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Franchise Business Glossary

Welcome to the world's most comprehensive franchise dictionary. At the FranchiseBazar franchise glossary, we have tried adding most commonly used terminologies and are sure that you will find the meanings that you have been seeking. In our attempt at creating a franchise wiki, you will see that most of the franchise words are inspired either by the American or the European (British to a large extent) influences, as franchising has evolved from these countries. Also, there are several generic words which we have seen from a franchise industry perspective and defined them in that context only. However, we would be more than glad to add any other words which could be used in your country or otherwise, trying to make this the most comprehensive global resource for any franchising glossary related look up. Please add your words and if you know their meaning at the end of this section and our editorial team will approve the same at the earliest.

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Accrued Interest:
The amount of interest that has been accumulated since the last loan payment. It is the amount of interest that the financial institution is entitled to, but is not due until the payment date.

Acknowledgement of Receipt:
In Non US countries, It merely means, an evidence of any document being delivered by the postal/courier/self to the receiver on a given date and time. In the US, Included in the Franchise Disclosure Document (FDD), it is the last page that you sign and return. It provides proof of the date that you received the FDD.

One business entity taking over controlling interest in another.Also, franchisees taking over operation of an existing store(s) or two franchisors giving away their ownership to one entity.

Advances could mean, any amount paid before it is due, in lieu of performance of service or delivery of products. It also could mean, Disbursements of loan funds based on appraised value, purchase price, or cost to construct real property.

Advertising Fee:
An annual fee paid by the franchisee to the franchisor for advertising and related expenditures; usually a small percent (generally not more than five percent) of the franchisee's annual sales and usually paid in addition to the royalty fee. It is not compulsory for all franchisors to charge advertising fees. This fees enables the franchisors to create and execute national marketing and advertising programs.

Advertising Fund:
A continuing periodic payment to the franchisor that, like the royalty payment, can be a fixed amount or a percentage of gross sales. The Advertising Fee is collected into an Advertising Fund and dispersed as per requirements.

An agent is an individual appointed who can act on behalf of the person or entity. The corporation/ entity which appoints the agent is legally bound by the actions of the agent. In other words, An individual who acts on the behalf of a corporation and can legally bind the corporation, is defined as an Agent.

Also called the Franchise Agreement. It is the contract that you sign with a franchisor or an Agreement  signifies the contract that is signed. In certain countries where there is no specific franchise legislation, the contract itself becomes the franchise agreement.

Agreement Definition:
 A Franchise Agreement is the legal, written document that governs the relationship between franchisor and franchisee, and specifies the terms of the franchise purchase including use of the franchise system and trademarks, territory, rights and obligations of the parties, payments and term (duration) of agreement.

Anchor Tenant:
Typically a type of tenant in a shopping center. In shopping malls this is Usually a national chain store or regional department store strategically placed in a shopping center so as to generate the most amount of customers for all of the stores located in the shopping center. In other centers the anchor tenant may be a supermarket or drug store, home improvement store, convenience store, or a food outlet like MC Donalds.

Angel Investors:
An angel Investor is an individual or Angel Investors who are a group, who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity. Angel investors invest their own personal funds, unlike venture capital firms, who manage the pooled money of others in a managed fund. In some cases if a family member or a friend were to lend you money to start a business they also would be referred to as an angel investor.

The repayment of a loan by periodic payments of principal and interest. The schedule which outlines this repayment is known as the amortization Schedule.

A document or a form that contains relevant information of the person presenting the same to apply for a franchise or a Job or a loan. In case of a loan it is document to be completed by the borrower that provides detailed information on the borrowing entity, the person(s) controlling the operation, the amount of the loan the borrower desires and the description of collateral.

Professional opinion or estimate of the value of property by licensed appraisers, who are appointed by states or respective governing bodies.

Approved Products:
Proprietary products that a franchisee must purchase from the franchisor. Also, products that must be purchased from approved suppliers. The goal is to achieve uniform quality assurance among all franchisees and to derive advantages of cost, due to size of operations.

Approved Products Definition:
Approved Products are those products which a franchisee must buy from the franchisor. It also includes products which must be bought from approved suppliers. This is done by the franchisor in order to maintain quality across all franchisees and to ensure that the cost is reduced due to bulk buying.

A dispute resolving process in which a neutral third party hears both sides to a dispute and renders a decision. It is an alternative to using the normal legal process, which at most times is costly, and time consuming.
Arbitration Definition:
Arbitration is a way of resolving disputes by referring it to a third party (impartial) which is selected either by the parties or by a central arbitration body, approved by the respective countries.

Area Franchise:
A Multi-Unit Franchise granted to develop a defined geographical area, without resale rights. Generally includes strict performance schedules and franchise sales rights.

Area Representative:
An employee of the franchise company whose responsibility is to regularly visit with, and assist franchise owners within an assigned geographical territory.

Area Development Rights:
The rights granted to a franchisee within a defined time frame to develop a certain number of franchises within a specified geographic area.

Assignment Fees:
Assignment Fees, typically a percentage of gross revenue, is the monthly fees paid by the franchisee to the franchise company for expenses incurred by the company for corporate marketing, advertising and other activities on behalf of the franchisee.

Automated Clearing House: (ACH)
Automatic draw or draft made from a checking/depository account on a specified date each month.


Balance Sheet:
Financial statement that shows the accounts of any person/ company, their assets, liabilities and other finance related details. In the US, It also includesproperty owned by a company and the claims against the property on a given date.

Balloon Payment:
When a loan is repaid over and above its actual term, there is always an accumulated amount which is the component of interest and penalties for the delayed amortizations. This final payment due at the end of a loan is known as the Balloon Payment.

In the US, An individual or organization unable to meet debt obligations petitions a federal district court for reorganization of debts or liquidation of assets or similar proceedings, or an involuntary petition is filed by creditors of the individual or organization. In other countries, a similar act of declaring one-self without any capital and unable to further the business, is termed as a bankrupt.

Basis Point:
Refers to one hundredth (0.01) of a full percentage point in yield. Example: An interest rate of 10 percent is 1000 basis points. 9.50% is 50 basis points less than 10.00%.

Bazaar / Bazar:
Essentially, a marketplace where products and services are traded. In this context a franchise bazaar is a supermarket of franchise business opportunities, where businesses meet entrepreneurs and vice versa.

Bid Letter:
The letter sent initially, to the borrower specifying the terms of the transaction. The bid letter is always subject to credit review and approval.

Blended Rate:
The average of two different loans with separate rates. Example: When financing equipment and real estate with a single loan, the rate of each product is combined. The final rate of the equipment loan is likely to be higher than it would be if financed separately, however, the rate for the real estate loan is likely to be lower than it would be if financed by itself.

Blended Term:
The average of two loans with different terms. Example: When financing equipment and real estate with a single loan, the terms of each product are combined. The final term of the equipment loan is likely to be longer than it would be if financed separately, however, the term of the real estate loan is likely to be shorter than it would be if financed by itself.

