Franchising 101Franchising 101

This presentation is intended solely to inform and educate entrepreneursabout franchising -- the process, benefits, drawbacks and available resources.Only the individual entrepreneur can determine if franchising is right for him.

Gary Wofford, Franchise Consultant/Advisor

Your Guide to a Range of OpportunitiesYour Guide to a Range of Opportunities

 

FFranchising is a method of distributing goods or ranchising is a method of distributing goods or services to consumers. The franchise system owns services to consumers. The franchise system owns the right to the trademark of the business. The the right to the trademark of the business. The franchisee purchases the right to use the trademark franchisee purchases the right to use the trademark and operating system.and operating system.  

MMost people associate the word “franchise” with ost people associate the word “franchise” with fast food restaurants. But, there are many more fast food restaurants. But, there are many more types of franchise businesses, including everything types of franchise businesses, including everything from advertising to automobile repair, printing from advertising to automobile repair, printing services to party supplies and many more.services to party supplies and many more.

What is Franchising?What is Franchising?

Categories of FranchisesCategories of Franchises

FitnessFitness Florist ShopsFlorist Shops Food/RestaurantsFood/Restaurants Golf Products/ServicesGolf Products/Services Greeting CardsGreeting Cards Hair Salons & ServicesHair Salons & Services Health Aids & ServicesHealth Aids & Services Home FurnishingsHome Furnishings Home InspectionHome Inspection Hotels and MotelsHotels and Motels InsuranceInsurance Janitorial ServicesJanitorial Services JewelryJewelry Laundry & Dry CleaningLaundry & Dry Cleaning Lawn/Garden/AgricultureLawn/Garden/Agriculture Maid & Personal ServicesMaid & Personal Services MaintenanceMaintenance Marine ServicesMarine Services Optical Aids & ServicesOptical Aids & Services

Packaging/Ship/Mail Packaging/Ship/Mail Painting ServicesPainting Services Paralegal ServicesParalegal Services Payroll ServicesPayroll Services Pest Control ServicesPest Control Services Pet Sales/Supplies Pet Sales/Supplies PhotographyPhotography Printing/Copying Printing/Copying Real Estate ServicesReal Estate Services Recreational ServicesRecreational Services Rental Equipment & SuppliesRental Equipment & Supplies Retail StoresRetail Stores Security SystemsSecurity Systems Senior CareSenior Care Sign Products & ServicesSign Products & Services Tanning CentersTanning Centers TelecommunicationsTelecommunications Transportation ServicesTransportation Services Travel AgentsTravel Agents Vitamin & Mineral StoresVitamin & Mineral Stores Weight ControlWeight Control

Accounting/Tax ServicesAccounting/Tax Services Advertising/Direct MailAdvertising/Direct Mail Auto & Truck RentalsAuto & Truck Rentals Automotive Products/ServicesAutomotive Products/Services Batteries-Retail & Comm.Batteries-Retail & Comm. Beverages: SpecialBeverages: Special Business BrokersBusiness Brokers Business/Mgmt ConsultantsBusiness/Mgmt Consultants CampgroundsCampgrounds Check Cashing/Financial ServicesCheck Cashing/Financial Services Children’s ServicesChildren’s Services Clothing and ShoesClothing and Shoes Computer/Electronics/InternetComputer/Electronics/Internet Construction MaterialsConstruction Materials Consumer Buying ServicesConsumer Buying Services Convenience StoresConvenience Stores CosmeticsCosmetics Dating ServicesDating Services Drug StoresDrug Stores Educational Products/ServicesEducational Products/Services Employment ServicesEmployment Services

Well KnownWell KnownFranchise NamesFranchise Names

McDonald’sMcDonald’s SubwaySubway CurvesCurves AlphagraphicsAlphagraphics 7-Eleven, Inc.7-Eleven, Inc. Barbizon School of ModelingBarbizon School of Modeling Baskin RobbinsBaskin Robbins Big O TiresBig O Tires BlockbusterBlockbuster Century 21 Real EstateCentury 21 Real Estate Courtyard by MarriottCourtyard by Marriott Dairy QueenDairy Queen Dale CarnegieDale Carnegie Dunkin’ DonutsDunkin’ Donuts Kentucky Fried ChickenKentucky Fried Chicken FuddruckersFuddruckers

