FRANCHISE BASICS FRANCHISE BASICS
LEARNING THE
BUZZWORDS
Like any area of endeavour, the franchise sector has its own particular terminology that new franchisees need to understand.
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 fee, and a system or marketing plan. A franchise business falls under the jurisdiction of the Franchising Code of Conduct and franchisors have certain obligations to fulfil.
COMPANY-OWNED UNITS
locations run by the franchisor rather than a franchisee.
CONVERSION
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.
FRANCHISEE ADVISORY COUNCIL
a structure for 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
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.
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).
FRANCHISE TERM
DUE DILIGENCE
the process of conducting in-depth research on a business before purchase.
this 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.
FIELD MANAGER
FRANCHISOR
an individual tasked with managing a group of
the franchisor grants permission to the franchisee to
FEB/APR 2020 | 148 | WWW.FRANCHISEBUSINESS.COM.AU