Any person/company taking money or debt is known as a borrower. It is A Legal entity, person or business that acquires debt financing from a capital source.

Bridge Loan:
A type of temporary arrangement which is extended to a borrower until permanent financing is secured. At that time, funds from the new permanent financing are used to pay off the temporary loan.

British Franchise Association:BFA
BFA is the only voluntary self-regulatory body for the UK franchise industry, with a standards based approach to membership whichwas formed to act in the interests of the industry as a whole in assessing and accrediting franchising companies as those which meet its criteria for the structure of the business, the terms of the contract between franchisor and franchisee, the testing of the system and its success as a franchise.

Intermediary/s who manage sales and purchases. Brokers can represent either sellers or buyers. Different brokers can represent both a seller and a buyer.

Broker Definition:
A broker is the middleman between the buyer and the seller, operating for a gain, known as brokerage fees. He could represent either the buyer or the seller, and in some cases both the parties.

Business Format Franchising:
A Type of Franchising in which the franchisor licenses the franchisee a complete plan - a business format, operating system and trademark to his/her franchisee. The plan provides step-by-step procedures for major aspects of the business generally through an operations manual and, anticipating most management problems, provides a complete matrix for management decisions confronted by the franchisees. The franchisor also teaches the franchisee the entire business format and provides support via training and communications to the franchisee for the duration of their business relationship. Restaurants, Retail and many service businesses are business format franchisors.

Business Plan:
A document that summarizes the operational and financial objectives of a business and contains comprehensive plans and budgets showing how the objectives are to be realized and how and where the resources needed to accomplish the objectives will be obtained and utilized. Because the business plan contains detailed financial projections, forecasts about your business's performance, and a marketing plan, it's an incredibly useful tool for business planning as it has a perfect route defined through which the business steers to its destination.

Buy-Sell Agreement:
A legal document that contains the entire terms, conditions and other relevant provisions under which a business may be sold.


Capital is cash in checking and savings accounts, insurance policy cash values, non-IRA stocks and bonds, and loan receivables due within 30 days.

Capital Requirement: 
The total liquid assets a franchise candidate must possess for the start up and to run the initial operation costs of a franchise business.

Capital Required:
The amount of cash you are required to have to be able to begin a business/franchise/venture.

Certificate of Occupancy: (CO)
Document issued by local government agency signifying that a building conforms to local code regulations and is in a condition to be occupied and operable.

Consolidated Metropolitan Statistical Area.

Assets used as security for a lease/loan or to provide for guarantee for any financial undertaking.It generally is resources, belongings, or something of wealth and value to the lender.

Commercial Paper:
A short-term note (normally 30 to 270 days) issued by corporations with good credit ratings. Rates can be found in financial sections of newspapers like the Wall Street Journal and on websites.

Commercial Real Estate:
Property intended for use by retail, wholesale, office, hotel, institution, service users, manufacturing or other industrial purposes but does not include property intended for homes or residential living.

Commitment Letter:
A letter sent to the borrower stating the final terms & conditions of the lease/loan approval.

Company-Owned Outlet:
Some franchisors establish company-owned stores or offices that, in appearance, are identical to the franchised outlets. In certain cases, company owned outlets may have slightly larger or different functions than the franchisee outlets, and hence may differ slightly.

Compounding Period:
The period of time for which interest is computed for the principal amount or amount that has been lent.

Consolidated Financial Statements:
Statements that report the combined operating results, financial position, and cash flows of two or more legally separate but affiliated companies or businesses as if they were one economic entity.

Conversion Franchise:
A franchise that permits anexisting businesses to join a national franchise system and to use its recognized name and trademark and operating system.Conversion opportunities may allow for lower start up costs.

Copyright is the exclusive right of a person to use or reproduce or to license others to use, works of art, music, or literature, and to protect these works from the unauthorised use. This statutory right prevents others from copying or exploiting a person’s work without permission.

Terms or Formal conditions or Promises that are written into transaction agreements.

Credit Analyst:
An underwriter who reviews credit requests.

Credit Application:
Initial document to be completed by the borrower that provides detailed information on the borrowing entity and the person(s) controlling the operation.

Credit Bureau:
A reporting agency that gathers credit histories on individual or business entities.

Credit Bureau Report:
A report showing what a person has borrowed on credit and the payment history to the creditor. This report also shows liens, collection accounts and past bankruptcies.

Credit History:
A historic record of how debt has been repaid.

Credit Tenant:
A tenant in the mortgaged property that meets the following criteria: revenues of $25,000,000, net worth of $5,000,000, and must meet real estate credit underwriting guidelines.

Credit Worthiness:
A track record &measureof an individual's or company's past and future ability and willingness to repay debts.


Debt Consolidation:
Combination of debt from different financial institutions or products into one loan.

Debt Service Coverage:
Cash required in a given period for payment of interest and current principal.

Failure to carry out the obligations mentioned in the terms of a contract. Generally associated with failure to make a payment on an agreed due date.

Demand Feature:
A provision allowing for the financial institution to demand the balance to be paid-in-full within a specific time period due to the default of the contract or the termination of time period within which one was to repay.

A range of factors that may influence consumer behavior in a specific trade territory e.g. age, income, house prices, industry, socioeconomic conditions. These are generally Macro-economic information around a business; population,major traffic generators, e.t.c.

The refundable portion of any payments that is returnable on a certain pre-agreed conditions. In the US it means Money submitted with the loan application showing the intention to enter into a loan contract.

Designated Supplier:
A supplier designated by the franchisor as the source for purchasing approved products or services. The use of a designated supplier for certain products or services guarantees the franchisor that each franchisee is providing the same experience to its customers.

One who prepares raw land for construction and sells lots to a builder. In some cases, the developer retains the title.

Developer Definition:
When a franchisor wishes to expand its franchise business into relatively large new territories - which may include new countries or regions within a country, one option is to appoint a developer (another is to appoint a master franchisee). The developer will be granted the non-exclusive or exclusive right to expand the franchised business within its designated territory usually in accordance with a development or roll out schedule.  Subject to certain terms and conditions the developer will be granted the right to operate individual franchise businesses within the Territory. The developer will therefore have two roles:
(i) as the developer for the territory; and
(ii) as the franchisee for individual outlets/stores/franchise business units.
Another term which may be used to describe a Developer is ‘Area Developer’.

Development Agreement:
A contract that is granted to develop a defined geographical area, without resale rights, including clear performance schedules and franchise sales rights.

From a franchising perspective disclosure is where a franchisor provides information to prospective master franchisees, developers or unit franchisees before a franchise agreement (which here includes a master franchise agreement or a development agreement) is concluded. In a number of countries the provision of certain franchise related information - prior to the grant of franchise rights - is a legal obligation on the franchisor. Disclosure is not a legal requirement in India/UK or most countries  as it is in the US but it is a recommended best practice. The typical information which is required to be disclosed includes: details of the franchisor; details of the franchise business; number and location of franchisees; key legal and operational obligations; intellectual property rights which form part of the franchise; and details of any prior bankruptcy or litigation involving the franchisor or key persons as defendants.