Gold’s GymGold’s Gym Great Clip’sGreat Clip’s H& R BlockH& R Block IHOP – International House of PancakesIHOP – International House of Pancakes Jenny CraigJenny Craig Kwik CopyKwik Copy MAACOMAACO Molly MaidMolly Maid New Horizon’s Computer LearningNew Horizon’s Computer Learning Once Upon A ChildOnce Upon A Child Papa John’s PizzaPapa John’s Pizza Radio ShackRadio Shack Seattle’s Best CoffeeSeattle’s Best Coffee Taco BellTaco Bell Wild Bird Centers of AmericaWild Bird Centers of America

““Frantrepreneur”Frantrepreneur”

(fran*tre*pre*neur) (fran*tre*pre*neur) n.n.

  One possessing the desire to be a business One possessing the desire to be a business owner -- without the desire to recreate the owner -- without the desire to recreate the wheel -- by following a proven system for the wheel -- by following a proven system for the benefit of personal and professional goals.benefit of personal and professional goals.

What is a Franchisee?What is a Franchisee?

The The Frantrepreneur Frantrepreneur MentalityMentality

““I’m in I’m in business business forfor

myself, but not myself, but not byby myself”. myself”.

““I have the opportunity to I have the opportunity to learn from the success and learn from the success and

failure of others.”failure of others.”

““I want a ‘bottled’ process for success I want a ‘bottled’ process for success that I can use in developing my own that I can use in developing my own

successful business.”successful business.”

"Why would I spend years and the investment "Why would I spend years and the investment required to establish a successful brand when I required to establish a successful brand when I

could buy a franchise which provides immediate could buy a franchise which provides immediate access to a successful business system and a brand access to a successful business system and a brand

name which others already have made name which others already have made successful?"successful?"

““Why would I work Why would I work for someone else for someone else

when I can work for when I can work for myself and reap the myself and reap the

rewards of my rewards of my efforts?"efforts?"

SCOPE:SCOPE:

• Single Unit FranchiseSingle Unit Franchise• Multiple UnitsMultiple Units• Master FranchiseMaster Franchise• Area DeveloperArea Developer

Franchise OptionsFranchise Options

TYPE:TYPE:

• Traditional retailTraditional retail• Mobile products/servicesMobile products/services• Work from homeWork from home

OWNERSHIP:OWNERSHIP:

• Hands-onHands-on• PassivePassive• Part-time/full-timePart-time/full-time

PRODUCT/SERVICE:PRODUCT/SERVICE:• 75 categories - an endless 75 categories - an endless

array of possibilitiesarray of possibilities• Something to match anyone’s Something to match anyone’s

background, skills and background, skills and interestsinterests

Franchise StatisticsFranchise Statistics

Franchise businesses account for about 50% of all retail sales in the United Franchise businesses account for about 50% of all retail sales in the United States. States.

1 out of every 10 business is a franchised business. 1 out of every 10 business is a franchised business.

A new franchised business is opened every 8 minutes of every business day.A new franchised business is opened every 8 minutes of every business day.

Franchise businesses employ more than 18 million Americans.Franchise businesses employ more than 18 million Americans.

There are an estimated 2,000 franchise companies operating in the U.S. There are an estimated 2,000 franchise companies operating in the U.S. doing business through more than 400,000 locations.doing business through more than 400,000 locations.

More than 75 industries use franchising to distribute goods and services to More than 75 industries use franchising to distribute goods and services to consumers.consumers.

