As you begin to venture into the franchise business, you will want to know the termsand
that goes with it. Best way to become an educated buyer is to know thelanguage first. The following list of terms will greatly benefit you.
Acknowledgement of Receipt:
A document provided to you by the franchisor thatyou sign and return to the franchisor. It confirms that you received the legalfranchise documents on a certain date.
A fee or fund paid by franchisees, usually to the franchisor,for advertising expenditures. The fund may be used locally, regionally or nationally. Afranchisor may have more than one fund. This fee is usually a percentage of thefranchisee's annual sales and is in addition to royalty fees.
A method of resolving disputes that is an alternative to going to court.Many franchise agreements require that disputes between the franchisor and thefranchisee be resolved by arbitration. The American Arbitration Association is oftenidentified as the organization that will provide the arbitrator (a neutral, disinterestedthird party). The arbitrator hears from both sides and renders a ruling.
Area Development Rights:
The rights one obtains by which you receive the rightto develop or sell multiple franchise rights for the franchisor in a specific geographicarea. Normally, the area development agreement will provide a build out schedulethat details how many locations are to be opened within a given period of time.
A final payment due at the end of a loan.
A critical document that details your company's management, plansand strategy and details the resources, financial and otherwise, that are needed tosucceed. Used for your own planning and required by lenders and investors toevaluate your business. You usually can't get a loan without one.
Assets used as security for a loan in the event of default.
A site or location owned and operated directly by the franchisor.
DBA stands for "doing business as." You can organize your corporate entityunder one name but be known to the public under a different name. Thus, you are"doing business as …" You usually must fill out appropriate forms to register yourbusiness name with the states in which you do business.
Failure to live up to obligations or otherwise comply with the terms of alegal agreement.
To ensure quality standards are met, some franchisorsrequire that franchisees buy supplies or products for their franchised business onlyfrom a designated, exclusive list of suppliers.
A distribution method for a company's products by which abusiness, the distributor, is authorized under the terms of the Distributor Agreement,