Read Defining Key Franchise Terminology – Part I.
Franchisor:
The person or company that owns the right to manage/sell franchises.
FTC Rule: A federal regulation that requires franchisors to prepare an extensive disclosure document called The Uniform Franchise Offering Circular (UFOC) and to give a copy to any prospective franchise purchaser before he or she buys a franchise.
Initial Investment: The upfront cash investment required to purchase and start a franchise business. Your total investment can vary depending on several factors.
Master Franchisee: A separate class of franchisees responsible for developing additional franchise locations within a designated geographic territory.
Master Region: A specific geographic region purchased by a franchisee with the intent to divide and sell additional franchises.
Net Cash Flow: Shows how much cash is generated by the business after expenses, interest, and principal repayment on financing are paid.
Net Worth: Total assets after liabilities.
Non-Compete Clause: Restrictions on competing with the franchised company during or upon termination of a franchise agreement.
Operations Manual: Provided by the franchisor to the franchisee, contains all training, reference and business specifications required to operate the franchise business.
Pro Forma: Complete projected financial picture of the franchisor including: balance sheet, profit and loss statement, assets, liabilities, net worth and/or cash flow statement.
Registration: Many states require franchisors to file documentation before a franchise can be sold.
Renewal: The mechanism used to continue the term of the franchise agreement once it has expired.
Royalty: A percentage of gross sales that you pay to the franchisor monthly.
Spread: Difference between cost of funds and lending rate.
Total Investment: This may include the Initial Investment plus any required inventory, advertising or equipment purchases.
UFOC (Disclosure Document or Uniform Franchise Offering Circular): Provides background information in over 20 categories, as well as a copy of the proposed franchise agreement.
Working Capital: The amount of liquid assets you are required to have and maintain to operate the franchise.
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