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5 Franchise Terms You Should Know

The world of franchising is chock-full of industry-related terms, and that can be a little intimidating at first. However, once you learn the meaning behind these magic words, you'll feel much more comfortable and confident going forward. Check out the following five terms every franchisee should know to get ahead in the game.

Area Franchise

Do you want to open more than one location of the same franchise? In order to do that, you need an area franchise agreement, which marks your territory and includes the location opening timelines. You might have to pay more in exchange for the rights you're getting from the franchiser under this kind of agreement.

Feasibility Study

A feasibility study is exactly what it sounds like: an assessment of whether your franchise will make it in a given location or market. While it's not a guarantee, this type of study can help you pinpoint problems and advantages that might not have occurred to you.

Franchise Disclosure Document

The franchise disclosure document is one of the most important things you'll see during your search. Required by the Federal Trade Commission, an FDD will include the franchiser's history, the cost and fees that come with getting your business, your obligations, and other information you need to know about the business.

Royalty Fee

You will pay a one-time, flat franchisee fee when you first enter the business, but the royalty fee is ongoing on top of this. Royalty fees vary by franchiser and can be a flat fee or a sales percentage. Depending on your agreement, you might pay by the week, month or year.

Master Franchise

Very large chains struggle to manage franchises at the national level, so these brands use master franchisers to supervise geographic regions. A master franchiser handles all of the functions that the parent franchiser would, but because it is being done at a local level, franchisees receive better support and interaction.

When you're researching franchise opportunities, remember that behind most big words are simple concepts. If you're not sure about a term you've come across, all you need to do is a little bit of web detective work to uncover the meaning.