Finding the
right franchise is only the first step in
building a successful business. You’ll also need
to be armed with a team of professional
consultants, as well as in-depth knowledge of
the ins-and-outs of franchise ownership. From
attorneys and financial advisors with expertise
in building a solid franchise business to
articles of successful franchises and
informative articles, FranchiseGrasshopper.com gives
you access to all the elements you need to
develop a booming business.
Acknowledgement of Receipt
The final page of an Offering Circular, which
once signed, provides proof of the date that you
received the FDD.
Agreement
The franchise "contract."
Arbitration
A dispute mediating process in which each side
selects their representative, in addition to the
participation of a chosen third (impartial)
individual.
Area
Development Rights
Your entitlement to open several franchise
locations in a specified area.
Assignment /Fees
The monthly fees paid to the franchise company
in order to support corporate marketing and
advertising. This fee is typically a percentage
of your gross revenues.
Broker
An intermediary who manages a sale and purchase.
Brokers can represent either sellers or buyers.
Different brokers can represent both a seller
and a buyer.
Business Plan
A plan that provides the objectives of a
business and the steps necessary to achieve
those objectives.
Capital
Required
The amount of cash you are required to have
available.
Default
A failure to perform in the manner as required
by a contract.
Designated Supplier
Approved, chosen suppliers of products and
services - all of whom meet the requirements of
a particular franchise company.
Disclosure Document
Also referred to as an "Offering Circular," this
is the FTC-required background and contractual
information presented to you by franchise
companies.
Earnings Claims
Claims made by the franchisor regarding the past
performance of franchisees or to the potential
financial performance of a franchisee. If given,
they must be disclosed in item 19 of the FDD.
Exclusive Territory
The "territory" offered to you by a franchise
company, which prevents the franchisor from
establishing any other location within your
designated area.
Federal
Trade Commission (FTC)
The federal agency, based in Washington, D.C.,
regulating a variety of trade practices,
including the franchise industry.
Franchise
A privilege or right officially granted you to
offer specific products or services under
explicit guidelines at a certain location for a
declared period of time.
Franchise
Disclosure Document (FDD)
Also referred to as the "Disclosure Document"
and "Franchise Disclosure Document," this document provides
background information from over 20 different
categories as well as a copy of the proposed
franchise agreement.
Franchise Fee
The amount of money you pay to the franchisor to
acquire the franchise. This gives you the
limited rights to their proprietary information.
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.
Franchisor
The company owning/controlling the rights to
grant franchises to potential franchisees.
FTC
Rule 436
Passed in 1979, this law regulates the franchise
industry by setting forth "disclosure"
requirements and prohibiting franchisors from
making untrue earnings claims.
Gross
Sales
Revenue generated before any expenses are
deducted. It is the sum of all money generated
prior to deducting wages, product cost, taxes,
interest, etc. Typically the amount royalty from
which payments are calculated.
Industry
The category of business to which a specific
franchise belongs; an all-encompassing area of
business that incorporates several different
sectors.
Initial/Ongoing Training
The initial and all subsequent training offered
to franchisees in the operations of a specific
business.
Initial
Investment
Typically considered the initial cash investment
required for you to begin a franchise. This can
include the franchise fee and other "startup"
expenses you may sustain, but may not be
reflective of your total investment.
Master
Region or Master Franchise
A significantly large territory obtained by a
franchisee with the objective of subdividing and
reselling individual franchise locations.
Net
Worth
Total assets, once you’ve subtracted your total
liabilities.
Non-Compete Clause
Some franchise agreements exclude you from
competing in any way with the franchised company
upon termination, non-renewal or other sale or
transfer.
Offering Circular
Also referred to as the "Disclosure Document"
and "Franchise Disclosure Document
(FDD)," this document provides background
information from over 20 different categories as
well as a copy of the proposed franchise
agreement.
Operations Manual
Generally consists of several volumes, it
contains all pertinent information regarding the
operation of a distinct franchise.
Personal Guarantee
Usually the owner(s) of a corporation cannot be
held personally responsible for a corporation’s
debt. If a loan requires a personal guaranty it
means that the lender is asking the owner to
personally guarantee the debt should the
corporation default.
Pro
Forma
A balance sheet, profit and loss or cash flow
statement that estimates income and expense
sources. Assets, liabilities and net worth are
forecast on the balance sheet. Pro forma
statements issued by the franchisor to the
franchisee should be based on actual operating
results of the franchisor’s units or franchise
establishments.
Public
Figure Involvement
The nature of the agreement between a well-known
public figure and a franchisor must be
disclosed, when regarding the endorsement of a
franchised product/service.
Renewal
When pertaining to the context of a franchise
relationship, it refers to your signing a new
franchise agreement once the prior agreement
expires.
Royalty
A royalty refers to a percentage of gross sales
that you pay to the franchisor monthly.
Start
Up Costs
The required amount of money the franchisor will
request that you – a new franchisee – have to
invest in the new franchise unit it its earliest
stages of development.