Disclosure Document:
All franchisors in the US are required by the Federal Trade Commission (FTC), to provide this document to prospective franchisees at the first personal meeting, and at least ten days prior to the prospective franchisee signing a franchise agreement or paying the franchisor money to buy the franchise. The purpose of this document is to aid the prospective franchisee in evaluating the franchise company.

Dispute Resolution:
Most franchise agreements written today include a provision for alternative dispute resolution methods like mediation and arbitration to avoid the expense and delay involved in using conventional courts.

Distributorship is the right granted by a manufacturer or producer or a wholesaler for distribution or sale of products. Distributorship does not generally qualify as a franchisee. However certain franchisees can qualify as a distributorship.

Documentation Fee:
A fee charged to a borrower for documentation and various filing fees. The fee may be either a flat fee or a percentage.

Documentation Specialists:
Individuals who coordinate the documentation and funding of a lease or loan or help you with preparation of certain documents.


Earnings Claim:
Any oral, visual or written representation to a prospective franchise owner or for general dissemination in the media which states or suggests a specific level or range of forecasted or actual sales, income, gross or net profit.

Earnings Claim Document:
A special disclosure document that is used when statements about profits are made to prospective franchise owners. This document incorporates the prescribed format and language required in describing past or projected financial performance. Again relevant only in the US, while in other countries other financial documents like P&L account in India, depict the same.

Earnings Before Interest, Taxes, Depreciation and Amortization. EBITDA is a measure of the cash flow available to make debt payments.

Economic Demand Generator:
Sources of business income, primarily from customers.

From a franchising perspective it means, any franchise owner (or the franchise company) attempting to sell products or services within an area of territory which has been assigned to or designated exclusively for another owner. From a property perspective, it would mean, taking physical possession of a property which does not belong to you.

An entrepreneur is the person who assumes the responsibility for organizing and operating the business. He also assumes the risk including the financial risk for a business venture, for a motive, which is generally known as Profit.

Environmental Indemnity:
Protection against loss and liability as a result of litigation or other activities related to damage to air, water, wildlife and other natural surroundings.

Environmental Site Assessment:
Planning& forecast document that assesses the environmental impact created by a proposed business.

Estimated Initial Investment:
A detailed listing of all fees and expenses you can expect to incur in starting your franchise business. This listing represents the total amount that you would need to pay or get financing for, including fees paid to the franchisor; estimates for furniture; fixtures and equipment; opening inventory; real-estate costs; insurance inventory; etc. This estimate should include a provision for working capital through the start-up and then the gestation phase.

Items used to perform any functions while easing the effort for doing any task.

Equity is the total value or worth of an asset. It is an individual’s or company’s shares and ownership rights of an asset, and does not represent an obligation to pay in the future.

Equity Investment:
The amount available to be borrowed against your security property or collaterals based on a formula calculated by the lending institution.

Exclusive Continent:
An exclusive continent right gives you as the franchisee the right to that continent. The franchisor cannot sell other franchises within that continent.

Exclusive Territory:
Where the franchised business is to be operated from a single location the franchisee may receive exclusivity solely to that site or to a market area usually a set distance surrounding the location. In a mobile service business the franchisee may be awarded a geographical territory large enough to ensure growth potential. A franchise system can be impaired by having too many franchisees in one market where there may not be enough business to support them, but on the other hand a cluster of units where they are not directly competing can take advantage of the synergy that is created by dominating the market, keeping out the competition and benefiting from joint marketing promotions.

Exclusive Territory Definition:
Exclusive territory gives the right of the territory to the franchisee preventing the franchisor from appointing any other franchisee for the territory or carrying on business himself in the territory.

Expert Determination:
Expert determination is a form of alternative dispute resolution. Whilst it might be most appropriate for a franchisor and franchisee to engage in litigation, arbitration or mediation where they do not agree on the facts or law of a dispute, and need an impartial "referee" to decide who is right , expert determination is often most useful in very technical disputes where specialist knowledge is vital. The expert will be appointed by the parties to evaluate their position, and the issues at stake, and make a final decision on the issue put to him.  An example might be where a franchise agreement contains particularly complex royalty payment provisions and a financial expert is needed to confirm which party has applied them correctly. An expert determination is - like arbitration and mediation - usually private, and will provide a binding decision which might resolve the dispute in its entirety or might help the franchisor and franchisee narrow the terms of the dispute before it is referred to the courts.

Expiration of Term:
In a franchise agreement, the date upon which the contract expires if it is not renewed.


Fair Market Value:
Price at which an asset or service is sold by seller to buyer, assuming both have reasonable knowledge of relevant market facts.

Federal Trade Commission: (FTC)
The Federal Trade Commission is an independent agency of the United States government, whose purpose is to promote antitrust and consumer protection laws, and to eliminate and prevent anticompetitive business practices in the franchise industry.

Federal Trade Commission Definition:
The federal agency, based in Washington, D.C., regulating a variety of trade practices, including the franchise industry.

Feasibility Study:
A company that is thinking about becoming a franchisor carries out a feasibility study, to analyze the various components of the business and to assess the readiness of the market to accept the franchise system.

Financial Statements: (F/S)
Consists of two parts, a balance sheet and a profit & loss (P&L, or income) statement.
A balance sheet states how much a business is worth (Assets - Liabilities = Equity or Net Worth).A P&L statement shows how much a business makes (Sales - Costs = Profits or Income).

First Deed of Trust:
Instrument used to create a lien on real estate property in which the borrower conveys title to a trustee, who holds it as security for the benefit of the lender. In some states, a mortgage will be used in lieu of a First Deed of Trust.

Fixed Rate:
Predetermined, no adjusting rate of interest applied to the principal balance of a loan.

Floating Rate:
Variable interest rate with adjustments made periodically and tied to some interest rate benchmark such as rate fixed by RBI in India or Commercial Paper or Canadian Banker's Acceptances in Canada.

A franchise is an agreement in which a firm (franchisor) enters into a contract with other businesses (franchisees), granting them the authorization to operate in the distribution of goods and services, under the franchisor's trade name and guidance, in exchange for a fee. It is a type of license agreement that describes the relationship between a franchisor and franchisee.

Franchise Definition:
"A franchise is a grant by the franchisor to the franchisee, entitling the latter to the use of a complete business package containing all the elements necessary to establish a previously untrained person in the franchised business, to enable him or her to run it on an ongoing basis, according to guidelines supplied, efficiently and profitably".

The generally accepted franchise definition as per FTC is ‘An agreement, whether written or oral, for consideration, by which a person permits the distribution of goods or services under his trademark, service mark or trade-name, during which time the grantor retains control over others or renders significant assistance to others.’

Franchise Agreement:
A written contract detailing the mutual responsibilities, obligations, functions of franchisors and franchisees.

