While eyeing for a franchise option, you may come across various franchise related terms and jargons. This probably could be of some help to you. In this post, weâ€™ll guide you around the 8 Key terms that youâ€™ll consider while walking the path of being a franchise owner.
- Franchisee:Â A person buying a franchise is a franchisee. The franchisee buys the right to operate a business while using the franchisorâ€™s name and existing branding.
- Franchisor:Â This pertains to the company that sells franchises to franchisees. Franchisors are primarily the parent company that has settled and established processes, products, and branding. The same is then passed on to franchisees in exchange for a fee i.e. franchise fee or royalty.
- Franchise Fee:Â The up-front fee that a franchisee pays to a franchisor to operate a franchise business is termed as franchise fee.
- Royalty Fee:Â In addition to the Franchise Fee, as a franchisee, the obligation to pay a fixed regular amount to franchisor also exists. Royalty fee may be paid weekly, monthly or yearly, depending on the agreement. However the fixed amount may vary as the condition to pay varies i.e. sometimes itâ€™s a flat fee and sometimes itâ€™s percentage of sales. Tough there still exist scope for different fields and values adding on to royalty as a fee.
- Franchise Agreement:Â Agreement is nothing but a mutual consideration of two or more person (parties) with a passage of obligation on each other. When youâ€™re actually ready to invest in a franchise opportunity, you will need to review and sign the agreement that reads all the formalities and norms to be adhered to. Itâ€™s essentially a contract that outlines the responsibilities of both the franchisor and the franchisee. In case of any discrepancies or irregularity on wither end of the parties involved, this agreement can serve as a proof of acceptance and law.
- Franchise Disclosure Document:Â This is a legal document required by the all parties and consulting firm initiating the franchise deal. The document (FDD) includes:
- Fees and cost of starting a new franchise
- Franchisor history
- Contractual obligations
- Other key information pertinent to the franchisor/franchisee relationship
The FDD is usually updated annually, depending upon the franchisor and franchisee agreement. For franchisees, itâ€™s imperative that you review this document in order to completely understand what you are getting into.
- Master Franchise:Â A big venture having large business chains and functions find it often difficult to manage franchise at national level. For such big brands, there exists a tool i.e. an option to opt for master franchise. Master franchise serve all the functions that the parent franchisor can, but at the local level, providing better customer support with right interaction for you as a franchisee. E.g. Brands such as Vithal Kamath, Tibs Franky, Cocoa Palms etc. are already practicing the master franchise options.
- Franchise Business Model
- COCO: Company Owned- Company Operated
- FOCO: Franchise Owned Franchise Operated
- COFO: Company Owned Franchise Operated
- FOFO: Franchise Owned Franchise Operated