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Glossary HelP gUiDe | KEY tErms

Disclosure Document: this document provides information about a franchise system, the franchisor and the franchised business. It must be supplied to a prospective franchisee, in accordance with the Franchising Code of Conduct. Due diligence: a thorough examination of the franchise business before purchase. Franchise: a business model with four criteria: a franchise agreement, a trademark or symbol, payment of a fee, and a system or marketing plan. A franchise business falls under the jurisdiction of the Franchising Code of Conduct and franchisors have certain obligations to fulfil. Franchise agreement: the business contract between the franchisor and franchisee. Franchisee: an individual who runs the franchised business using the intellectual property of the franchisor. Franchise fee: this is an up-front cost paid to the franchisor and covers the use of the brand name and operating system required to operate the business. Franchisor: grants permission to the franchisee to conduct business using its intellectual property; brand name, methods of operation and marketing. Franchise term: this is the period granted for trading under the franchise agreement. Most franchise terms are on a renewable three or five year term but they can vary from one year to perpetuity. Greenfield site: a brand new site.

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License: the right to use intellectual property in business, such as sales rights in a territory, manufacturing technology or access to a trademark. A license is not the same as a franchise. Local area marketing: [LAM] this is marketing the franchisee is responsible for conducting in the franchise territory or designated marketing area. Marketing and advertising levy: a regular flat or percentage based fee paid into a centralised advertising or marketing fund. Master franchisee: a franchisee who is responsible for a large territory, appointing other franchisees within the territory with direct agreements, and ensuring that the franchisor’s systems and methods are applied. Multi-unit franchisee: a franchisee granted the rights to operate more than one franchise outlet. Not every franchise system allows for franchisees to be multiple operators. Operations manual: the franchisee’s guide to operating the franchise business. The franchisor may produce several manuals for different areas of the business, and should regularly update the information. Regional franchisee: similar to master franchisees, regional franchisees operate a large territory and appoints franchisees within the area. Renewal: once a franchise term nears its end, franchisees may or may not be given a right to renew their agreement for a further term. This process is bound by the Franchising Code of Conduct and there is no automatic right of renewal.

Royalty: fee paid by the franchisee to the franchisor for the ongoing use of the brand and systems, management and technical support. It may be a flat fee or a percentage of sales or profit. Termination: the ending of the franchise contract between franchisee and franchisor, usually for breach of contract. Some franchise agreements allow the franchisor to terminate the agreement even if the franchisee has not breached the agreement. The Franchising Code of Conduct: a mandatory Code that governs franchising in Australia and is designed to guide the behaviour of franchisors and provide certain protections to franchisees. It is administered through the Australian Competition and Consumer Commission (ACCC). Total investment: the total amount of money a franchisee requires to set up in business. This includes the franchise fee, working capital and any equipment purchases required. Turnkey franchise: a franchise package that includes all the equipment, information and systems required for a franchisee to open up the business and start trading. Working capital: the funds required by any business to pay its costs before it starts making a profit, and as ongoing cash flow to counter any dips in business activity.

Franchising Magazine May / June 2013  

What should you look for in a franchise? Find out nine key elements to consider before you purchase in the latest issue of Franchising magaz...