Franchise Agreement:
A written agreement that details the expectations and requirements of the franchisor. It describes the franchisor's commitment to the franchisee and includes information about territorial rights of the franchisee, location requirements, training schedule, fees, general obligations of the franchisee, general obligations of the franchisor, etc. It is usually set up for a fixed period which requires renewal after expiry.Usually a franchise agreement may not be sold, transferred, renewed or otherwise assigned without the franchisor's permission.

Franchise Agreement Sample:
A written contract detailing the mutual responsibilities of franchisors and franchisees. It is usually for a several-year term, and when the term is up, the contract expires and could be renewed. A Sample of this agreement is generally a summary of the entire agreement in a few points also known as a Letter Of Intent.

Franchise Associations:
A group offranchisors, franchisees, and suppliers representing a country officially and working together on a non-profitable, non-trading format, whose objective is purely to ensure that they facilitate the growth of franchising in their country and connect the industry with the economy.

Franchise Bazar:
A marketplace where entrepreneurs can find several franchise business opportunities, franchise industry suppliers and can connect with the respective franchise companies to evaluate, research and finalize a franchise business to start or to get help on any aspect of franchising.

Franchise Business Plan:
A Franchise Business plan is a strategic plan that lays down the company's franchising objectives and the specific steps that need to be taken to achieve those objectives. The Franchise Business Plan is usually prepared by company management and is a long term document that provides a clear road map to where the company would steer in specific time frames.

Franchise Consultant:
A franchise consultant is a business guide with expertise in the franchising industry. They give advice on all topics relating to franchise strategy, franchising operations, franchise trainings, companies, relationships and absolute growth.

Franchise Contract:
The legal agreement between the parties which sets out the terms under which the Franchisee will operate the business.
It usually includes but is not limited to the following:

  • The right to use the trade name
  • The Franchisee's obligations
  • The Franchisor's obligations
  • The premises and the territory
  • Length of Franchise contract
  • Financial aspects such as initial franchisee fee and ongoing royalties
  • Renewal terms
  • Control of standards
  • Rights of sale
  • Performance targets
  • Termination
  • Effects of termination

The franchisor should: -

  • Know every facet of the business and have a hands-on approach to problem solving.
  • Be honest and forthright in all dealings.
  • Have operated the business he wishes to franchise for a reasonable period. Agreement exists that the minimum period should be one to two years but research has shown that most companies wait for six years or more before they roll out a franchise.
  • Have adequate financial resources to develop the concept and make the necessary investment into the brand.
  • Want to grow through others, and be prepared to share the rewards resulting from teamwork with franchisees.
  • Strive for excellence in every facet of the business and determined to grow.

Franchise Dictionary:
A collection of words generally used in the franchise industry and whose meanings are more clearly defined and arranged alphabetically.

Franchise Disclosure Document: (FDD) 
A US term, the Franchise Disclosure Document provides information about the franchisor and franchise system, and full details on start-up and ongoing fees. The FDD allows prospective franchisees to make an informed investment decision.

Franchise Feasibility Studies:
Franchise feasibility study is conducted to determine the degree to which a company can become a successful franchisor.

Franchise Feasibility Studies Definition:
Franchising can be a highly effective method of financial expansion through the acquisition of outside capital. The objective of a franchise feasibility study is to determine the degree to which a company, whether a well-established concern, a small operation of one or two units, or simply a concept that bears the characteristics of a successful franchisor, may be successful as a franchisor.

Franchise Fee:
A one-time fee paid by the franchisee to the franchisor to "buy into" the franchise. Sometimes this fee is also split in installments and paid at different intervals. Generally, the fee reimburses the franchisor for the costs of initial training and support for new franchisees.

Franchise Fee Definition:
The initial fee paid to a franchisor, usually due at the signing of the contract, for the right to use the franchisor's name, trademark and business system.

Franchising Glossary:
A franchise dictionary which helps you search for franchise related words and acronyms.

Franchise Lawyers:
An attorney who specializes in franchising law is known as a franchising lawyer. Some countries have franchise specific laws and hence have franchise lawyers. Other countries have different laws that bind into a franchise system and lawyers who are able to bind these terms into a franchise agreement, are also known as franchise lawyers.

Franchise Marketing Plan:
A technique by which franchises are to be sold. Includes the number of franchisee sales anticipated within a series of time periods (first year, second year, etc.), to whom those sales are to be made (profile of the individual, area franchising, sub-franchising), and the anticipated geographical expansion of the franchise system.

Franchise Registration:
In some countries it is compulsory to register your franchise before your start franchising in that country. In the US, in several states specific information needs to be submitted and approved before a franchise is granted.

Franchise Renewal:
Renewal refers to the signing of a new franchisee agreement upon the expiration of the existing one or extending the term of the existing franchise agreement for one more term which could be similar or different, depending upon what is mutually agreeable.

Franchise System:
A franchise system refers to the different franchises operating in a country or company or a region.

Franchise Unit:
A franchise unit refers to each individual outlet, owned by a franchisee.

Franchise Wiki:
A resource where all your franchise related queries are addressed.

A person who has the contract of conducting somebody else’s business through a franchise arrangement or an entity to whom the right to conduct a business is granted by the franchisor or licensor, is known as the franchisee.The franchisee buys the right to run the business using the trademark and trading system. The business is run according to the procedures set out in the franchise operating manual and under the terms of the franchise agreement.Another term which may be used to describe a franchisee, particularly in a master franchise structure is a ‘subfranchisee’ or ‘unit franchisee’.

Franchisee Definition:
Franchisee is the person or the entity which has acquired the rights of conducting the business from the franchisor or licensor.

Franchisee Capital:
Franchisee Capital is the wealth required by a franchisee. Human capital consists of the franchisees experience, leadership, and knowledge he/she will bring to the franchise.

Franchisees Characteristics:

  • Capable of absorbing new concepts quickly.
  • Willing to follow the franchisor's blueprint to the letter.
  • Positive people-persons imbued with the necessary enthusiasm to market the business and motivate staff.
  • Adequately resourced to meet the initial (capital investment) and ongoing (working capital) financial requirements of the business.
  • Able to manage and control the business, and willing to drive the brand at local level.
  • Prepared to co-operate with the franchisor's team as well as with fellow franchisees, and play an active part in programs offered by the network.
  • Determined to build the business into the best and most successful in the territory.
  • Convinced of the merits of the franchise and the brand, and prepared to defend both against possible attack by competitors or others.

This is the ultimate owner of the franchised business including the intellectual property rights in particular the brand, the know-how and the system. It is the franchisor who appoints developers, master franchisees, unit franchisees or a combination of these.They then support their franchisees both in starting their business and in continuing to make it work.

Franchisor Definition:
A franchisor is an individual, partnership, or corporation who grants an investor (the franchisee), the right to conduct business under their trade name, using their operational methods and organizational systems.

Furniture, Fixtures and Equipment: (FF&E)
Movable property used in the operation of a business.

Neither an industry nor a business, but a method of doing business within a given industry. At least two parties are involved in franchising: the franchisor and the franchisee. Technically, the contract binding the two parties is the franchise agreement.

