Don't let technical terminology and industry slang slow you down. Find out what commonly used franchise and business phrases mean.
Area developer: Individual or company holding the right to establish a chain of franchised outlets within a defined area. This is often linked to a development plan that determines how many units must be set up within a certain period.
Business format franchise: Comprehensive blueprint offered by the franchisor, entitling the franchisee to receive access to a brand as well as initial and ongoing support.
Business plan: A document used to project the development of a business into the future. Within the context of franchising, the franchisor will develop a business plan for the franchise operation known as a franchise plan. The franchisor will also help prospective franchisees to prepare a business plan for the unit under consideration.
Capital expenditure (CAPEX): The investment required to set up a business and its infrastructure.
Confidentiality agreement: Also known as a secrecy agreement, this is a formal legal document designed to protect the franchisor against misuse of confidential information by individuals holding themselves out to be prospective franchisees.
Consumer Protection Act (CPA): Legislation that impacts the franchise relationship.
Conversion franchise: Established businesses in the same industry sector convert to a franchised network’s brand and operating systems.
Disclosure document: Contains highly confidential information pertaining to a franchise offer. In terms of the FASA Code of Ethics, such a document must be given to qualified prospects before a franchise agreement can be signed. A cooling-off period of 14 days needs to be observed.
FASA: Franchise Association of South Africa.
Field service consultant (FSC): an individual employed by the franchisor to visit franchisees and provide ongoing on-site support as well as troubleshooting services.
Fractional franchise: a franchised unit that operates under the roof of another business that may or may not be a franchise. An example would be a car wash located within the precinct of a petrol station.
Franchise: see Business format franchise.
Franchise agreement: the legal document that governs the relationship between franchisor and franchisee. It is usually a standard document and not negotiable.
Franchise Association of South Africa: widely known as FASA, industry body established since 1979 that represents the interests of the franchise industry. Membership is voluntary.
Franchise manager: individual employed by the franchisor to manage the franchise operation.
Franchise plan: see Business plan.
Franchisee: owner of a business that operates under a formal business format franchise arrangement. Franchisees are obliged to conduct the business in accordance to guidelines issued by the franchisor.
Franchisee Representative Committee (FRC): committee consisting of democratically elected representatives of the franchisees of a network to represent franchisees’ interests.
Franchiser: a term used occasionally instead of franchisor, notably in the United States. However, franchisor is the universally accepted term and is preferred.
Franchisor: grantor of a franchise. Owns the intellectual property package that constitutes the franchise and is compelled to provide initial and ongoing support to franchisees.
FRC: see Franchisee Representative Committee.
FSC: Field Service Consultant.
Get-up: Description of the appearance of a store, also known as the trading style of a network.
Initial fee: Lump sum payable by the franchisee to the franchisor at the beginning of the franchise relationship. It pays for access to the network, use of trademarks, access to expertise and initial support.
Intellectual property: The intangibles owned by the franchisor including trademarks, registered names, patents, designs, colour schemes and copyrighted materials.
Licence agreement: Legal agreement granting rights to specified intellectual property for a specified period. For example, the licence to use the franchisors name, trademarks and business know-how forms part of every franchise agreement.
Management services fee: Ongoing fee franchisees are compelled to pay to the franchisor. Usually calculated as a percentage of franchisees’ sales, payable weekly or monthly in arrears. Calling it a royalty is misleading and should be avoided.
Marketing fee: Paid by franchisees into the networks Marketing services fund).
Marketing services fund: Administered by the franchisor, usually in cooperation with franchisees. It pays for product advertising and is funded by franchisees and company-owned stores.
Master licence agreement: Formal legal agreement used to grant a company or an individual the right to a master franchise covering an entire country or continent. It would include the right to sell franchises in this country and the master licensee effectively becomes the franchisor in the target country.
Multiple unit franchisee: Operates more than one unit of the same franchise. Frequently used to create a bigger footprint and discourage opposition from establishing itself in an area.
Mystery shopper: Individual hired to visit stores pretending to be customers and provide formal feedback.
Network-wide purchase arrangements: Initiated by the franchisor to secure bulk purchase benefits for all members of the network.
Operations and procedures manual: A comprehensive collection of instructions issued by the franchisor for franchisees to follow. It is a highly confidential document known as the “bible of the network”.
Regional master franchisee: Acquires the right to establish, within a specified region or area, own unit(s) as well as the right to sub-franchise to others.
Restraint of trade: Places restrictions on franchisee and sometimes franchisee’s key staff, should they wish to compete with the franchisor and other members of the network. Must be specific in terms of time and area covered.
Royalty: Fee payable in return for the use of intellectual property, be it a musical or literary work, a trademark, a protected name or a process. Sometimes used in place of the term management services fee but this is wrong and can have unintended consequences.
Satellite franchise: Additional unit operated by an existing franchisee in close proximity and designed to offer a limited range of services to the immediate neighbourhood.
Secrecy agreement: Formal undertaking not to use confidential information in any way other than it was intended to be used and/or to divulge it to unauthorised third parties.
Territorial rights: A franchisee’s right to an exclusive (or non-exclusive) area. This could be a province, a town, part of a town or merely a street address. Such arrangements are generally frowned upon by the Competition Commission and may, therefore, not be enforceable.
Total investment: This is the sum total of the initial fee (or upfront fee), the required capital expenditure and the necessary working capital needed to set up the franchised business.
Trading style: Everything pertaining to the image that the business wishes to convey including store design, fittings, furnishings, logos and colour schemes.
Working capital: The amount of money an entrepreneur needs to finance ongoing operating expenses.
Name Position Abigail Makhubele Business Development Manager - Consumer Services, Quick Service
Restaurants & Restaurants
firstname.lastname@example.org James Noble Business Development Manager: Fuel email@example.com Thamsanqa Letsoalo Business Development Manager: Automotive Sector Thamsanqa.Letsoalo@absa.africa Lesego Mpakanyane Business Development Manager: Wholesale & Retail Lesego.Mpakanyane@absa.africa