name be protected.
Turnkey The franchisor is
responsible for fully developing a "turnkey" franchise until or after, the
doors are open for business.
Tying Forcing a franchisee to
purchase one product as a condition to the sale of another. Tying may be
illegal if the products used in the franchise operation can be acquired from
other sources at a more competitive price. The product must, however, be
judged "equal to - or better than" the products specified by the franchisor
in terms of quality.
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