Franchising Association Of India:FAI
The Franchising Association of India is a Membership Organisation of Franchisors, Franchisees, Vendors, Consultants, Financial Institutions and Students and others involved in the growth of franchising in India.

Franchising Definition:
Essentially, franchising is a business model where one party (the franchisor) has developed a successful product or service and allows another party (the franchisee) to operate under its brand name in accordance with its business methods (which includes the business format, know how and system in exchange for a fee. As a result the franchisee benefits from consumer goodwill towards the franchisor’s brand and product(s) or service(s) and access to the franchisor’s proven methods of doing business.

Franchise Venture Capital:
Franchise Venture Capital is the money invested in new businesses which show chances of above average growth.


Gross Sales:
Gross Sales is the total of all sales for any period of time before any deductions. It is the revenue before any expenses are deducted. It is the sum of all money generated prior to deducting wages, product cost, taxes, interest, etc.

Ground Lease:
A lease of vacant land or land exclusive of any building on it.Usually a net lease.

Head Lease:
Locations where the franchisor has leased the premises and then sublets to the franchisee. There are a number of reasons for this practice. Landlords prefer to have the company financially committed in exchange for leasing prime locations, possibly providing tenant inducements of some free rent or financial assistance towards the tenant improvements such as lighting, floor covering and washrooms. Many times the franchisor finds an ideal site and leases the space before a suitable franchise applicant has been found. A turn-key situation is where the premises are completely ready to open for business by the time the franchisee completes their training. If the head lease is not held and the franchisee negotiates the lease, the franchisor usually reserves the right to approve any lease, sub-lease or other tenant-landlord relationship which is established.

Historical Financial Statement:
Balance sheets and income statements showing the operations of the business for a period of years.

House mark:
A trademark used to identify the commercial operations of a company. The house mark may also be the company name (as in SONY). This trademark may be used to identify one or more products and may be used in combination with other trademarks or trade names.

How to Franchise:
A methodology by which you could convert your existing business into a franchise business.

Identify Items:
Those items (such as paper products, uniforms, point of sale materials or exterior signs) are usually required to be used in a franchisee's business. These items display the registered trademarks of the franchisor.

Modifications made to land or building with the intent to increase the visual appeal and value of the property.
Income Statement:
P&L (profit & loss) statement showing how much profit a business makes during its operation cycle. Sales - Costs = Income.

The category of business that a franchise belongs to. It is an all-encompassing area of business that can incorporate several different sectors.

Initial Franchise Fee:
The initial fee is a one off lump sum, paid by the franchisee to the franchisor, upon signing the franchise agreement.

Initial Investment:
An estimate of the initial cash investment required to buy and open a franchise business. This estimate includes the franchise fee and other initial start-up costs, but not necessarily the total cost of operating the business.

Initial Ongoing Training :
This is the training and the support that a franchisor gives to the franchisee for the running of the franchise according to the standards set by the franchisor.

Interest Rate:
Cost of financing, expressed as a percentage rate per period of time.

International Franchise Association (IFA):
The International Franchise Association (IFA) is a non-profit trade association of franchisors, franchisees, and suppliers. Founded in 1960, the IFA’s office is based in Washington, D.C.


Job Franchising:
The franchisee actually does the work that provides the service to their customers.
Trade Association ForFranchisors.
Based in Washington, D.C., the IFA requires its members to follow a rigid code of ethics.

Landlord Subordination (Waiver):
A document signed by a landlord which waives the landlord's rights to collateral or leased equipment.

Late Fee:
A fee charged when a payment is not received on the payment due date. Usually a flat fee but also may be a percentage.

Lease Agreement:
A document entered into between a landlord (lessor) and a tenant (lessee) giving the lessee exclusive right to use its property or equipment for a specified period of time in return for periodic payments.

LIBOR (London Interbank Offered Rate):
Rate that the most creditworthy international banks dealing in Eurodollars charge each other for loans.

Licensing is the legal act of one party granting rights to another party to a legally protected property in exchange for a fee or royalty.

Limited Liability Company (LLC):
A limited liability company is a business structure best described as a hybrid between a partnership and a corporation - a "pass through" of all profits and losses to the owners without taxation of the entity itself, as in a partnership, and a shield from personal liability, as in a corporation.

Line-of-Credit (LOC):
A loan that may be borrowed against and paid down during its term. These loans usually have a covenant/special condition attached stating that the loan must have a zero balance for a specified period of time.

Liquid Capital: 
Cash assets or other assets like gold, diamonds, shares that can be readily converted to cash.

Transaction wherein a lender provides funds to a borrower on the condition that the funds are paid back over time with interest.

Loan Amount:
Amount funded to a borrower to purchase items to be used in the course of business or to finance equipment owned by the borrower or any other property or business.

Loan Application:
Document to be completed by the borrower that provides detailed information on the borrowing entity, the person(s) controlling the operation, the amount of the loan the borrower desires and the description of collateral the borrower wants to secure the loan with.

Loan Closing:
Date on which the loan fund is actually disbursed.

The difference between the actual loan amount funded to the borrower and the value of collateral received as security for the loan.

MAI Appraisal:
An appraisal prepared by a general appraiser certified by the Appraisal Institute.

Management Franchising:
The franchisee recruits, organizes and manages a team who provide the services.

Market Analysis Data:
Demographic data about the local market environment.

Marketing is the process or technique of planning, pricing, promoting, selling and distributing products and services to create exchanges that satisfy both the customer and the organisation.

Marketing Plan:
“Marketing Plan is the detailed plan of the marketing activities of the organization. A franchise marketing plan is the technique by which franchises are sold. It includes all the relevant details like the number of sales anticipated within a set time period.

Master Franchise or Area Developer: 
A franchisee owner or entity who acquires the franchise rights to a large territory with the intent to both open locations and resell sub-franchise locations. Master franchisees share a portion of the franchisee fee and the royalty from their sub-franchisees with the franchisor.

Master Franchisee:
A Master franchisee is the individual who negotiates the franchise rights for a defined territory (usually a country), and assumes the rights and obligations of the franchisor in that particular territory.

Master Franchising:
In master franchising, the franchisor grants the master franchisee the right to act as the franchisor in the target territory. The master franchisee may open his or her own outlets, sub-franchise or do both. The primary advantages to the franchisor of master licensing are: limited capital investment; tapping into the master franchisee's knowledge of the local market and only having to deal with one party.

Master Region:
The territory under a master franchisee. Normally the franchisee subdivides it and resells individual franchisee locations.

An acronym standing for Minority Owned Business generally used in the US. A minority owned business must be certified as such and can receive certain advantages in government contracts from that certification.

Minimum Guarantee: MG
When a franchisor provides a fixed monthly assured revenue to a franchisee, to manage the franchisee it is termed as MG. It is generally prevalent in Retail Stores in Prime Locations, where the rentals and the fixed operational costs are very high and the franchisor wants a presence in that location. They then offer a MG which covers the base minimum cost and generally link it the the franchise commissions which is offered to the franchisee for the sales that they achieve in the store. For eg: If a franchisee earns 20% commission on sales, and the MG is 150000, then if they achieve a sale of 1000000 they would get 200000 as the net commission and if the sale drops to 500000 then they would have to give the franchisee not 100000 which is 20% but 150000 which is the MG.

