If you’re interested in acquiring a franchise or at least exploring your options, you’ll be best served by learning the most important industry terms:
- Franchisee: A person (or couple) who purchases the right to operate a business under the franchisor’s brand name and system.
- Franchisor: The company that allows individuals to open and operate a business using its trademarks, products and processes, most often for a fee.
- Trademark: This is the brand name and logo that identify a franchise operation that’s licensed to the franchisee. It offers franchise owners the potential for brand recognition that few independent operations can hope to match.
- Franchise fee: The upfront fee paid to a franchisor to become a franchisee as described in Item 5 of the Franchise Disclosure Document (FDD). For some franchise networks, the fee is flat and the same for all; for others, the fee can vary depending on experience, territory size or other factors. Many franchisors offer discounts on franchise fees for minorities or veterans, or for existing franchisees seeking to acquire another one.
- Startup cost: The initial investment required to open a franchise as outlined in Item 7 of the FDD. This investment typically includes the franchise fee as well as other costs such as business licenses, equipment, real estate, supplies, and working capital.
- Royalty fee: Most franchising networks require franchisees to pay a weekly, monthly or yearly fee. Often it’s based on a percentage of sales but in other instances, it’s a flat fee.
- Advertising fee: Required by some franchisors, this is a contribution paid by the franchisee into the franchise network’s fund for national or regional advertising campaigns. This could be a flat fee or a percentage of franchise sales typically paid on a monthly basis.
- Franchise agreement: This written contract is included in the FDD. It outlines the responsibilities of both the franchisor and the franchisee.
- Term of agreement: Usually ranging from five to 20 years, this is the length of time a franchise agreement is valid. You can sell your franchise during this term. Provided you are a franchisee in good standing at the end of this term, most franchise networks will let you renew your agreement for a percentage of the current franchise fee.
- Exclusive territory: A designated geographic area in which a franchisee has the sole right to operate without competition from other franchisees in that same area.
- Company-owned units: Branded in the franchise name, these are locations that are owned and operated by the parent company (i.e., the franchisor) rather than a franchisee.
- Conversion: Some franchisors offer owners an opportunity to convert their independent business into a franchise for the advantages of operating under the franchise brand and benefiting from the network’s support programs.
- In-house financing: Financing provided by the franchisor to franchisees to assist with expenses. These might include day-to-day expenses and extend to the initial franchise fee, startup costs, equipment and inventory.
- Third-party financing: Financing offered by a source other than the franchise network. Many franchisors are registered with the SBA or maintain long-standing relationships with banks in order to expedite the loan process for entrepreneurs seeking to acquire a franchise.
- Absentee ownership: An option offered by some franchisors that allows a person or an investor group to purchase a franchise location without being actively involved in its day-to-day operations Other franchisors may require active owners.
- Master franchisor: A franchisee who serves as a sub-franchisor for a defined territory. In exchange for a percentage of the territory’s royalties, master franchisors can issue FDDs, recruit new franchisees and provide logistical and other support.
- Franchise broker: Also called a business broker, this is a salesperson who receives a fee from a franchisee or the franchisor if they help sell the franchise business to another party, most often at the time of retirement.
Two other terms that are good to know!
One is our Allegra MatchMaker® Program. Unique to franchising, we help entrepreneurs enter the industry by purchasing an existing independent printing business or related company (such as a direct mail firm) and converting it to an Allegra Center through this time-tested program.
Another is our Allegra Advantage Program?. Designed for independent printers, this proven program lets you access the many benefits of the Allegra Network by transitioning your business to our brand.