A 2009 study by The United States Chamber of Commerce found that 86% A 2009 study by The United States Chamber of Commerce found that 86% of franchises opened within the last five years were still under the same of franchises opened within the last five years were still under the same ownership and 97% of them were still open for business.ownership and 97% of them were still open for business.

Franchise Statistics Franchise Statistics (continued)(continued)

A U.S. department of commerce study conducted from 1971 to 2009 A U.S. department of commerce study conducted from 1971 to 2009 showed that during that time less than 5% franchise businesses were showed that during that time less than 5% franchise businesses were closed each year. Compare that to a U.S. Small Business closed each year. Compare that to a U.S. Small Business Administration study conducted from 1978 to 2009, which found that Administration study conducted from 1978 to 2009, which found that 62% of non-franchised businesses closed within the first 6 years of 62% of non-franchised businesses closed within the first 6 years of their existence due to failure, bankruptcy, etc. their existence due to failure, bankruptcy, etc.

Total sales by franchised businesses are projected to reach $2 trillion, Total sales by franchised businesses are projected to reach $2 trillion, this year. this year.

In 2009, the median gross annual income, before taxes, of franchisees In 2009, the median gross annual income, before taxes, of franchisees was in the $86,200 to $142,600 range, with over 30% of franchisees was in the $86,200 to $142,600 range, with over 30% of franchisees earning over $170,000 per year.earning over $170,000 per year.

Franchise Success RateFranchise Success Rate

Franchises have a 90%Franchises have a 90%+ success rate. Most + success rate. Most people can’t even people can’t even predict that they can predict that they can keep their jobs with a keep their jobs with a 90% certainty.90% certainty.

Advantages of Buying Advantages of Buying a Franchisea Franchise

Franchisor business practices are tightly regulated by the federal governmentFranchisor business practices are tightly regulated by the federal government

Franchisors have a vested interest in Franchisors have a vested interest in youryour success. success.

The value of a branded franchise business is significantly more than an independent The value of a branded franchise business is significantly more than an independent business. business.

The marketplace has already been checked out by the franchisor and determined the The marketplace has already been checked out by the franchisor and determined the system to be successful.system to be successful.

The franchisor utilizes collective buying power and passes on the discounts to you.The franchisor utilizes collective buying power and passes on the discounts to you.

Local and national advertising for the franchise operation as a whole is supplied by the Local and national advertising for the franchise operation as a whole is supplied by the franchisor. franchisor.

Supervision, training programs and consulting are readily available from the franchisor. Supervision, training programs and consulting are readily available from the franchisor.

Managerial, operational and accounting systems are in place to facilitate your success.Managerial, operational and accounting systems are in place to facilitate your success.

Ongoing research and product development is provided by the franchisor.Ongoing research and product development is provided by the franchisor.

Disadvantages of Buying Disadvantages of Buying

a Franchisea Franchise

You have to pay the ongoing royalties to use the proven systems. You have to pay the ongoing royalties to use the proven systems.

The contract with the franchisor must be renewed after a certain period The contract with the franchisor must be renewed after a certain period of time (typically after 10 years). of time (typically after 10 years).

There is limited flexibility because business methods are dictated by There is limited flexibility because business methods are dictated by the franchisor.the franchisor.

You may be forced to buy products supplied by the franchisor rather You may be forced to buy products supplied by the franchisor rather than the most cost effective product available.than the most cost effective product available.

You don’t get to make all of the decisions in how to run your business.You don’t get to make all of the decisions in how to run your business.

Questions To Ask Questions To Ask YourselfYourself

How much capital do you have to invest?How much capital do you have to invest?

How much liquid assets do you have?How much liquid assets do you have?

Do you require a specific level of annual income? Do you require a specific level of annual income?

Are you interested in pursuing a particular field? Are you interested in pursuing a particular field?

Are you interested in retail sales or performing a service? Are you interested in retail sales or performing a service?

Do you want a part-time or full-time opportunity?Do you want a part-time or full-time opportunity?

How many hours are you willing to work?How many hours are you willing to work?

