ADVICE
FRANCHISE
TERMINOLOGY
Linda Whitney’s jargon buster will help you
make an informed investment decision
W
hen you’re considering
starting a franchise,
there’s enough to
worry about without
having to figure out obscure jargon. But
to make a properly informed decision
about whether or not to go ahead, you
need to understand it.
So here is a guide to basic franchise
terminology. A couple of caveats: this
article does not cover all the terms you
might come across (there’s not enough
space for that) and there’s often no fixed
definition of franchising terms. If in
doubt, call the franchise’s head office
and ask what they mean.
FRANCHISING
Technically, business format
franchising, which is a way for
companies to increase outlets without
opening company owned branches.
The company offers others the
chance to open their own branches
using the brand, systems, know-how
and business model set out by the
company in exchange for an upfront
investment and (usually) monthly fees.
Often called a ‘business in a box’.
Not to be confused with the kind
of franchise that allows private
companies to run rail services -
generally a much less attractive
proposition.FRANCHISOR
The company that creates and runs
the franchise and sells it to you, the
franchisee. It also runs a head office
that offers training, support and
services for franchisees and collects
their monthly fees.FRANCHISEE
You - the person who stumps up the
investment required to buy and operate
the franchise. In a successful franchise
there may be dozens, hundreds or even
thousands of franchisees.HANDS-ON FRANCHISE
A franchise in which you do the
practical work yourself (eg, gardening
or oven cleaning), but also run
the business. Aka owner operator
franchise.MANAGEMENT FRANCHISE
You manage a team of staff who
carry out the practical work (eg, care
services franchises).
In some franchises, you can start
hands on and move into management
as the business grows and you take
on staff.FRANCHISE PACKAGE
The bundle of goods and services the
franchisor provides in return for your
investment.
As well as training, it can include a
wide range of goods and services such
as branded workwear and stationery,
access to discounted vehicle leasing,
relevant software, a page on the
franchise website, marketing help and
support from a franchise manager.
Check if you have to pay for any of
it and if so how much.TERRITORY/AREA
The geographical area in which you
have the (usually) exclusive right to
operate your franchise, making you
the only supplier of the brand’s good
or services in that area.
Franchisors delineate territories
based on demographic information,
indicating that there are enough
potential customers to generate a
profit. If it’s not exclusive, you could
be competing with another franchisee
to sell the same brand in your area.PILOT OPERATION
When a company is preparing to
launch a new franchise, it usually
runs pilot operations - a test to
find out how well the franchising
operation works and to iron out any
bugs before making it available to
potential franchisees.A FRANCHISEE IS THE
PERSON WHO STUMPS
UP THE INVESTMENT
REQUIRED TO BUY
AND OPERATE THE
FRANCHISE”
A franchise resale is sold
as a going concern