Debt instrument by which the borrower gives the lender a lien on real property as security for the repayment of a loan.

MSA - Metropolitan Statistical Area:
A UK Term which defines One or more counties that contain a city of 50,000 plus inhabitants, or contain a Census Bureau-defined urbanized area (UA)and has a total population of at least 100,000 (75,000 in New England). MSA components include counties containing principal concentration of population - the largest city and surrounding densely populated areas. Additional counties qualify to be included by meeting a specified level of commuting to the counties containing the population concentration and by meeting certain other requirements of metropolitan character, such as specified minimum population density or percentage of population that is urban.

MSA (see below) that also has a population of 1 Million or more, of parts are recognized PMSA's (see below).

Multi Level Marketing (MLM):
A form of distributorship in which you receive commission on your own sales and on the sales of others whom you sign up as distributors. Some MLMs are considered pyramid schemes and illegal in some regions. Some are legitimate business opportunities. Any business of this nature should be investigated closely.

Multi-Unit Franchise:
A franchisee owner or entity who operates multiple units of a franchise brand within a protected territory.

Multiple Unit Franchising:
The franchisor awards the right to a franchisee to operate more than one unit within a defined area based on an agreed upon development schedule. If the franchisor decides to expand into a new geographical area which may be a city or province and does have the resources or staff to handle this growth themselves, a Master Franchise, Sub-franchise or an Area Development agreement is structured with a party who will use their resources to develop the franchise network by granting unit franchises to others or establish their own outlets, provide the training and local ongoing support.


National Alliance of Franchisees (NAF):
A national coalition organized in 1977 to represent and protect the interests and rights of franchisees. National headquarters are in Washington, D.C.

Neighborhood Shopping Center:
A shopping center designed to accommodate the anticipated commerce from those living nearby. Such centers usually are comprised of a supermarket, drug/variety store, and in-line shops for such services and commodities as personal grooming, banking, medical offices, travel agencies, food service, and specialty shops.

Net Cash Flow:
An accounting presentation showing how much of the cash generated by the business remains after expenses-including interest-and principal repayment on financing are repaid.

Net Worth:
The Net worth of an organization or a Individual is the sum of all assets minus total liabilities.

Non-Compete Clause:
A clause in a contract that prohibits one from entering into the same line of business for a specified time and within a specified area after you leave employment or after you terminate, sell, or otherwise leave a franchise.

An oral or written proposal to sell a franchise to a prospective franchisee upon understood general terms and conditions.

Operations Manual:
The manual contains instructions advising a franchisee how to operate the franchise.

Operating Manual:
Comprehensive guidelines advising a franchisee on how to operate the franchised business. It covers all aspects of the business, including general business procedures not necessarily peculiar to the franchised business. It may be separated into different manuals addressing such subjects as accounting, personnel, advertising, promotion and maintenance.

Orderly Liquidation Value:
Value that equipment would yield at an arm's length auction or liquidation sale.

Property occupied by the borrower.


Individuals in a legal relationship for the purpose of conducting a business enterprise.

A partnership is one of two categories: general and limited.
A general partnership is an association of at least two or more persons who co-own a business. Partnerships are formed when two or more persons agree to share ownership, management, profits, and liabilities of a business venture.
A limited partnership is a partnership where only general partners may run the business, while limited partners cannot perform any management functions. However, limited partners may contribute capital, share in the profits, and are limited from liability. All limited partnerships must have at least one general partner, who remains personally liable for all debts and liabilities of the partnership, and any number of limited partners.

Payment Schedule:
Is the timelines within which predefined amounts are to be paid.

Percentage Rent:
A Lease may have a percentage rent fee clause, which means once a target sales figure has been reached, you will pay landlord the greater of either the fixed monthly rent or the percentage of sale, which ever higher or a certain fixed percentage over and above, a pre-fixed sales amount.

Perfected First Security Interest:
Status ascribed to security interests after certain events, such as filings and taking possession of collateral, have occurred, whereunder there are no other liens or encumbrances prior in right.

An individual, partnership or corporation, when we see it in a franchise context.

Personal Financial Statement (PFS):
Balance sheet showing personal assets and liabilities. A personal financial statement shows how much net worth one has, while a tax return shows how much income one makes.

Personal Guarantee:
Usually the owner(s) of a corporation cannot be held personally responsible for a corporation"s debt. If a loan requires a personal guaranty it means that the lender is asking the owner to personally guarantee the debt should the corporation default.

Personal Guaranty:
A pledge made by the operator or owner of a business which obligates the operator or owner to personally repay some or all of the debt of a business should the business default on its payment obligations.

PMSA - Primary Metropolitan Statistical Area:
A largely urbanized county or cluster of counties with a population of 1 Million or more that meets the requirements of being a MSA. Area demonstrates strong economic and social links plus in addition to close ties with central core of larger area.

Prepayment Penalty:
A fee charged for early payment of a transaction balance as compensation for income lost as a result of such prepayment.

Principal Balance:
Remaining loan amount from which interest is calculated.

Product Format Franchise:
Product Format Franchise is one where the franchised product or service does not constitute the majority of the products or services on offer by the franchisee.

Product Format Franchise Definition:
The ability to sell a particular company’s product that does not constitute all that you sell. For example you may have a service station that sells a brand of gasoline, but you are not restricted on the other products or services that you can sell. Many times these are not true franchises, but can be considered distributorships.

Proforma Financial Statement:
A business owner's forward looking outlook on a company's operations.

Pro Forma:
The Pro forma document is a description of financial statements which rely on historical data to assume levels of revenue, expenditure, assets, liabilities, and net worth. It is a balance sheet, profit and loss or cash flow statement that estimates income and expense sources. Assets, liabilities and net worth are forecast on the balance sheet. Pro forma statements issued by the franchisor to the franchisee should be based on actual operating results of the franchisors units or franchise establishments.

Pro Forma Statement:
Pro forma statements are statements issued by the franchisor to the franchisee based on actual operating results of the franchisor's units or franchise establishments. It can be in the form of any statement which measures profits and expenses.

A forward looking view of a company's operations or estimates of what is forecasted to be achieved.

The initial paperwork sent to the borrower from the Account Executive spelling out the structure of the transaction, terms and conditions.

Protected Continent:
A designated area or geographic boundary granted to the franchisee by the terms of a franchise agreement. The franchisor covenants not to open another franchised or company owned business of a like or exact nature within the franchisees protected (assigned) continent.

Protected Territory:
Protected Territory is the territory allotted to a franchisee where the franchisor has promised not to franchise to another franchisee or open a company owned businessof a like or exact nature within the franchisees protected (assigned) territory.

Public Figure Involvement:
When a Public Figure is endorsing a franchised product then the nature of the agreement between the public figure and the franchisor must be disclosed.

Borrower's intended use of funds and the business reason for the transaction.