Does your family support your desire to own your own business?Does your family support your desire to own your own business?

Questions To Ask Questions To Ask Yourself Yourself (continued)(continued)

Do you want to operate the business yourself or hire a manager? Do you want to operate the business yourself or hire a manager?

Do you want to have employees?Do you want to have employees?

Do you want to have inventories?Do you want to have inventories?

Do you want to have Accounts Receivables?Do you want to have Accounts Receivables?

Will franchise ownership be your primary source of income or will it Will franchise ownership be your primary source of income or will it supplement your current income? supplement your current income?

Would you be happy operating the business for the next 20 years? Would you be happy operating the business for the next 20 years?

Would you like to own several outlets or only one? Would you like to own several outlets or only one?

Questions to Ask Questions to Ask a Franchisora Franchisor

Determine what assistance the franchisor provides. Do they assist with training, Determine what assistance the franchisor provides. Do they assist with training, store design, location construction, site selection, and feasibility studies?store design, location construction, site selection, and feasibility studies?

Do they have any access to demographic studies to get an understanding of the Do they have any access to demographic studies to get an understanding of the audience within the market area? audience within the market area?

What types of support will the franchisor provide once your franchise has What types of support will the franchisor provide once your franchise has opened its doors? opened its doors?

After the initial investment, will there be additional financial obligations After the initial investment, will there be additional financial obligations requiring working capital?requiring working capital?

Does the franchisor offer any form of financing? Does the franchisor offer any form of financing?

Ask the franchiser how many franchises have been sold in the state you will be Ask the franchiser how many franchises have been sold in the state you will be operating in during the last 12 months, and how many have been opened for operating in during the last 12 months, and how many have been opened for business?business?

Questions to Ask Questions to Ask a Franchisor a Franchisor (continued)(continued)

What types of territorial restrictions and protections have been set up by the What types of territorial restrictions and protections have been set up by the franchisor? franchisor?

Is the franchisor planning on expanding within your state? Are they focusing on Is the franchisor planning on expanding within your state? Are they focusing on any specific locations? any specific locations?

What arrangements are established through the franchisor in terms of product What arrangements are established through the franchisor in terms of product supply? supply?

Ask if the franchisor has been forced to terminate any of its franchisees and Ask if the franchisor has been forced to terminate any of its franchisees and detail the reasons for this decision. Have any franchisees failed or gone detail the reasons for this decision. Have any franchisees failed or gone bankrupt? bankrupt?

Are there any current lawsuits pending or past judgments against the franchisor? Are there any current lawsuits pending or past judgments against the franchisor? What steps are taken to settle disputes between the franchisor and franchisees?What steps are taken to settle disputes between the franchisor and franchisees?

Is there a Franchisee Association or Advisory Board in place?Is there a Franchisee Association or Advisory Board in place?

Questions to Ask Questions to Ask FranchiseesFranchisees

How long have you owned your franchise?How long have you owned your franchise? Is your franchise profitable?Is your franchise profitable? In which month did you reach your breakeven point?In which month did you reach your breakeven point? Have you made approximately the same profit that was forecast in the Have you made approximately the same profit that was forecast in the

disclosure document?disclosure document? Were your opening costs consistent with the original projections in the Were your opening costs consistent with the original projections in the

disclosure document?disclosure document? Are you satisfied with the franchisor?Are you satisfied with the franchisor? Are you satisfied with the product or service?Are you satisfied with the product or service? Is the operations manual, clear, up-to-date and adequate?Is the operations manual, clear, up-to-date and adequate? Are you satisfied with the marketing and promotional assistance provided Are you satisfied with the marketing and promotional assistance provided

by the franchisor?by the franchisor? If you had it to do all over; would you purchase this franchise?If you had it to do all over; would you purchase this franchise?

Questions to Ask Questions to Ask FranchiseesFranchisees (continued) (continued)

Was the initial training and ongoing support sufficient for you to operate Was the initial training and ongoing support sufficient for you to operate your business?your business?

