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Franchise 101: The terms

A glossary of franchising terms
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Are you looking for a franchise brand to buy? It pays to know as much as you can when opening a new business. Here are the terms commonly used in the industry:


Business format franchising

 A method of business expansion whereby a business owner or manager allows someone to market products or services under his name and trademark and in strict adherence to a system he prescribes


Individual franchise

A franchise awarded to an individual, group of individuals, or a company for one business unit to be operated in one location or one geographically defined area


 Multi-unit or area development franchise

 A franchise awarded to a group, individual or company for a territory for which more than one unit will be established and operated by the franchisee



A franchise awarded to an individual, group or company for a territory in which several individual franchises will be sold, usually by the sub-franchisor and usually operated under the sub-franchisor’s administration and supervision



Conversion franchises

Franchisees converted from independents or small chains in the franchisor’s line of business.(The franchisor offers a franchise to an entity already operating a business similar to that of the franchisor. Conversion franchisees are typically granted a smaller franchise fee to compensate them for the goodwill already established within their local market.)


Franchise agreement

The document that explicitly describes the entire extent of the relationship of the franchisor with his franchisee, outlining the terms and considerations by which the franchisor will allow the franchisee to use his trademark, and sell his products and services


Turnkey package

A method of selling to individual franchisees whereby the franchisor acquires the property and signs the lease, constructs theunit, purchases and installs the equipment and even supplies the inventory. The franchisee, in essence, buys himself a job, paying a monthly percentage of his volume, to cover unit rent and lease payments



Start-up franchises The franchisor grants an individual or entity the right to operate a single franchise. At its option, the franchisor may later grant this individual the right to operate additional franchises, but such an agreement is not made prior to selling the first franchised location


Franchise business plan

The plan that contains all the recommendations of the franchise consultant that can provide the key franchise business decisions, assumptions and financial projections needed to set short and long term goals From




A method of doing business by which a franchise is granted the right to engage in the business of offering, selling or distributing goods and services under a marketing plan or system prescribed in substantial part by a franchisor and which is substantially associated with the franchisor’s trademark, name, logo and advertising



The parent company or owner of a franchise concept or system that grants, for a fee and other considerations, the right to use its name and system of business operations



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