Like any area of en­deav­our, the fran­chise sec­tor has its own par­tic­u­lar ter­mi­nol­ogy that new fran­chisees need to un­der­stand.

Inside Franchise Business - - Contents -

AC­CRED­I­TA­TION: a bank­ing loan scheme that pro­vides fran­chisees with some of the fi­nance they may need when buy­ing the fran­chise. It is based on a bank’s un­der­stand­ing of the brand and its busi­ness meth­ods. While this fund­ing op­tion is pop­u­lar, it is not com­mon across the sec­tor.

AS­SIGN­MENT: when a fran­chisee sells their busi­ness to a new fran­chisee, it is re­ferred to as as­sign­ment. It is com­mon for the fran­chisor to re­tain the right to in­ter­view and ac­cept or re­ject any pro­posed buyer.

The fran­chisor may also have the right to buy back the fran­chise. The ven­dor fran­chisee can set the value of the fran­chise.

BUSI­NESS-FOR­MAT FRAN­CHISE: a busi­ness model with four cri­te­ria – a fran­chise agree­ment, a trade­mark or sym­bol, pay­ment of a f ee, and a sys­tem or mar­ket­ing plan. A fran­chise busi­ness f alls un­der t he ju­ris­dic­tion of t he Fran­chis­ing Code of Con­duct and fran­chisors have cer­tain obli­ga­tions to f ul­fil. COM­PANY-OWNED UNITS: lo­ca­tions run by the fran­chisor rather than a fran­chisee.

CON­VER­SION: an ex­ist­ing in­de­pen­dent busi­ness that joins a fran­chise network.

DIS­CLO­SURE DOC­U­MENT: this doc­u­ment pro­vides in­for­ma­tion about a fran­chise sys­tem, the fran­chisor and the fran­chised busi­ness. It must be sup­plied to a prospec­tive fran­chisee in ac­cor­dance with the Fran­chis­ing Code of Con­duct.

DUE DILI­GENCE: the process of con­duct­ing in-depth re­search on a busi­ness be­fore pur­chase.

FIELD MAN­AGER: an in­di­vid­ual tasked with man­ag­ing a group of fran­chisees, with a fo­cus on re­la­tion­ships, brand align­ment, and sales and profit. This role might also be called busi­ness de­vel­op­ment man­ager or area man­ager. FIXED SER­VICE FEE: fran­chisees may pay their fran­chisor a weekly or monthly fixed-amount pay­ment, or a ser­vice fee cal­cu­lated as a per­cent­age of turnover

(above a min­i­mum pay­ment). FRAN­CHISE AGREE­MENT: this is the legally bind­ing busi­ness be­tween the fran­chisor and the fran­chisee.

FRAN­CHISEE: an in­di­vid­ual who runs a fran­chised busi­ness us­ing the in­tel­lec­tual prop­erty of the fran­chisor.


a struc­ture for COUN­CIL: fran­chisors to seek and re­ceive feed­back from their fran­chisees. Par­tic­i­pat­ing fran­chisees may be elected or cho­sen by the fran­chisor.

FRAN­CHISE FEE: an up-front cost paid to the fran­chisor. It cov­ers the use of the brand name and busi­ness sys­tem.

FRAN­CHIS­ING CODE OF CON­DUCT: a manda­tory code that gov­erns fran­chis­ing in Aus­tralia. It is de­signed to guide the be­hav­iour of fran­chisors and pro­vide cer­tain pro­tec­tions to fran­chisees. It is ad­min­is­tered through the Aus­tralian Com­pe­ti­tion and Con­sumer Com­mis­sion (ACCC).


is the pe­riod granted for trad­ing un­der the fran­chise agree­ment. Most fran­chise terms are on a re­new­able three or five year term but they can vary from one year to per­pe­tu­ity. Fran­chisors of­ten re­fer to a term with two op­tions to re­new as

5 + 5 + 5, for in­stance.

FRAN­CHISOR: the fran­chisor grants per­mis­sion to the fran­chisee to con­duct busi­ness us­ing its in­tel­lec­tual prop­erty, brand name, work­ing meth­ods and mar­ket­ing.


brand new site.