What was your background prior to buying your franchise and was it What was your background prior to buying your franchise and was it beneficial to your success?beneficial to your success?

Are deliveries of goods provided by the franchisor timely and competitively Are deliveries of goods provided by the franchisor timely and competitively priced?priced?

Is the franchisor fair and amicable to work with?Is the franchisor fair and amicable to work with? Does the franchisor listen and help you with your concerns?Does the franchisor listen and help you with your concerns? Have you or other franchisees had any disputes with the franchisor? What Have you or other franchisees had any disputes with the franchisor? What

was their nature? Were they resolved fairly?was their nature? Were they resolved fairly? Do you know of any disputes between the franchisor and the government?Do you know of any disputes between the franchisor and the government? Do you know of any disputes with competitors?Do you know of any disputes with competitors? Who are the major competitors?Who are the major competitors?

Common Mistakes of Common Mistakes of Prospective FranchiseesProspective Franchisees

Not reading, understanding or asking questions about the FDD, franchise Not reading, understanding or asking questions about the FDD, franchise agreement and other legal documentsagreement and other legal documents

Not understanding the responsibilities of the franchisee and the obligations of Not understanding the responsibilities of the franchisee and the obligations of the franchisorthe franchisor

Not seeking sound franchise, legal and financial advisorsNot seeking sound franchise, legal and financial advisors

Not verifying oral representations of the franchisor, representatives or brokersNot verifying oral representations of the franchisor, representatives or brokers

Not contacting enough current franchiseesNot contacting enough current franchisees

Not contacting closed, sold or changed franchisees and confirming reasonsNot contacting closed, sold or changed franchisees and confirming reasons

Not having enough working capitalNot having enough working capital

Not recognizing the need for financingNot recognizing the need for financing

Common Mistakes of Common Mistakes of Prospective FranchiseesProspective Franchisees(continued)(continued)

Not knowing how to make a proper loan requestNot knowing how to make a proper loan request

Not developing true and accurate budgets/forecasts and financial Not developing true and accurate budgets/forecasts and financial statementsstatements

Not meeting the franchisor’s key management and support personnelNot meeting the franchisor’s key management and support personnel

Not analyzing your market in advanceNot analyzing your market in advance

Not developing your marketing strategy Not developing your marketing strategy

Not determining dollar amounts necessary to implement marketing strategy Not determining dollar amounts necessary to implement marketing strategy including advertising and promotional programsincluding advertising and promotional programs

Not choosing the right locationNot choosing the right location

Not analyzing the competitionNot analyzing the competition

Established versus Established versus New FranchisorsNew Franchisors

Established Franchisors offer:Established Franchisors offer: Name RecognitionName Recognition More regional and national advertisingMore regional and national advertising Experienced managementExperienced management Better chance of competing with competitors in a price or advertising warBetter chance of competing with competitors in a price or advertising war More refined training and supportMore refined training and support Better purchasing power with established price discountsBetter purchasing power with established price discounts More likely to have franchise financing availableMore likely to have franchise financing available More established and efficient working prototype or company-owned storesMore established and efficient working prototype or company-owned stores Improved assistance from existing qualified franchise owners through Improved assistance from existing qualified franchise owners through

advisor councilsadvisor councils

Should You Use Should You Use a Consultant?a Consultant?

A Franchise Consultant...A Franchise Consultant... will take the time to educate you on the franchise industrywill take the time to educate you on the franchise industry

will help you define your qualifications so that you don’t waste your will help you define your qualifications so that you don’t waste your energies and time on franchises that are not right for you or that you are not energies and time on franchises that are not right for you or that you are not qualified forqualified for

can provide you valuable insight on franchises that you won’t find on your can provide you valuable insight on franchises that you won’t find on your own own

will help you present your qualifications to a Franchisorwill help you present your qualifications to a Franchisor

are paid by the Franchisors, but they recognize that this only happens if they are paid by the Franchisors, but they recognize that this only happens if they provide you excellent service provide you excellent service andand present to you the right opportunities present to you the right opportunities

will take an unbiased approach to helping you achieve your goalswill take an unbiased approach to helping you achieve your goals

1.1. Description of the franchisor, its Description of the franchisor, its predecessors and affiliates.predecessors and affiliates.

