Glossary of key terms used in franchising from DC Strategy

DC Strategy are specialist franchise consultants and specialist franchise solicitors and within this article provide information on some of the key terms used in franchising.

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 (see page 130 for a checklist).

Franchise agreement: the business contract between the franchisor and franchisee.

Franchisee: an individual who runs an independent 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.

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.

Franchisor: grants permission to the franchisee to conduct business using its intellectual property, brand name, methods of operation and marketing.

Greenfield site: a brand new site.

Local area marketing: 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.

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.

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).

This article appears courtesy of Franchising Magazine