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Franchise Terminology

Business Plan:  A business plan is a formal written document containing business goals, the methods on how these goals can be attained, and the time frame within which these goals need to be achieved. It also describes the nature of the business, background information on the organization, the organization’s financial projections, and the strategies it intends to implement to achieve the stated targets

Consultation Process:  Gathering the necessary information to determine what the clients capabilities are and which business models will be a good match for him or her. The first objective is to understand who they are (e.g. past skills, what type of lifestyle they desire, and their overall goals). The ultimate goal of any reputable franchise business is not to “sell” a franchise to just anyone willing and able to buy their brand, but to “award” a franchise to candidates that are highly qualified and will thrive in the operation of their business model.

CQ: (Confidential Questionnaire) A questionnaire filled out by the prospective business owner listing personal and financial information in order to best match the client to the appropriate franchise. 

Discovery Day:  Most franchisors have a Discovery Day where they invite prospective franchise partners to visit a specific franchise location and see how the franchise is run. You will not only get crucial information to assist in making your decision, but will get to meet the staff that will be supporting you in the operation of your franchise business.

FDD: (Franchise Disclosure Document) A franchise disclosure document is a legal document which is presented to prospective buyers of franchises in the pre-sale disclosure process in the United States.  The Franchise Rule gives prospective purchasers of franchises the material information they need in order to weigh the risks and benefits of such an investment. The Rule requires franchisors to provide all potential franchisees with a disclosure document containing 23 specific items of information about the offered franchise, its officers, and other franchisees.  

See more information here:  https://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/franchise-rule

Franchise Consultant:  During the entire process a franchise consultant manages your expectations and provides you with objective information that the Franchisor would not. The role of a Consultant doesn’t stop once the franchise is selected. At that point, he or she works as a guide to answer any questions that you may have during the franchise discovery and research process and give advice when appropriate. Your consultant can also help the process along by introducing you to lawyers and lenders using IFPG’s Vendor Directory.

Franchising:  A franchise is a type of license that a party (franchisee) acquires to allow them to have access to a business’s (franchisor) proprietary knowledge, processes, and trademarks in order to allow the party to sell a product or provide a service under the business’s name. In exchange for gaining the franchise, the franchisee usually pays the franchisor an initial start-up and annual licensing fees.  (Royalties).

IFA:  International Franchise Association

Risk (Business):  The term business risk refers to the possibility of a commercial business making inadequate profits (or even losses) due to uncertainties – for example: changes in tastes, changing preferences of consumersstrikes, increased competition, changes in government policy. 

Royalties:  The periodic charge that the owner of a franchised business needs to pay to remain part of the franchise system that provides the branding, advertising and administrative support.  The royalty fee for a franchise is typically some percent of either the overall sales or net sales of the business.  The payment is weekly or monthly. 

SBA:  Small Business Association

Validation Call:  The step in which the candidate calls and speaks to other franchise owners of the brand they are considering buying to ask questions and get a better understanding of what they have experienced in their franchise.