2.2. Business experience.Business experience.

3.3. Litigation history.Litigation history.

4.4. Bankruptcy history.Bankruptcy history.

5.5. Initial franchise fee and additional costs.Initial franchise fee and additional costs.

6.6. Other fees.Other fees.

7.7. Requirements to purchase or lease from Requirements to purchase or lease from designated sources.designated sources.

8.8. Requirements to purchase from approved Requirements to purchase from approved suppliers.suppliers.

9.9. Franchisee’s Obligations.Franchisee’s Obligations.

10.10. Financing.Financing.

11.11. Franchisor’s Obligations.Franchisor’s Obligations.

12.12. Territory.Territory.

Pre-Sale Disclosure Pre-Sale Disclosure OrOr FDD FDD (Franchise Disclosure Document)(Franchise Disclosure Document)

13.13. Trademarks, service marks and trade names.Trademarks, service marks and trade names.

14.14. Patents and copyrights and Proprietary Patents and copyrights and Proprietary Information.Information.

15.15. Franchisee requirement to operate the business.Franchisee requirement to operate the business.

16.16. Restrictions on sale of goods and services.Restrictions on sale of goods and services.

17.17. Renewal, termination or transfer of the franchise.Renewal, termination or transfer of the franchise.

18.18. Endorsements by public figures.Endorsements by public figures.

19.19. Earnings claims (optional).Earnings claims (optional).

20.20. Names, addresses, and telephone numbers of Names, addresses, and telephone numbers of current and former franchisees.current and former franchisees.

21.21. Financial statements.Financial statements.

22.22. Copies of the franchise agreement and other Copies of the franchise agreement and other contracts and agreementscontracts and agreements..

23.23. Receipt of FDD.Receipt of FDD.

•There are 23 items to the FDD – this is an important, if not the most important, part of There are 23 items to the FDD – this is an important, if not the most important, part of your validation process of the franchise company.your validation process of the franchise company.

Common Elements Common Elements of a Franchise Agreementof a Franchise Agreement

•Grant of FranchiseGrant of Franchise

•Term of Franchise*Term of Franchise*

•Name of FranchiseName of Franchise

•Location of FranchiseLocation of Franchise

•Obligations of FranchiseObligations of Franchise

•Initial franchise feeInitial franchise fee

•Franchise service fees; Franchise service fees; reporting and auditsreporting and audits

•Advertising fundAdvertising fund

•Training assistanceTraining assistance

•Remedies for breach and methods Remedies for breach and methods of enforcement of the agreementof enforcement of the agreement

•Attorney FeesAttorney Fees

•AmendmentAmendment

•WaiverWaiver

•ApprovalsApprovals

•Construction and venueConstruction and venue

•SeverabilitySeverability

•Binding to successorsBinding to successors

•Exclusive propertyExclusive property

•While there are as many franchise agreements as franchisors, the above represents several While there are as many franchise agreements as franchisors, the above represents several common elements fundamental to most agreements. The few that vary from franchisor to common elements fundamental to most agreements. The few that vary from franchisor to

franchisor are identified with an asterisk (*).franchisor are identified with an asterisk (*).

