Franchisors: What They Are and How to Become One

You’ve been running a successful business for years now. The growth has been great, but maybe you’ve just hit a wall and it seems like you can’t quite scale the way you used to. You’ve been looking for new ways to expand, and you ran across the idea of being a franchisor. But how does that work, exactly?

We’ll cover what a franchisor is, how you can become one, and some of the advantages that come with this path.

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  • Franchise Glossary

    Acknowledgement of Receipt: A document signed by a prospective franchisee confirming they have received the Franchise Disclosure Document.

    Advertising Fee: A fee paid by the franchisee for marketing and advertising efforts managed by the franchisor.

    Area Developer: An individual or entity that obtains the rights to open multiple franchises in a specific area.

    Area Franchise: A franchise agreement granting the right to operate in a particular geographic area.

    Area Representative: A person or entity appointed to manage and support franchises within a specified area.

    Broker: A professional who assists in buying and selling franchises, acting as an intermediary between franchisees and franchisors.

    Business Format Franchising: A type of franchising where the franchisee not only sells the franchisor’s products or services but also follows the franchisor’s business model.

    Business Plan: A detailed plan outlining how a franchise will be developed, including financial projections and marketing strategies.

    Copyright: Legal protection for original works of authorship, ensuring exclusive rights to reproduce, distribute, and perform the work.

    Disclosure Document: A document provided by the franchisor to potential franchisees detailing key information about the franchise.

    Encroachment: When a new franchise or company-owned store is established too close to an existing franchise, potentially impacting its sales.

    Exclusive Territory: An area where the franchisor agrees not to open another franchise or operate competing units.

    Feasibility Study: An analysis conducted to assess the viability and potential success of a proposed franchise location or concept.

    Field Representative: An employee of the franchisor who provides operational support and guidance to franchisees.

    Footprint: The physical space required for a franchise, including size and layout specifications.

    Franchise: A system where a franchisor licenses its trade name, business model, and rights to sell its branded products or services to a franchisee.

    Franchise Agreement: A legal contract between a franchisor and franchisee outlining the terms of the franchise relationship.

    Franchise Attorney: A lawyer specializing in franchise law, often assisting in creating franchise agreements and resolving disputes.

    Franchise Board: A group of individuals, typically within a franchisor’s organization, responsible for making key decisions about franchise operations.

    Franchise Cost: The total financial investment required to start and operate a franchise, including fees and operational expenses.

    Franchise Fee: An upfront cost paid by the franchisee to the franchisor for the right to open and operate a franchise.

    Franchise Owner: An individual or entity that purchases the rights to operate a business under a franchisor’s brand and system.

    Franchise Profit: The financial gain realized by a franchisee after all expenses and fees associated with operating the franchise are paid.

    Franchise Sale: The process of selling franchise rights to a prospective franchisee.

    Franchise Tax: A tax levied on businesses for the privilege of being organized or doing business in a particular state.

    Franchisee: An individual or entity that purchases the right to operate a business under a franchisor’s system and brand.

    Franchisor: The company that owns the overall rights and trademarks of the franchise and grants licenses to franchisees.

    Initial Investment: The total amount required to start a franchise, including franchise fees, equipment, inventory, and other startup costs.

    International Franchise Association (IFA): A major trade association representing the global franchising community.

    Licensing: Granting permission to use intellectual property such as a trademark, often a part of franchise agreements.

    Location: The physical place where a franchise is situated, crucial for its accessibility and potential success.

    Marketing Plan: A strategy developed by either the franchisor or the franchisee for promoting the franchise’s products or services.

    Master Franchisee: An entity that acquires the rights to sub-franchise and support the franchisor’s brand in a specific territory.

    Multi-Unit Developer: An individual or entity that owns and operates multiple franchise units, often in different locations.

    Non-competition Clause: A part of the franchise agreement that restricts the franchisee from engaging in similar business activities outside the franchise.

    Operations Manual: A comprehensive guide provided by the franchisor to the franchisee, detailing how to operate the franchise.

    Protected Territory: An area where the franchisee is assured exclusivity, preventing other franchisees or the franchisor from operating within that region.

    Royalty Fee: An ongoing fee paid by the franchisee to the franchisor, typically based on a percentage of the franchise’s sales revenue.

    Single-unit Franchisee: An individual or entity that operates only one franchise unit.

    Site Selection: The process of choosing a location for a new franchise, often involving demographic and market analysis.

    Trademark: A symbol, word, or phrase legally registered or established by use as representing a company or product.

    Approved Site: A location that has been reviewed and approved by the franchisor for a new franchise operation.