- Listed below are the terms that we need to be familiarized when considering buying a franchise. It’s good to be familiarized with these words to better understand the business model and the documents you’ll be reading when going to sign a franchise contract.
- Franchisor – is the one who owns the overall rights and trademarks of the company and the one who gives the permit ion to its franchisees to use the rights and trademarks to do business. The franchisor charges the franchisee an upfront payment called ‘franchise fee’ for the rights to do business under the franchise name. In most cases, the franchisor also collects royalty fee from the franchisee.
- Franchisee – An individual that is granted a franchise, as to market a company’s goods or services in a certain local area.
- Franchise Fee – Is the cost of entry when purchasing a franchise business. This fee is primarily paid upfront to the franchisor by the franchisees for the use of the rights and trademarks of the business and is used by the franchisor to fund the initial support required by new franchisees.
- Franchise Agreement – is a legally binding agreement which outlines the franchisor’s terms and conditions for the franchisee. The franchise agreement also clearly outlines the obligations of the franchisor and the obligations of the franchisee. The franchise agreement is signed at the time an individual has made the final decision to buy the franchise.
- Trademark – is a distinctive sign or indicator used by an individual, business organization, or other legal entity to identify that the products or services to consumers with which the trademark appears originate from a unique source, and to distinguish its products or services from those of other entities. A trademark is usually a name, word, phrase, logo, symbol, design, image, or a combination of these elements.
- Royalty Fee – Is a set amount of money that a business franchise owner has to pay to be part of a franchise system. Usually, the fee is calculated as a percentage of gross or net sales and it is paid weekly, monthly or quarterly. The cost cover the privilege of using the franchise’s brand and the money is usually used to help out the franchisor (or parent company of the franchise) offset administrative and support functions.