•Operation of the business formatOperation of the business format

•Representations by franchisorRepresentations by franchisor

•Representations by the franchiseeRepresentations by the franchisee

•Relationships of the partiesRelationships of the parties

•Renewal and renewal fee*Renewal and renewal fee*

•AssignmentAssignment

•Termination*Termination*

•Procedures after terminationProcedures after termination

Directories & BooksDirectories & Books

Franchising for Dummies – Dave Thomas & Michael SeidFranchising for Dummies – Dave Thomas & Michael Seid

Tips & Traps When Buying a Franchise – Mary TomzackTips & Traps When Buying a Franchise – Mary Tomzack

Guide to Negotiating a Business Lease – Keith J. KanouseGuide to Negotiating a Business Lease – Keith J. Kanouse

The Franchise Opportunity GuideThe Franchise Opportunity Guide

Bond’s Franchise GuideBond’s Franchise Guide

Street Smart Franchising – Joe Matthews, Don DeBolt & Street Smart Franchising – Joe Matthews, Don DeBolt & Deb PercivalDeb Percival

The Franchise HandbookThe Franchise Handbook

AssociationsAssociations

International Franchise AssociationInternational Franchise Association

American Association of Franchisees and DealersAmerican Association of Franchisees and Dealers

American Franchisee AssociationAmerican Franchisee Association

Canadian Franchise AssociationCanadian Franchise Association

Common TermsCommon Terms

•Acknowledgement Of ReceiptAcknowledgement Of Receipt: The last page of an Franchise Disclosure Document, signed to indicate you received the : The last page of an Franchise Disclosure Document, signed to indicate you received the documents on a certain date.documents on a certain date.

• Advertising FeeAdvertising Fee: An annual fee paid by the franchisee to the franchisor for corporate advertising expenditures; It is often less : An annual fee paid by the franchisee to the franchisor for corporate advertising expenditures; It is often less then three percent of the franchisee's annual sales and typically paid in addition to the royalty fee.then three percent of the franchisee's annual sales and typically paid in addition to the royalty fee.

• Capital RequiredCapital Required: The amount of cash you are required to have available.: The amount of cash you are required to have available.

• Earnings ClaimsEarnings Claims: Representations made by franchise companies that their franchisees have achieved specific levels of sales or : Representations made by franchise companies that their franchisees have achieved specific levels of sales or profitability.profitability.

• Exclusive TerritoryExclusive Territory: The "territory" granted to you by a franchise company, which restricts the franchisor from establishing : The "territory" granted to you by a franchise company, which restricts the franchisor from establishing any other location within your area.any other location within your area.

• Federal Trade CommissionFederal Trade Commission (FTC): The federal agency in Washington, DC that regulates various trade practices including the (FTC): The federal agency in Washington, DC that regulates various trade practices including the franchise industry.franchise industry.

• Franchise AgreementFranchise Agreement: An official document that sets forth the expectations and requirements of the franchisor. It describes the : An official document that sets forth the expectations and requirements of the franchisor. It describes the franchisor's commitment to the franchisee, and includes information about territorial rights of the franchisee, location franchisor's commitment to the franchisee, and includes information about territorial rights of the franchisee, location requirements, training schedule, fees, general obligations of the franchisee, and general obligations of the franchisor.requirements, training schedule, fees, general obligations of the franchisee, and general obligations of the franchisor.

• FranchiseeFranchisee: The owner of one or more franchises.: The owner of one or more franchises.

• Franchise FeeFranchise Fee: The initial fee you pay to a franchiser to acquire a franchise.: The initial fee you pay to a franchiser to acquire a franchise.

• FranchisingFranchising: Neither an industry nor a business, but a method of doing business within a given industry. At least two parties : Neither an industry nor a business, but a method of doing business within a given industry. At least two parties are involved in franchising: the franchiser and the franchisee.are involved in franchising: the franchiser and the franchisee.

• FranchisorFranchisor: The person or company that owns or controls the right to grant franchises for a specific "brand".: The person or company that owns or controls the right to grant franchises for a specific "brand".

• FTC Rule 436FTC Rule 436: The law passed in 1979 that regulates the franchise industry. It set forth "disclosure" requirements and : The law passed in 1979 that regulates the franchise industry. It set forth "disclosure" requirements and prohibited franchisors from making earnings claims.prohibited franchisors from making earnings claims.

