Advertising Levy – According to Franchise Alliance, the Franchise Agreement may provide for the contribution to an Advertising Fund by each Franchisee. Such funds are normally retained in a separate account and applied only to matters related to advertising. It is not uncommon for Franchisees, through their council, to assist the Franchisor in decisions on how this fund is applied. See "Franchise Advisory Council". The Advertising Levy may be a fixed fee or, more normally, a percentage of Franchisee turnover.
Administration Levy - See "Service Fee."
Arbitration – The franchise consultancy states that the Franchise Agreement must provide for arbitration between the parties to the Agreement. Arbitration is a form of dispute resolution in the event of a disagreement between the Franchisee and the Franchisor, and is normally chaired by a nominated individual or body, as determined under the ‘Franchising Code of Conduct’.
Assignment - The sale of a franchise by one Franchisee (assignor) to another (assignee) is called an assignment. The Franchisor will normally retain the rights to interview and accept any proposed buyer and may also retain the rights of buying the franchise back himself. The vendor Franchisee has the right to set the value of the franchise. It is normal for an assignment fee to be paid to the Franchisor, who will utilise those funds to train and induct the new Franchisee.
Bank Finance Package – According to Franchise Alliance, a loan scheme by banks to provide the Franchisee with some of the finance required to buy the franchise. Often restricted to a maximum of two thirds of the total investment. Some banks have off-the-shelf packages for specific franchise opportunities, which they have previously evaluated and know. This is not a warranty by the bank, simply an acknowledgment that they have detailed information in-house about the business.
Business Format Franchise – The franchise consultancy states that a franchise in which the Franchisor provides the Franchisee with a complete format (blueprint) for the setting up and operation of the business, hence the name. Otherwise known as a Business System Franchise.
Buy-out Clause - The Franchise Agreement may include a clause giving the Franchisee the option to buy himself out of the franchise and continue to trade at the same site and in the same style of business, but as a totally independent owner. Such a clause is uncommon in Australian practice.
Company Owned Units – Franchise Alliance says that units of the franchise which are owned by the Franchisor and operate alongside the Franchisees within the group. Such company owned units are normally obliged to contribute to group expenses such as advertising and marketing. Such units allow the Franchisor the ability to pilot new ideas and products without detriment to the operation of a particular franchise owned business.
Disenfranchise – Franchise Alliance states that the withdrawal of the franchise by the Franchisor from the Franchisee. This is likely to occur when there have been persistent breaches of the Franchise Agreement by the Franchisee and such breaches have not been rectified.
Dispute Resolution – According to the franchise consultancy, a mechanism for Franchisors and Franchisees to deal with disagreements. A requirement under the ‘Franchising Code of Conduct’.
Fixed Service Fee – According to Franchise Alliance, the Franchisor may choose to obtain his continuing income from the Franchisee through a fixed-amount monthly or weekly payment, or through a service fee calculated as a percentage of turnover, but carrying a minimum payment amount. Such arrangements are seen by their critics as a form of setting performance targets, which some would find unacceptable. The argument is that the Franchisee-Franchisor relationship is a partnership where both parties share the risks and rewards of success and failure. It is not uncommon to find a fixed service fee where the franchise business income is by way of small cash payments, which in itself would prove difficult for the Franchisor to audit or monitor.
Franchisee Advisory Council – The franchise consultants states that the Franchise Agreement may provide for the formation of a Franchise Advisory Council with Franchisees assuming the role of assisting the Franchisor with marketing or advertising decisions. Such Agreements may allow for the annual election of Franchisees to this Council.
Franchise Agreement – The board of franchise consultants agree that the contract entered into by the parties to the franchise in which all the obligations and responsibilities of each party should be clearly defined. Normally, such contracts are forty pages or more in length and it is of vital importance that any party consult with a legal adviser prior to signing an Agreement. The Franchise Agreement is normally signed on the day of settlement, from which time the Franchisee owns the rights.
Franchise Fee – Franchise Alliance states that the up-front payment by the Franchisee to the Franchisor for the granting of the franchise rights. This fee is paid upon the settlement of the franchise to the Franchisee, once the Franchise Agreement is signed. The Australian average Franchise Fee in 1998 was $25,000.
Franchisee – The franchise consultant agree that the person, partnership, or company who buys the rights to a franchise from the Franchisor. Also sometimes referred to as a Licensee, or franchise owner. Although Franchisees are normally individuals, they are, in some instances, major public companies. Where a company or trust enters into a Franchise Agreement, the Franchisor would normally ask the individuals behind it to also guarantee the performance of the corporate Franchisee.
Franchisor – According to the franchise consultancy, the franchising company which sells franchises in its system to Franchisees. The creator of a business format franchise system. A Franchisor should prove the success of his concept and his ability to pass his operating system to others by running company owned or pilot franchised operations before generally offering the franchise to the public.
Franchise Council of Australia Ltd - The Franchise Council of Australia Ltd (FCA) is a single organisation comprising of Franchisors, Franchisees, and advisors, with "State Chapters" meeting regularly in each State of Australia. The FCA has been established since 1982 and has produced a growing range of publications on the various aspects of franchising, as well as coordinating exhibitions and conventions, according to Franchise Alliance.
Goodwill - The value of goodwill in a business is normally only applied once a business is operational. It is calculated on the value of trade already established and which is likely to continue to the benefit of the new business owner, according to Franchise Alliance .
Intellectual Property Rights – Franchise Alliance states that trade marks, service marks, know-how and copyright. These often form an important component of the franchise system.
Lease Franchise – Franchise Alliance states that the Franchisor leases the premises to the Franchisee at a rental, based on turnover, which also covers the Management Services Fee. This is close to approaching a landlord/tenant arrangement and may present problems in Western Australia because of that State's particular Retail Tenancy Act.
Licensee - See Franchisee or Master Licensee.
There is more information available if you would like to know more about buying a franchise and running a franchise.
27-Jun-2006