GOOD­WILL: this is a cal­cu­la­tion of the value of trade in an ex­ist­ing busi­ness that is likely to con­tinue and ben­e­fit the in­com­ing busi­ness owner. IN­FOR­MA­TION STATE­MENT: this is a two-page stan­dard doc­u­ment that out­lines what fran­chise buy­ers need to know about fran­chis­ing. IN­TEL­LEC­TUAL PROP­ERTY: this term refers to the trade­marks, copy­right, know-how, trade se­crets, de­signs, patents, brand­ing, op­er­a­tional man­u­als, method­olo­gies and/ or recipes fran­chisors li­cense to fran­chisees.

LI­CENSE: the right to use in­tel­lec­tual prop­erty in busi­ness, such as sales rights in a ter­ri­tory, man­u­fac­tur­ing tech­nol­ogy or ac­cess to a trade­mark. A li­cense is not the same as a fran­chise. LO­CAL AREA MAR­KET­ING: of­ten ab­bre­vi­ated to LAM, this is mar­ket­ing the fran­chisee is re­spon­si­ble in their ter­ri­tory or des­ig­nated mar­ket­ing area.


a reg­u­lar flat or per­cent­age-based-fee paid into a centralised ad­ver­tis­ing or mar­ket­ing fund.

MAS­TER FRAN­CHISEE: a fran­chisee who is re­spon­si­ble for a large ter­ri­tory, ap­point­ing other fran­chisees within the ter­ri­tory with di­rect agree­ments, and en­sur­ing that the fran­chisor’s sys­tems and meth­ods are ap­plied. MULTI-UNIT FRAN­CHISEE: a fran­chisee who has been granted the rights to run more than one fran­chise out­let. Not every fran­chise sys­tem al­lows for fran­chisees to be mul­ti­ple op­er­a­tors. OP­ER­A­TIONS MAN­UAL: the fran­chisee’s guide to oper­at­ing the fran­chise busi­ness. The fran­chisor may pro­duce sev­eral man­u­als for dif­fer­ent ar­eas of the busi­ness, and should reg­u­larly up­date the in­for­ma­tion. RE­GIONAL FRAN­CHISEE: sim­i­lar to mas­ter fran­chisees, re­gional fran­chisees op­er­ate a large ter­ri­tory and ap­points fran­chisees within the area.

RE­NEWAL: once a fran­chise term nears its end, fran­chisees may or may not be given a right to re­new their agree­ment for a fur­ther term. This process is bound by the Fran­chis­ing Code of Con­duct. There is no

au­to­matic right of re­newal.

ROY­ALTY: fee paid by the fran­chisee to the fran­chisor for the on­go­ing use of the brand and sys­tems, man­age­ment and tech­ni­cal sup­port.

It may be a flat fee or a per­cent­age of sales or profit.

TER­MI­NA­TION: the end­ing of the fran­chise con­tract be­tween fran­chisee and fran­chisor, usu­ally for breach of con­tract. Some fran­chise agree­ments al­low the fran­chisor to ter­mi­nate the agree­ment even if the fran­chisee has not breached the agree­ment.

TER­RI­TORY: is the area as­signed to fran­chisees for their busi­ness. Ter­ri­to­ries can be ex­clu­sive or nonex­clu­sive.

TO­TAL IN­VEST­MENT: the to­tal amount of money a fran­chisee re­quires to set up in busi­ness. This in­cludes the fran­chise fee, work­ing cap­i­tal and any equip­ment pur­chases re­quired.

TURNKEY FRAN­CHISE: a fran­chise pack­age that in­cludes all the equip­ment, in­for­ma­tion and sys­tems re­quired for a fran­chisee to open up the busi­ness and start trad­ing.

WORK­ING CAP­I­TAL: the funds re­quired by any busi­ness to pay its costs be­fore it starts mak­ing a profit, and as on­go­ing cash flow to counter any dips in busi­ness ac­tiv­ity.

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