In order to conduct an intelligent evaluation of any franchise - you need to "know the lingo." Every industry has its terminology, and franchising is certainly no different. Here are the 10 most important terms you will need to know before you buy.
Franchise: The legal rights (the surrounding trademarks, copyrights, franchise operating system, support, training, product or service) a Franchisee obtains from a Franchisor under a franchise agreement to operate within a designated contract period as their business.
Franchisee: The person, partnership or company who pays the Franchisor for the right to own and operate a business using the Franchisor's marks and system.
Franchisor: The person, partnership or company that controls the overall rights to the franchise.
Franchise Agreement: A non-negotiable contract between a Franchisor and a Franchisee in which the Franchisor grants the Franchisee certain legal rights to use the Franchisor's marks and system in connection with a business to be independently owned and operated by the Franchisee.
Franchise Fee: Often referred to as "initial franchise fee." This is a one-time, up-front payment by the Franchisee to the Franchisor for the rights to a franchise. This fee is due and paid once the Franchise Agreement is signed, is generally non-refundable, and precedes final payments.
Capital Required: The amount of money a Franchisee will need to ramp up their franchise business during the start-up phase (average 3 to 15 months) to the point of producing a profit.
Exclusive Territory: This is the region or area a Franchisee will have exclusive rights to operate within. It is generally defined and mapped in terms of targeted households or population.
Liquidity: The total cash available to a franchise owner for business operation or living expenses.
Net Worth: Your assets (i.e., the cash value of all you own) minus your liabilities (i.e., what you owe).
Royalty Fee: An ongoing fee paid to your Franchisor for support services received through the life of your contract - usually a percentage of gross income or a flat monthly fee.
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