Glossary

Acknowledgement of Receipt
The final page of an Offering Circular, which once signed, provides proof of the date that you received the UFOC.

Agreement
The franchise "contract."

Arbitration
A dispute mediating process in which each side selects their representative, in addition to the participation of a chosen third (impartial) individual.

Area Development Rights
Your entitlement to open several franchise locations in a specified area.

Assignment /Fees
The monthly fees paid to the franchise company in order to support corporate marketing and advertising. This fee is typically a percentage of your gross revenues.

Broker
An intermediary who manages a sale and purchase. Brokers can represent either sellers or buyers. Different brokers can represent both a seller and a buyer.

Business Plan
A plan that provides the objectives of a business and the steps necessary to achieve those objectives.

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

Default
A failure to perform in the manner as required by a contract.

Designated Supplier
Approved, chosen suppliers of products and services - all of whom meet the requirements of a particular franchise company.

Disclosure Document
Also referred to as an "Offering Circular," this is the FTC-required background and contractual information presented to you by franchise companies.

Earnings Claims
Claims made by the franchisor regarding the past performance of franchisees or to the potential financial performance of a franchisee. If given, they must be disclosed in item 19 of the UFOC.

Exclusive Territory
The "territory" offered to you by a franchise company, which prevents the franchisor from establishing any other location within your designated area.

Federal Trade Commission (FTC)
The federal agency, based in Washington, D.C., regulating a variety of trade practices, including the franchise industry.

Franchise
A privilege or right officially granted you to offer specific products or services under explicit guidelines at a certain location for a declared period of time.

Franchise Disclosure Document (FDD)
Also referred to as the "Disclosure Document" and "Franchise Disclosure Document," this document provides background information from over 20 different categories as well as a copy of the proposed franchise agreement.

Franchise Fee
The amount of money you pay to the franchisor to acquire the franchise. This gives you the limited rights to their proprietary information. Generally, the fee reimburses the franchisor for the costs of initial training and support for new franchisees.

Franchisee
A person or entity to whom the right to conduct a business is granted by the franchisor or licensor.

Franchisor
The company owning/controlling the rights to grant franchises to potential franchisees.

FTC Rule 436
Passed in 1979, this law regulates the franchise industry by setting forth "disclosure" requirements and prohibiting franchisors from making untrue earnings claims.

Gross Sales
Revenue generated before any expenses are deducted. It is the sum of all money generated prior to deducting wages, product cost, taxes, interest, etc. Typically the amount royalty from which payments are calculated.

Industry
The category of business to which a specific franchise belongs; an all-encompassing area of business that incorporates several different sectors.

Initial/Ongoing Training
The initial and all subsequent training offered to franchisees in the operations of a specific business.

Initial Investment
Typically considered the initial cash investment required for you to begin a franchise. This can include the franchise fee and other "startup" expenses you may sustain, but may not be reflective of your total investment.

Master Region or Master Franchise
A significantly large territory obtained by a franchisee with the objective of subdividing and reselling individual franchise locations.

Net Worth
Total assets, once you’ve subtracted your total liabilities.

Non-Compete Clause
Some franchise agreements exclude you from competing in any way with the franchised company upon termination, non-renewal or other sale or transfer.

Offering Circular
Also referred to as the "Disclosure Document" and "Uniform Franchise Offering Circular (UFOC)," this document provides background information from over 20 different categories as well as a copy of the proposed franchise agreement.

Operations Manual
Generally consists of several volumes, it contains all pertinent information regarding the operation of a distinct franchise.

Personal Guarantee
Usually the owner(s) of a corporation cannot be held personally responsible for a corporation’s debt. If a loan requires a personal guaranty it means that the lender is asking the owner to personally guarantee the debt should the corporation default.

Pro Forma
A balance sheet, profit and loss or cash flow statement that estimates income and expense sources. Assets, liabilities and net worth are forecast on the balance sheet. Pro forma statements issued by the franchisor to the franchisee should be based on actual operating results of the franchisor’s units or franchise establishments.

Public Figure Involvement
The nature of the agreement between a well-known public figure and a franchisor must be disclosed, when regarding the endorsement of a franchised product/service.

Renewal
When pertaining to the context of a franchise relationship, it refers to your signing a new franchise agreement once the prior agreement expires.

Royalty
A royalty refers to a percentage of gross sales that you pay to the franchisor monthly.

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