Qualification Questionnaire:
A document prepared by the franchisor to be completed by the prospective franchise, which provides initial information to the franchisor in order to assist him in determining whether or not the prospect is capable and motivated. Often a financial statement is included in the questionnaire format.

Quality Control:
The method by which the franchisor enforces the rules of operation set forth in the operating manuals. Quality control involves regional coordinators visiting each franchisee.

Real Property:
Land and what is erected, growing or anything permanently affixed to the land.Also includes, minerals and waters beneath the surface of the soil. If an item can be removed from real property without significant effort or damage, it is considered personal property.

Paying off one loan with the proceeds from another.

Regional Development Agreement:
A franchise granted to develop or sell a persons franchise rights to a third party in a defined geographical area. A portion of the franchise fee is normally paid in advance for a certain minimum number of franchise outlets which may be activated by the Regional Franchisee or sold at a disclosed fee to an individual franchise buyer. This agreement normally awards a share of the initial full franchise fee and a percentage of the royalty payment.

A requirement in several states in the US that specific information be submitted and approved by state regulatory authorities before franchises may be offered in that state.

You are granted a particular time frame in which to conduct business as a franchisee in your initial Franchise Agreement. The franchise agreement should also state the terms and conditions to renew that business relationship. Renewal is the resigning of a Franchise Agreement after the initial or subsequent terms of the franchise expires.

The pay back of a loan.

Reserve Bank Of India: RBI
The central bank of India whose preamble is to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage.

A brief summary of an individual's work history, including name, address, contact information, as well as an outline of work experience.

A special loan, that has a zero balance during some periods, offering special conditions for re-payments.

A continuing payment to the franchisor that is payable on a periodic basis (usually weekly, biweekly, or monthly) throughout the term of the franchise agreement. In theory this royalty payment is for:
•  Compensation for the continuing services given by the franchisor (for training, field services, etc.)
• Payback financing of the true market value of the franchise. Royalty payments can be either fixed amounts, based on percentage of gross sales, or based on a sliding scale, with graduated breakpoints.

Royalty Fee:
Also referred to as the “management service fee”, these fees are the continuous payments the franchisee gives the franchisor to stay part of the franchise system.The royalty may be a percentage of sales or a fixed or flat periodical recurring fee.

Rules of Operation :
Specific mandatory rules with which every franchisee and company outlet must comply. This document will change from time to time. By incorporation by reference in the franchise agreement, violation of the Rules of Operations allows the franchisor to cancel a franchise agreement.


SBC is an acronym for Small Business Centers. They are General Services Administration (GSA) offices that assist small businesses in acquiring federal contracts for goods and services in the US.

Collateral or other items used to secure a transaction through a financial institution.

Service Mark:
A mark used in the sale or advertising of services of one person and distinguishes them from the services of others. The word "trademark" is specifically associated with goods or products such as mobile phones or cars, whereas service marks relate to telecom or real estate companiesand the like. Both are of equal stature and get the same protection under the law.

Owner of one or more shares of a corporation.

Sherman Antitrust Act:
15 U.S.C., Sec. 107, as amended (1976), provides in general, that it is illegal to conspire by contract or otherwise, to restrain trade. Franchisee associations must be carefully monitored and franchise agreements drafted (except under certain case law exceptions), to avoid exclusive allocation of continents or fixing prices. As it affects franchising, the Sherman Act is applied to activities within a single state, whereas the Robinson-Pat man Act can apply only to matters involved in two or more states (interstate commerce). The basic antitrust statutes have evolved since 1890 and each body of law has been enlarged and modified by the subsequent acts; some of which you will find in this directory. There are other anti-trust acts, notably the Federal Trade Commission Act, the Clayton Act and the state antitrust laws and "Little" FTC acts. In order to avoid antitrust problems, seek adequate legal counsel.

Shopping Center 0 - Pad Site:
US term for An individual freestanding site for a retailer, often adjacent to a larger shopping center. same as out lot. Gas stations, convenience stores, restaurants and some specialty stores and services are built on pad sites.

Shopping Center 1 - Strip Center:
US term for the smallest of centers whose tenants provide a narrow mix of goods and personal services to a very limited trade area. A typical anchor would be a convenience store like a mini-mart such as 7-Eleven.

Shopping Center 2 - Neighborhood Center:
US term fortypically 30,000-150,000 sq. ft. on 3-5 Acres with at least one anchor tenant typically being a grocery store and/or pharma store. Anchor occupancy ratio 30-50%. Trade area 3 miles.Designed to provide convenience shopping for the day-to-day needs of consumers in the immediate neighborhood.

Shopping Center 3 - Lifestyle Center:
US term for typically 50,000 sq. ft. with one or more upscale national chain specialty stores. Usually located near affluent residential neighborhoods, the center type caters to the retail needs and lifestyle pursuits of consumers in its trade area. Design ambiance and amenities are conducive to casual browsing.

Shopping Center 4 - Outlet Center:
US term for typically 50,000-400,000 sq. ft. on 10-50 Acres. Covers a trade area 25-75 miles and is ideally suited for manufacturer outlet stores.

Shopping Center 5 - Theme Center:
US term for typically 80,000-250,000 sq. ft. on 5-20 Acres. Leisure, tourist-oriented, retail and service. Anchors are restaurants and entertainment.

Shopping Center 6 - Community Center:
US term for typically 100,000-350,000 sq. ft. on 10-40 Acres with 1-2 anchor tenants being supermarket and/or drug store, discount department store, home improvement store, or large specialty or discount apparel store. Anchor ratio 40-60 %. Covers a catchment or trade area 3-6 miles.

Shopping Center 7 - Power Center:
US term fortypically 250,000-600,000 sq. ft. on 25-80 Acres with 3 or more anchor tenants of limited assortment. Anchor ratio 75-90 % .Generally have customers from a captive trade area 5-10 miles.

Shopping Center 8 - Regional Mall:
US term for typically 400,000-800,000 sq. ft. on 40-100 Acres with 2 or more anchor tenants being full line department stores, discount apparel store, mass merchant, fashion stores. Anchor ratio 50-70 %. Generally have customers from a captive trade area 5-15 miles.

Shopping Center 9 - Super Regional:
US term for typically 800,000 sq. ft. plus on 60-120 Acres with 3 or more anchor tenants being similar to Regional Mall but having more variety. Anchor ratio 50-70 %. Generally have customers from a captive trade area 5-25 miles.

Single Unit Franchise:
A franchisee owner who operates one unit of a franchise brand.

A pre-prepared piece of advertising material usually composed by the franchisor for the franchisee for use in local print media. It is "camera ready", meaning that newspapers or other media can use it without significant additional cost to franchisees for composition and makeup.

Sole Proprietor:
A business that is owned by one person. All income and losses generated by the business are treated as personal and will be filed along with the proprietor's regular tax returns.

Special Conditions:
Formal conditions or clauses that are written into a transaction agreement.

Difference between cost of funds and lending rate.

Start Date:
The activation date of the contract.