• Initial InvestmentInitial Investment: Generally, the initial cash investment required of you to buy and open a franchise. This can include the : Generally, the initial cash investment required of you to buy and open a franchise. This can include the franchise fee and other initial start-up costs and expenses you may incur, but may not be reflective of your total investment.franchise fee and other initial start-up costs and expenses you may incur, but may not be reflective of your total investment.

• Liquid CapitalLiquid Capital: Also known as, liquid assets, quick assets, and realizable assets. Assets held in cash or in something that can : Also known as, liquid assets, quick assets, and realizable assets. Assets held in cash or in something that can be readily turned into cash.be readily turned into cash.

• Master FranchiseeMaster Franchisee: Describes an individual or company owning the exclusive rights to develop a particular territory for the : Describes an individual or company owning the exclusive rights to develop a particular territory for the franchising company.franchising company.

• Net WorthNet Worth: Total assets, once you've subtracted your total liabilities.: Total assets, once you've subtracted your total liabilities.

• Non-Compete ClauseNon-Compete Clause: Upon termination, non-renewal, or other sale or transfer, some franchise agreements prohibit you : Upon termination, non-renewal, or other sale or transfer, some franchise agreements prohibit you from competing in any way with the franchised company.from competing in any way with the franchised company.

• OfferOffer: An oral or written proposal to sell a franchise to a prospective franchisee upon understood general terms and : An oral or written proposal to sell a franchise to a prospective franchisee upon understood general terms and conditions.conditions.

Common Terms Common Terms (continued)(continued)

• Protected TerritoryProtected Territory: A designated area or geographic boundary granted to the franchisee by the terms of a franchise : A designated area or geographic boundary granted to the franchisee by the terms of a franchise agreement. The franchisor promises not to open another franchised or company-owned business of a similar nature within the agreement. The franchisor promises not to open another franchised or company-owned business of a similar nature within the franchisee's protected territory.franchisee's protected territory.

• Qualification QuestionnaireQualification Questionnaire: A document prepared by the franchisor to be completed by the prospective franchisee, which : A document prepared by the franchisor to be completed by the prospective franchisee, which provides initial information to the franchisor in order to assist in determining whether or not the prospect is capable and provides initial information to the franchisor in order to assist in determining whether or not the prospect is capable and motivated enough to own a franchise. Often a financial statement is included in the questionnaire format.motivated enough to own a franchise. Often a financial statement is included in the questionnaire format.

• RegistrationRegistration: A requirement in several states that specific information be submitted and approved by state regulatory : A requirement in several states that specific information be submitted and approved by state regulatory authorities before franchises may be offered in that state. It is quite extensive in the information required and may ask for: a authorities before franchises may be offered in that state. It is quite extensive in the information required and may ask for: a bond, fingerprints and picturesbond, fingerprints and pictures

• Start Up CostsStart Up Costs: The required amount of money the franchisor will request that a new franchisee have to invest in the new : The required amount of money the franchisor will request that a new franchisee have to invest in the new franchise unit in its earliest stages of development.franchise unit in its earliest stages of development.

• Total InvestmentTotal Investment: The amount of money estimated for complete set up of a franchisee's business, including the initial : The amount of money estimated for complete set up of a franchisee's business, including the initial investment, the working capital, and any additions to inventory and equipment deemed necessary for a fully operational and investment, the working capital, and any additions to inventory and equipment deemed necessary for a fully operational and profitable business.profitable business.

• FDDFDD - Franchise Disclosure Document: Provides background information in over 20 categories as well as a copy of the - Franchise Disclosure Document: Provides background information in over 20 categories as well as a copy of the proposed franchise agreement. Also know as, the “Circular”, “Offering Circular” and “Disclosure Document”.proposed franchise agreement. Also know as, the “Circular”, “Offering Circular” and “Disclosure Document”.

Common Terms Common Terms (continued)(continued)

““If you don’t follow your dreams, you’ll be If you don’t follow your dreams, you’ll be working for someone who did.”working for someone who did.”

-anonymous-anonymous

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