Posted by Jess Saba on Thu, Jul 16, 2009 @ 07:16 AM
The first step of purchasing a franchise is doing research to learn how franchising works. Below are the definitions of few basic terms that everyone interested in franchising should become familiar with.
Visit the Small Business Association for more information about successfully starting and running a small business or franchise.
Franchise: "A franchise is a legal and commercial relationship between the owner of a trademark, service mark, trade name, or advertising symbol and an individual or group wishing to use that identification in a business. The franchise governs the method of conducting business between the two parties. Generally, a franchisee sells goods or services supplied by the franchiser or that meet the franchiser's quality standards." (www.sba.gov)
Advertising Fee- "An annual fee paid by the franchisee to the franchisor for 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." (www.franchisingventures.com)
Franchise Agreement- A written contract detailing the mutual responsibilities of franchisors and franchisees. It is usually for a several-year term, and when the term is up, the contract expires and must be renewed. Some state laws require the contract to be renewable at the franchisee's option. Usually a franchise agreement may not be sold, transferred, or otherwise assigned without the franchisor's permission.(www.franchisingventures.com)
FDD-Franchise Disclosure Document- "All franchisor companies
are should provide this document to prospective franchisees at the
first personal meeting to discuss the sale of the franchise, and at
least ten business days prior to the prospective franchisee signing a
franchise agreement, or paying the franchisor money to buy the
franchise. The document aids the prospective franchisee's evaluation of
the franchisor company." (www.franchisingventures.com)
Marketing Plan- A technique by which franchises are to be sold. Includes the number of sales anticipated within a series of time periods (first year, second year, etc.), to whom those sales are to be made (profile of the individual, area franchising, sub-franchising), and the anticipated geographical expansion of the franchise system." (www.franchisingventures.com)
Non-competition Clause- Prevents the franchisee from entering a similar line of business not only during the term of the agreement and renewal terms, but also for a period of time after the agreement ends unless prior approval has been received from the franchisor. (www.franchisingventures.com)
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