Strip Center:
A retail center comprised of several small stores arranged in a lineal design. Usually does not have a large anchor tenant.

A type of multi-unit franchise, whereby franchisees act as independent selling organizations that are responsible for the recruitment and ongoing support of franchisees within their given region.Subfranchisor will have their own FDD, which is sometimes incorporated into their franchisor's FDD.

A supplier is the authorised individual or company who has been approved by the franchisor, to supply products or services to the franchisee.

Measurement of the boundaries of a parcel of land, its area and sometimes its topography.


A holder of property under a lease or other rental agreement.

Period of time during which the conditions of a transaction will be carried out.

Term Loan:
A loan that must be repaid within a specific timeframe.

Terminal Rental Adjustment Lease (TRAC Lease):
A tax-oriented lease of motor vehicles or trailers that contains a clause for rent adjustment at the end of the lease.

A declaration by the franchisor that part or all of the rights and obligations of both parties under the franchise contract cease or have ceased as of a certain date. Certain responsibilities and or claims and damages may survive termination.

Territory is defined as a specific area in which the franchisee has the exclusive right to conduct business, without the threat of competition from fellow franchisees.

Third Party Soft Costs:
Various costs incurred during the construction phase of a project, however, not associated with the physical construction of the project such as surveys or site plans.

Evidence of right to possession of land.

Title Policy:
Insurance against loss resulting from defects in title to a specifically described parcel of real property.

Total Investment:
The amount of money estimated for complete set up of a franchisee's business, including the initial investment, the working capital, and subsequent additions to inventory and equipment deemed necessary for a fully operational and profitable enterprise.

Trade Area:
For shopping centers the geographical area from which a majority (60-80%) of a center's sales originate.

Trade Dress:
The overall visual manner in which a franchise business presents itself to the public, including the dress of its employees, the interior and exterior design of the buildings, its choice of color, etc.

Trade Secret:
Knowledge in the possession of the franchisor that is revealed to the franchisee by the franchise transaction. Trade secrets may take the form of construction or operating procedures, a formula for the mixing of ingredients to prepare food or the classical customer list. Appropriate legal provisions written into the franchise agreement, such as a covenant not to compete, are important in protecting these trade secrets.

Any word, name, brand name, symbol, logo, or device, or any combination thereof, adopted and used by a franchise company to identify its goods and distinguish them from those manufactured or sold by others. It can be used exclusively by the owner, and no one else can use it without the owner's permission. Part of a franchise's value is the right to use a recognized trademark.The symbol "TM" or "SM" may be affixed near the word or words constituting the mark or symbol to inform the public that it is intended that the name be protected.

Debt instruments issued by the U. S. Department of the Treasury.

True Lease:
A tax-oriented lease which complies with all IRS guidelines for a true lease.

Turnkey Financing:
Financing for the sale of a business which is structured so that the new owner need only "turn the key" in order to commence business.

The franchisor is responsible for fully developing a "turnkey" franchise until or after, the doors are open for business.

Forcing a franchisee to purchase one product as a condition to the sale of another. Tying may be illegal if the products used in the franchise operation can be acquired from other sources at a more competitive price. The product must. however, be judged "equal to – or better than" the products specified by the franchisor in terms of quality.


The action of a credit analyst looking at the information submitted by a borrower and making a credit decision.

Uniform Commercial Code : (UCC)
A code (laws) which regulates commercial transactions. This code replaced the various state statutes covering chattel mortgages, conditional sales, trust receipts, etc in the US.

Uniform Franchise Offering Circular :(UFOC)
The Federal Trade Commission enacted a Rule in 1979 requiring the franchisor to give a written prospectus to prospective franchisees (see 10-day and 5-day Rules). The prospectus prescribed by the FTC is called the Uniform Franchise Offering Circular or UFOC. The UFOC contains explicit items of information related to the franchise, including the franchisor's background; important provisions of the franchise agreement; amount and terms of the franchise fee (Item 5) and royalty and advertising-fund fee (Item 6); estimated start-up costs (Item 7); details on existing franchisees; the franchisor/franchisee relationship; audited financial statements for the last three fiscal years; and copies of all contracts that will be used.

10-day and 5-day Rules:

If you meet with a franchisor (or a representative of the franchisor) at a sales or other meeting held to discuss the sale or possible sale of the franchise, the franchisor or the franchisor's representative must give you a complete copy of their UFOC. If you do not have a face-to-face meeting with the franchisor (everything is done by mail, for example) they are still required to give you a complete copy of their UFOC at least 10 business days before any contract is signed or any money changes hands (the 10-day Rule). And you must be given a separate contract, with all blanks or negotiated parts completed (except signatures) at least five business days before any contract is signed or any money changes hands (the 5-day Rule).

Variable Costs:
Any costs that vary with the level of production. For example, materials directly used to produce a product are variable costs. The more product produced, the more materials needed to produce the product.
Variable Rate:
A transaction with an interest rate that may fluctuate. The rate is often tied to an index that reflects changes in market rates of interest. A fluctuation in the rate causes changes in the payment amount. Limits (cap rate) are placed on the degree to which the interest rate can increase. See also, Floating Rate.

Venture Capitalist:
A person who invests in a business venture, providing capital for start-up or expansion. Venture capitalists are looking for a higher rate of return than would be given by more traditional investments.

Vertical and Horizontal Competition:
Applicable principally to price fixing or tying arrangements. Vertical connection deals with a buyer-seller relationship, as in franchisor-franchisee. As in Tying, Horizontal restraints of trade in franchising usually are concerned with potential price fixing arrangements among a group of franchisees (sometimes including company owned outlets) in a defined and homogeneous geographical area. Also in franchising, horizontal competitors are those offering a franchise or franchise product similar in price, whereas vertical competitors are similar in product or service but not in price. Price fixing is illegal at any level of an organization.

A portion of the franchise contract which states that even if the franchise owner, or the franchise company, violate several contractual obligations, the entire contract is not necessarily void or invalid.

Warranty Deed:
A deed that warrants that the grantor has title as claimed. It purports to convey property free and clear of all encumbrances, except those noted.

WBE: An acronym for Women Owned Business: (WBE):
A US terminology, used world over to demonstrate franchises that are owned by women entrepreneurs. A WBE goes through a strict certification process to ensure that the business is truly owned and controlled by a woman. 51% ownership and control is normally demonstrated as proof of being a WBE. The advantages to certification include certain federal government contract advantages and potential low interest loans and other schemes made for women entrepreneurs.

Working Capital:
A major cause of business failure is not having enough cash in the bank, trade credit, borrowing capacity or cash flow to meet start-up expenses and see the business through any unusual dips and changes in its daily activity. Initially funds are needed to pay first and last months rent, utility deposits, licenses and any number of incidental costs. As it takes time to build up a new business the first months are usually loss months, which need to be financed.

Working Capital Definition:
Cash available for daily business operations. Current assets - current liabilities = working capital.

Working Capital Loan :
Amount that would be required to operate the business comfortably during the gestation or until the cash break even period.

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