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20 Most Common Franchising Terms You Need to Know

20 Most Common Franchising Terms You Need to Know

Are you looking for a list with the most common franchising terms you need to know?

At Jack in the Box, we don’t want our new franchisees to be overwhelmed by industry jargon and acronyms you’ve never heard of.

In this article, we’ll go over twenty of the most popular franchising terms and what they mean to your business.

What Is Franchising?

Franchising is a unique business model where a franchisor grants a franchisee the right to use its trademark, trade name, and business system in exchange for a franchise fee and ongoing royalties.

There are many different terms associated with franchising, and it’s important to understand them before you get involved in owning and operating this type of business.

Most Popular Franchising Terms

As you begin your franchising journey, you’ll likely come across some words, acronyms, and phrases you may not be familiar with.

Here are some of the most popular franchising terms you’ll hear as you get involved in the industry.

  • Franchisor: The person or company that owns the franchise business system and grants the franchisee the license to use it.
  • Franchisee: The person or company that buys the right to use the franchisor's business system.
  • Development Agreement: When a franchisee signs up for multiple stores, a development agreement is signed to layout the terms and schedule of development for their locations. As the locations get closer to opening, a franchise agreement is issued for each location, so the franchisee gets a full term.
  • Development Schedule: The development schedule outlines the opening dates for each of the locations found within the development agreement or franchise agreement.
  • Franchise Agreement: The legal contract between the franchisor and franchisee that outlines the terms of their relationship.
  • Term of Agreement: The length of time for which the franchise agreement is in effect.
  • Franchise Disclosure Document (FDD): A document required by the FTC that provides detailed information about the franchisor and the franchise opportunity including fees, estimated initial investment, average unit volume (AUV), training provided by the franchisor, and other important information.
  • Franchise Fee: A one-time fee for each location that the franchisee pays to the franchisor for the right to use the franchise business system.
  • Royalties: A recurring fee that the franchisee pays to the franchisor for the ongoing use of the franchise business system(s).
  • Territory: The geographic area in which the franchisee has the exclusive right to operate the franchise business.
  • Market Points: Instead of assigning territories, some brands will use “market points” to identify areas that fit their criteria. Then, you’ll be assigned an assigned radius around this market point and have the exclusive rights to develop a new unit in this area.
  • Estimated Initial Investment: The estimated amount of money that the franchisee needs to invest in the franchise business, including the franchise fee, royalties, and other start-up costs.
  • Average Unit Volume: Average unit volume (AUV) is derived from the total sales of company-owned or franchised stores divided by the number of company-owned or franchised units.
  • Transferability: The ability of the franchisee to sell or transfer the franchise business to another person.
  • Renewal: The process of extending the term of the franchise agreement.
  • Site Requirements: Each brand will have a set of demographic and site requirements they look for when identifying new trade areas. These could include land size, building size, population, employment, household income, traffic counts, and more.
  • Ingress/Egress: The ingress of a building is the way people enter the building, while the egress is the way people leave the building. The ingress and egress of a building are important considerations for safety and security.
  • Item 19: This section of the FDD is the financial performance representation a brand provides and is updated each year. Some brands may choose not to share this information in their Item 19.
  • Item 23 (Acknowledgement of Receipt): To move forward with the selling of a franchise, potential franchisees must sign the acknowledgement of receipt (AOR) which is found in Item 23 of the Franchise Disclosure Document. This acknowledgment shows when the franchisee signed and received the FDD which is an important step in the sales process. Once the AOR is signed and dated this begins the required FTC 14-day waiting period.
  • Non-Disclosure Agreement: A non-disclosure agreement (NDA) is a legally binding contract that establishes a confidential relationship. Some brands may ask for an NDA is they plan to share confidential information with you in the sales process.

These are just a few of the most common terms in franchising. It’s important for you to do your research and learn as much as you can about this business model before you get involved.

Always be sure to read the FDD associated with the brand you’re interested in carefully. This document contains a goldmine of information about the franchisor and franchise opportunity.

Check Out These Additional Resources

We hope this article gave you a better understanding of the most common franchising terms you need to be aware of.

At Jack in the Box, we work with our franchisees every step of the way to get their restaurants up and running.

Here are some additional online resources you may like to check out:

If you have any questions, please contact our franchise sales and support team.

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